Fresh Takes

Election 2021 – Canada’s Mounting Debt Problem

Canada’s public debt has soared during the pandemic, reaching historic levels of over $1.2 trillion at the federal level—equivalent to more than $70,000 per taxpayer. The deficit has been widening for several years, even in times of economic growth. In fact, federal net debt has doubled in a decade.

In the context of the federal election, we would like to bring the attention of the parties to two points in particular that result from this issue.

First, the out-of-control increase in debt is an issue of intergenerational equity. To pay down today’s debt, governments must increase the burden on taxpayers in the future. Therefore, an intergenerational equity issue could be alleviated, for example, with a plan to return to a balanced budget.

Second, when the government adds greatly to the tax burden by spending on certain projects like Trans Mountain and taking on unreasonable debt, the private sector is crowded out. Not only is the government taking over projects that could have been handled by the private sector, thus forcing taxpayers to incur risks instead of shareholders, but it is also automatically increasing loanable funds market interest rates by increasing demand for loanable funds. This discourages investors because borrowing becomes more costly, which leads to diminishing returns on private investments. Accordingly, for a number of years, Canada has had the worst rate among OECD countries of private corporate investment in proportion to total investment.

The political parties must prepare clear proposals to get public debt under control while implementing policies that will contribute to stimulating private investment and getting us out of the unfavourable situation in which we currently find ourselves.

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