Saturday, November 17, 2012

Canadian National Debt Growing Faster Than GDP

Canada's debt is growing faster than our ability to pay for it.

Since 2008 Canadian public debt has been growing faster than our GDP. Though there are many warning signs of economic trouble, there is no clearer caution of a potential crisis than when a country's government is increasing its debt faster than its GDP.

This year the International Monetary Fund predicts Canada's net debt (liabilities minus assets) will grow by 11.8%, gross debt will increase by 5.8% but nominal Gross Domestic Product will only grow by 3.2% (Real GDP will increase even less). As seen in the below graph, the last time our debt was growing faster than our GDP Canada was in the debt crisis of the early 90s.

Canada's debt outpacing GDP would not be a pressing problem if it was not so high already. The International Monetary Fund (IMF) reports that in 2012 Canada will have a gross Debt-to-GDP ratio of 88%. With continued deficits it won't be long until that ratio exceeds 100%, a level which the IMF classifies as high and that hasn't been seen in Canada since the height of the crisis in 1995.

This government may ignore or lessen the growing threat from our national debt, they may continue to manipulate numbers by only citing the smaller calculation of net debt (liabilities minus assets), but they cannot ignore that our debt, by any measure, is growing faster than our ability to pay for it.

Some may defend this government by suggesting our worsening economic situation is caused by external factors, a response to such a view would be that our worsening economy is caused by our government doing nothing in light of external factors; for there are many possible policies that would reduce our debt that this government is ignoring.

Not only would  increasing the GST by 2% decrease the national debt by $14 billion a year, but it would go a long way to decreasing record levels of personal debt by reducing the incentive for reckless spending. Limiting Old Age Security for only seniors who need it, those that make less than $50,000 a year, would also save the government more than $4 billion a year.

But maybe this government is doing nothing because it is waiting for our economy to grow us out of this mess, and that would work if this mess wasn't growing faster than our economy.


Dan Aldham said...

Sorry, you don't seem to be able to read your own graph. The Net debt, the Gross debt and the Nominal debt are all going down. As Homer Simpson would say "Duh!" said...

Dan, first the graph does NOT represent GDP and debt, it represents annual CHANGES in GDP and debt.

The lines going down only reflect smaller increases from the year before but they are still increasing.

The point of this post is to show that debt is increasing faster than our ability to pay for it.