Happy 150th Canada: Net debt to hit $727.5B this year
Fraser Institute report warns a period of chronic deficits and ballooning debt looms.
VANCOUVER — A Fraser Institute study warns Canada appears to be embarking on another period of chronic deficits and under the Trudeau government.
A Federal Fiscal History: Canada, 1867-2017 gives an account of the periods in Canada’s fiscal history when the federal governments expanded their involvement in the economy and society. Since Confederation, excluding wartime and recessions, there has only been one period in Canada’s 150-year history when such involvement substantially grew, which in turn plunged the nation into chronic deficits.
It began under Prime Minister Lester Pearson in the mid-1960s, and continued under Prime Minister Pierre Trudeau throughout the 1970s and early 1980s.
“Based on the new federal government’s tax increases and new spending, the question is whether we’re embarking on another period of government growth, financed by deficits and debt,” said Livio Di Matteo, an economics professor at Lakehead University, Fraser Institute senior fellow and author of the report.
In 1969-70, when Pierre Trudeau was first elected Prime Minister, federal program spending totalled $12.9 billion, the estimated net federal debt was $19.3 billion and the debt-to-GDP ratio was 23%.
During the 1970s, an energy crisis, slowing growth, high inflation and high unemployment set the wheels in motion for more government intervention in the econmy.
By the time Trudeau left office in 1984, having never balanced the budget, Di Matteo said the deficit was $37.2 billion, program spending hit $84.3 billion, the net debt had ballooned to $212.6 billion and the debt-to-GDP ratio was 42.2%.
In the 2016-17 budget, Prime Minister Justin Trudeau’s spending is projected to hit $291.4 billion, a $40 billion increase from 2014. Net debt will hit $727.5 billion this year and $759.5 billion in 2017-18.
Di Matteo warns while interest rates remain at historic lows, economic growth is also low, “making a case for fiscal prudence given the dynamics of deficits and debt. The progress made in reducing the ratio of federal net debt to GDP below 40% will be largely squandered if we allow debt to once again grow uncontrollably.”
Click here for a copy of the report.