The Trudeau government, which will table its next budget March 28, continues to insist that it’s acted prudently with the country’s finances and that Canada remains in a comparatively strong financial position. This narrative rests on a very specific way of looking at Canada’s government debt. But a broader assessment of the country’s public indebtedness reveals worrying signs about Ottawa’s current fiscal management and its long-term sustainability.

Prime Minister Trudeau boasted recently in the House of Commons that Canada continues “to have the best balance sheet in the G7.” This narrative, of Canada having low debt compared to our peers, is a constant theme for the government and has been featured in both recent budgets (chart 23 in Budget 2022) and economic updates (chart 1.32 in 2022 update).

They use a specific measure—government (including federal and provincial) net debt as a share of the economy (GDP). When you measure net debt and limit the group of peer countries to the G7, Canada is indeed a leader with the lowest net debt-to-GDP ratio.

But there are two problems with this measure. First, it’s only the G7 and not the broader group of industrialized countries that form the OECD (Organization for Economic Cooperation and Development). If we simply extend the analysis to the 29 OECD countries with comparable data, Canada drops to 11th for net debt as a share of the economy in 2022.

Second, and more importantly, net debt measures a country’s government debt after the country’s financial assets are deducted with an underlying assumption that such financial assets could be used to offset debt.

As a 2021 study explained, Canada’s financial assets include those of the Canada (CPP) and Quebec Pension Plans (QPP), which in 2020 represented roughly one-third of the difference between Canada’s net debt and gross (i.e. total) debt. The assets of the CPP and QPP, however, are required for these pension plans to meet the obligations already made to existing and future retirees. In other words, these assets cannot be used to offset other government debt without adversely affecting the ability of both pensions to provide promised benefits to retirees now and in the future.

If we measure gross or total debt as a share of the economy rather than net debt, a very different picture of government indebtedness emerges. Specifically, Canada ranks 20th of 29 OECD countries in 2022 with total government debt representing 111.6 per cent of the economy. Canada only outperforms fiscal basket cases such as Greece, Italy, Japan, Portugal, Spain and France that have larger government debts relative to the size of their economies.

Let’s repeat that difference—Canada drops from having the lowest level of government net debt as a share of the economy in the G7 to 20th highest out of 29 countries in the OECD for total government debt as a share of the economy. Moreover, the total value of government debt in 2022 in Canada exceeded the entire size of the economy by more than 10 per cent.

Like so much else with the federal government’s fiscal policies—namely its taxing, spending and borrowing—it seems to worry more about the narrative than facts. Contrary to the repeated assertions by officials in the Trudeau government, including the prime minister himself, Canada is in fact a comparatively indebted country relative to our peers and this could worsen markedly as we enter an economic slowdown or even recession.