Ottawa’s net debt projected to hit $859 billion by 2023-24

With a federal election coming in the fall, the absence of policy debate on the federal debt is disappointing. Since 2013-2014, the interest-bearing debt of the federal government has increased from $904 billion to $1.025 trillion, a 13 per cent jump. This is on top of the large increase since the start of the Great Recession in 2008-09 when the total debt level was $714 billion.

Of course, one might prefer net debt as a more relevant measure given the presence of government financial assets. But even net debt grew from $529 billion in 2008-09 to $696 billion in 2013-14, then to $768 billion in early 2019. Finally, the 2019 federal budget sees the net debt growing to $859 billion by 2023-24.

Over the last five years, continued federal deficits have driven debt accumulation, despite an economy with record low unemployment and positive if not spectacular rates of economic growth.

While the net debt-to-GDP ratio (a measure that compares debt to the size of the overall economy) has remained stable as a result, and record low interest rates have made debt-service costs more bearable, it’s disconcerting that the debt issue has fallen off the radar across the entire Canadian political spectrum. Beyond the 2019 federal budget forecast, longer-term Department of Finance projections sees deficits continuing for many years to come, yet policymakers show little concern.

In terms of policy regarding the deficit and debt, the current federal government’s position was made clear by its latest budget. Given the projections for continued economic growth and low interest rates, even with debt-service costs projected to rise from $26 billion in 2019-20 to $33 billion by 2023-24, there’s no real concern given that debt-to-GDP ratios are projected to decline slightly.

As for the Opposition parties, none have signalled they would do anything to balance the budget in the near- or medium-term (despite an economy that is not in recession). This is truly a remarkable policy unity that might be sustained so long as the economy’s performance remains favourable and interest rates remain low.

Canadians private households have embraced a strategy of debt financing to maintain their consumption levels and so have governments. But household debt is usually accompanied by wealth accumulation (real estate, financial assets) but government-sector debt has no such compensating feature.

To date, the Canadian economy has performed reasonably well, despite lagging private-sector capital investment. This is good luck, so far. But relying on good luck to manage government finances worry all Canadians.