Canada has the lowest net debt-to- GDP ratio compared to other countries

Canada has the lowest net debt-to- GDP ratio compared to other countries

The last federal update lauded Canada's low government debt, a theme from Ottawa. According to the update, Canada has the lowest net debt-to- GDP ratio compared to international peers. The Trudeau government has repeatedly used this statistic to justify the continued borrowing and record deficits that are currently funding high levels of government spending that in fact predate the COVID epidemic. But a broader assessment of Canadian government indebtedness raises serious concerns about our country's ability to finance spending through borrowing. We apologize, but this video didn't load.

You can see other videos from our team by tapping here. The update refers to international peers, but the comparison is limited to Canada, Germany, the United Kingdom, the United States, France, Italy and Japan, despite what Ottawa claims. Canada has the lowest net debt as a share of its economy at 23.4 per cent in 2019. Why can't we limit the analysis to only the G 7? Canada is competing with many other industrialized countries. If the analysis is extended to include the 31 high-income countries covered by the IMF Canada's ranking for 2019 falls to 10th. The IMF predicts that Canada will fall to 11th for the year 2021. The government s habitual reliance on net debt is a problem. Net debt is adjusted for financial assets such as currency holdings and gold. It was meant as a measure of how much debt a government would have to pay in the hypothetical instance that it liquidated its financial assets. It excludes buildings and highways from being liquid assets. Net debt makes comparisons between Canada and other industrialized countries difficult to compare. Canada has a public pension plan that is unusual for the industrialized world. In most countries, public pensions invest in government bonds. The Canada Pension Plan and Quebec Pension Plan invest in assets such as stocks and non-government bonds. This makes net debt look better than other countries. Public pensions in other countries don't have an effect on the government's net debt. There is an asset for the public pension plan and a liability for the government. When net debt is calculated, the government's net debt is calculated.

It's not so when the CPP and QPP invest in non-government assets. The net debt position of Canada has improved as both public plans have increased their assets. The CPP and QPP assets are not actually available to either the federal or provincial governments, but they are committed to financing the benefits promised to retirees in both programs. When looking at total government debt rather than net debt, Canada s relative indebtedness is one of the worst in the industrialized world. In the year 2019 it was 86.8 per cent of GDP, which ranked 24th among 31 industrialized countries. Only seven -- Belgium, France, Italy, Japan, Portugal, Spain and the U.S. -- had a higher debt-to- GDP ratio than Canada. In 2021, the IMF believes that we will be 24th, though our debt will reach 109.9 per cent of GDP.

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Is the 2021 debt binge a blip or a sea change?

Livio Di Matteo: Modest fiscal rules could have saved billions of dollars in federal spending. The state of Canada s government indebtedness is worrying, given Ottawa s dismissal of debt as a problem. In the recent throne speech that laid out the priorities of the federal government, the words deficit and debt were not mentioned once, even though Ottawa continues to praise our low net debt, which we have explained, is misleading. We are highly indebted compared to other countries despite what Ottawa claims. It imposes serious risks on the Canadians and the economy. At the very least, Ottawa needs to acknowledge the real state of Canadian government indebtedness. Jason Clemens, Milagros Palacios and Jake Fuss are economists with the Fraser Institute.