What voters need to know about deficits and the debt

At the birth of Canada, the government already owed money and 20 cents out of every federal dollar was spent servicing that debt, says  Livio Di Matteo, economics professor at Lakehead University.

Indeed, since Confederation, the federal government has run a deficit about 80 per cent of the time, according to Di Matteo, who has written extensively about deficits for the Fraser Institute.

However, as the CBC’s Aaron Wherry reports, the political drive to balance a budget seems to have waned since former prime minister Jean Chretien and his finance minister Paul Martin wrangled down Canada’s deficit.

Still, the topic does come up during election campaigns, including the current one. CBC News explains some of the terms and issues surrounding deficits, debt and where the parties stand on balancing the books.

What’s the difference between deficit and debt?

Simply put, when government revenues (the taxes it takes in) are less than its expenditures (the money it dishes out to pay for government services), the government records a deficit.

The accumulation of all the deficits, plus the interest since Confederation, is the debt. Di Matteo says there are a  few ways to look at the debt. There’s the gross debt, or the total debt, and that’s everything the federal government owes. There is also the “federal debt”, which is the difference between the government’s total liabilities and total financial and non-financial assets.

Those non-financial assets, however, include things like the Parliament buildings, Di Matteo says, which are unlikely to be sold off any time soon. So the figure most commonly used is the net debt, which is taking everything the federal government owes and subtracting the government’s financial assets.

What’s the current debt/deficit?

According to the Department of Finance, the government posted a budgetary deficit of $14 billion for the fiscal year ended March 31, 2019. (Compare that, for example, with the U.S., which just recorded a deficit topping a trillion dollars.)

Canada’s current net debt is $768 billion, compared with more than $22 trillion for the U.S.

The Liberals seem to focus on the federal debt-to-GDP ratio. What is that measure?

The debt-to-GDP ratio is the the federal debt compared to the gross domestic product of the country. In other words, taking the debt and dividing it by the GDP.

“There is no official number of what it should be. But generally, the higher it is the larger the debt burden,” Di Matteo said.

Currently Canada”s debt-to-GDP ratio stands at 30.9 and, according to Liberal projections, will shrink to 30.2 per cent of GDP in 2023-2024.

For a comparison, before Chretien and his then finance minister embarked on a series of cuts, the federal debt to GDP ratio was 66.8. It was at its highest in 1946 at 108.9 per cent and at its lowest in 1913 at 11.3 per cent.

The reason the Liberals like to focus on this ratio is that Canada’s debt-to-GDP ratio is  the lowest among the G7 countries. For example, the figure for Japan is 237.5 percent of GDP, 106.7 per cent for the United States and 99.2 per cent for France.

But the figure used by the Canadian government doesn’t include the debt from all levels of government, like the provinces and municipalities. When those figures are included, the ratio, according to the International Monetary Fund, jumps to 88 per cent.

What about our debt per person?

That may be an easier way for people to understand our debt. The Canadian Taxpayers Federation calculated that every Canadian’s share of the debt is a little over $18,000. (Compare that to the U.S., which, according to the U.S. Debt Clock, estimates debt per citizen at just under $69,000 US)

How is each party approaching the deficit?

The Liberal Party promised in the 2015 election campaign that they would run temporary deficits, but by 2019, Canadians could expect a balanced budget.

That never happened and isn’t expected to happen in the near future.  According to the campaign platform they released, their government, if re-elected, would increase the deficit to $27.4-billion next year. It then projects deficits of $20-plus billion over the next three years. The party has not offered a firm timeline as to when it would balance the books.

Conservative leader Andrew Scheer has said his government would take five years to balance the budget, but his party has not yet released its campaign platform, or any figures on the deficits they expect to run.

The NDP has also not released its platform yet and the party’s leader, Jagmeet Singh, hasn’t been clear on how his government would tackle the federal deficit.

Back in September, at a campaign event in Ottawa, Singh would say only that his approach would be different from the one Justin Trudeau’s Liberals have chosen and that his priority is helping Canadians now.

Green Leader Elizabeth May has committed to returning Canada to budgetary balance in five years. For the 2021-2022 fiscal year, a Green government would run up a $22.7 billion deficit, cut that down to around $19 billion the next year and come up with a $400 million surplus by 2023-24.

People’s Party of Canada Leader Maxime Bernier has vowed that his government would present a balanced budget within two years of taking office.