Federal, provincial and household debt push Canada’s debt-to-GDP ratio over 280 percent

The national federal debt is currently in excess of $675 billion, about 30 percent of our annual Gross Domestic Product of $2.14 trillion or what’s referred to in fiscal policy-speak as ratio of debt-to-GDP.

And this federal debt-to-GDP metric, combined with low interest rates is how Finance Minister Bill Morneau justifies continued deficit spending to the tune of nearly $100 billion more over the next four years.

“Our intent is to make those investments and to do it in a way that will help us grow our economy,” said Morneau on Monday of the continued red ink noted in his government’s fall fiscal update for the country.

According to Finance department figures, on the current trajectory of government revenues and spending, our GDP ratio that will settle down slightly from this budget’s 31 percent, to 29.8 percent in 2023-24.

But weighing only federal debt against gross domestic product to gauge Ottawa’s borrowing safe zone is problematic, because that debt is only part of the picture.

Add in outstanding provincial and territorial borrowing and Canada’s debt-to-GDP almost doubles to nearly 60 percent, or around $1.2 trillion.

As far back as in June, even the International Monetary Fund cautioned that jurisdictional borrowing in Canada needs to be addressed in its Economic Outlook.

“Provincial governments should do more to create more spending room…ensur(ing) that both levels of government have enough room to respond in case of a downturn,” reads IMF’s report.

“Reducing debt faster would provide more options to handle future challenges, such as those related to aging and weak productivity growth.”

Ian Lee, a business professor and faculty chair at Carleton’s Sprott School of Business, said in addition to sub-sovereign and provincial debt, Canadian household debt should also be cause for concern.

“We’ve got really overextended consumers, about two trillion dollars in debt,” he said. “We know exports are down, manufacturing has been in steady collapse since the 1970s, so what is the anchor or the driver that is going to drive us forward?”

Consumer debt in Canada topped $2.25 trillion at the end June, of which nearly $1.5 trillion is tied up in mortgages. Add this on top of federal and sub-sovereign Canadian debt and the country’s aggregate debt-to-GDP ratio sky-rockets to 281 percent.

“And housing and real estate is completely tapped out and they’re extremely over-indebted and so where’s the next big growth going to come from? I can’t see it,” added Lee.

While the Canadian economy recorded 400,000 net new jobs for 2019, November employment numbers from Statistics Canada indicated 71,000 people got pink slips a month before Christmas and that declines were experienced “in manufacturing and natural resources, as well as in the services-producing sector.”