Total Canadian Debt Stands at $3.5 Trillion
Each Canadian is on the hook for $116,000, according to annual Fraser Institute study
Contact:
Jason Clemens, Director of Fiscal Studies
The Fraser Institute, (604) 714-4544 Email: jasonc@fraserinstitute.caRelease Date: 25 November 1999
VANCOUVER, BC>>> According to The Fraser Institute's yearly debt study, federal, provincial, and local governments have accumulated a staggering $850 billion in direct debt and $3.5 trillion in total government liabilities. This translates into each man, woman, and child in Canada owing $115,777 in total liabilities-almost four times the average Canadian salary.
The study, Canadian Government Debt 1999: A Guide to the Indebtedness of Canada and the Provinces shows that from 1994 to 1998, direct debt (what most people and governments refer to as "the debt") has grown from $739 billion to $850 billion, a 15 percent increase. Total liabilities have increased from $2.9 to $3.5 trillion during the same period, an increase of 21 percent. Most of the increase in total liabilities is due to substantial increase in unfunded liabilities.
Among the provinces, Ontario carries the heaviest burden, in part because the allocation of federal liabilities is based on the contributions made to the federal treasury. Federal, provincial and local liabilities add up to $126,938 for each Ontarian. Albertans are next at $119,464, followed by Quebecers at $114,248, and British Columbians at $108,441 (Table 1). Maritimers owe less than the average Canadian because of their lower contributions to the federal treasury.
Definition of Liabilities
Total liabilities include direct debt, debt guarantees, contractual commitments, contingent liabilities, and obligations. Direct debt includes the accumulated net debt incurred by a government and all its agencies. Unfunded liabilities include programs and benefits that government has committed to provide in perpetuity, such as Old Age Security (OAS), the Canada Pension Plan (CPP), and health care.
Unfunded Liabilities are the Most Serious Concern
Most of the total liabilities are due to the unfunded liabilities of the health care system, OAS, and the CPP.
The CPP unfunded liability alone grew by 58.8 percent between 1992 and 1998. In total, CPP, OAS, and healthcare unfunded liabilities grew by 45.6 percent during that same period.
At their inception, these programs were based on the assumption that population demographics, economic growth rates, and wage increases prevalent in the 1960s would continue indefinitely. It was considered favourable social and economic policy to transfer a small amount of money from a large group of younger workers to benefit a small group of relatively poor retirees.
These assumptions were patently wrong. Birth rates have declined, income growth has stagnated, and mortality rates have decreased. In 1995, seniors represented 19.8 percent of the working age population, this figure is expected to increase to 38.9 percent by 2030. These demographic changes will continue to undermine the ability of these plans to provide the intended level of benefits.
The federal government and many provincial governments are in surplus. Now is the time to look at the current structure and long term viability of our health care system and income support programs, namely OAS. "While the direct debt of governments is beginning to decline absolutely and as a fraction of our total national income, obligations are trending steadily upwards. Canadians are just beginning to recognize the significant challenge posed by these accumulating obligations and there are, as yet, no Canadian solutions proposed to deal with them," says Jason Clemens, Director of Fiscal Studies at The Fraser Institute.
Canada Compared to the World: The Severely Indebted Country (SIC) List
International comparisons allow Canadians to get an idea of the relative severity of Canada's debt burden. A standard feature of The Fraser Institute's annual debt study is a ranking of 146 countries based on their debt as a percent of discretionary income.
More important than Canada's overall debt ranking is our relative ranking against other high income OECD (Organisation for Economic Cooperation and Development) nations, where Canada ranks third lowest (27th)-only Italy and Belgium rank lower. The United States ranks 12th among the OECD. Among G-7 nations, Canada is second last. While Canada is considerably above Italy, it is also significantly below other G-7 nations. Japan ranks twelfth overall and first in the G-7 with a debt-to-discretionary-income ratio of 16.5 percent. Canada ranks sixth among G-7 nations with a ratio of 68.2 percent and ranks 81st overall among the 146 nations in the Severely Indebted Country (SIC) List.
"The assessment of Canada's indebtedness demands continued caution, vigilance, and prudence. We must be cautious to ensure that we do not permit apathy to erode the recent gains in fiscal security. We must be vigilant that we do not assume new and larger obligations; we must be prudent in forming policies to deal with those that already exist," concludes Clemens.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.