Debt is becoming such a huge concern for Canadians that we’re dedicating this entire week to taking a closer look at debt in our country. Throughout the miniseries we’ll look at national and provincial debt; as well as municipal debt in some of Canada’s biggest cities. Of course we’ll also be looking at household and personal debt, and ways that you can get out of it. To kick off the series, today we’ll look at the national debt, so you can first see where we stand as a country, and how that affects you personally.
Debt vs. Deficit
When people talk about national debt, they often get the terms “debt” and “deficit” confused, or use the two interchangeably. In fact, our country’s debt and our deficit are two different things. And you need to know which is which before you start talking about your own debt.
Every year, the government makes money, mostly in the way of taxes. In turn, the government also spends money on things such as social services, defense spending, government employees, and other expenses. When the government has spent more than they have taken in, they have run a deficit. This is not the same thing as debt, as the deficit will account for that year only, but will be added onto the last year’s collective deficit.
So for instance, if the government took in $10 trillion in one year, but spent $13 trillion, the deficit would be $3 trillion. That deficit would be applied to the total deficit, the accumulated deficit from past years. This can be thought of as the national debt. The national debt, as opposed to the deficit, is the total amount that Canada owes.
In 2011, Canada’s deficit stood at $48.30 billion. As you can see from the chart below, Canada had been doing very well at reducing its deficit, until the late 2000s. That was when the recession hit, and when just about every country’s deficit took a hit. Here, the deficit was hit particularly hard. It was the second-highest its ever been, just after the year before it in 2010.
Debt
So that’s the deficit. Where does our national debt stand? That debt, known as the Current Outstanding Public Debt of Canada is $591,344,594,012.45 CDN, as of September 21, 2012. As you can see from the chart below, this debt also follows the trend the deficit has been – while it was looking better for several years, during the recession in 2008 we started to take on higher and higher debt levels. And today it stands at historic levels.
Also keep in mind that these numbers represent the net debt owed by Canada; that is, the debt still owed after you subtract assets such as cash, reserves, and outstanding loans.) Our gross national debt, that is the debt without taking assets into consideration, is an even more staggering $700 billion.
So who does Canada owe all that money to? The following chart breaks it down.
Other institutions such as the Bank of Canada, provincial and municipal governments, also make up a portion of those who are holders of Canadian debt. This percentage is thought to be small, although an exact number is difficult to find.
And how good are we, as a nation, at paying off that debt each year?
Just like all other trends, while we were fairly good at paying off a large portion of our debt in the late 90s and early 2000s, we’ve dropped off in the amount we’ve been paying towards servicing debt. In the fiscal year of 2007-2008, the Canadian spent 13.7% of revenues on public debt. Compare that with fiscal year 1990-1991, when 37.6% of the budgetary revenue was used towards servicing debt, and you can see the difference.
So why all the drop off in numbers just in the past few years?
The answer can be traced back to the recession. When the global economy went into this recession in 2007 and 2008, Canada escaped from it nearly unscathed. But there’s a reason for that. Federal policies, such as a drop in interest rates and relaxed government regulations on mortgages in Canada supported our economy by keeping money churning within it. 40-year amortizations coupled with historically low interest rates put people out into the housing market. And although those amortization periods have been drastically scaled back, the interest rate sits at nearly the same rock-bottom low. This helped the economy, yes, and our markets didn’t completely collapse in on themselves even when faced with the toughest circumstances.
But while it did help the economy, it also hurt it slightly in that by using this stimulus, the government had less money to pay off their debts.
This correlation between the national debt and the housing market within the country has had many looking at the personal debt of Canadians, and comparing it with the personal debt levels seen in the States.
The worry is that with our debt levels climbing, housing prices rising, and consumers continuing to pile on more in debt, that Canadian homeowners and buyers soon won’t be able to afford their homes. And this will bring the market – and our economy – to a halt.
In order to make the comparison, people sometimes compare the national debt between the two countries. But that’s not really fair. While Canada’s $587 billion in national debt might sound monumental at first, it’s actually pretty measly when you compare it to the $16 trillion the U.S. owes. While that may seem like a huge difference (and it is,) you also have to consider that the U.S.’ economy is 10 times larger than that of Canada’s.
Instead, you can get a more accurate picture by comparing the household debt levels in the two countries. The chart below shows that Canada is still significantly less, standing at $17,337.03; compared with debt per capita in the States, which is $53,183.
It’s this debt that everyone is so concerned about; and that this miniseries hopes to help you better understand. Tomorrow, we’ll look at how much of this national debt Ontario holds, and other financial information regarding this province. It’s here that has one of the hottest housing markets in Canada – Toronto – and as a province, Ontario is one of the provinces to hold some of the highest debt in Canada. Find out all about it tomorrow!
