Canadian Government Debt 2004: A Guide to the Indebtedness of Canada and the Provinces

The net direct debt of all three levels of government in Canada fell from $847 billion to $789 billion between 1997/98 and 2001/02. This is a small drop compared to the growth in debt over the last decade: it was only $533 billion in 1990/91. Nevertheless, there are several reasons why even a small reduction in debt is good news. First, governments have begun to balance their books and some have started paying down their debt. Second, continued economic growth will help reduce the ratio of debt to gross domestic product (GDP), currently at 71.3%. Third, a constant or declining debt stock will demand a smaller portion of government revenues. As a result, some of the 11.3% of revenues currently being spent on interest charges can be used for further debt relief or tax cuts.

The bad news is that the $58 billion drop in debt was more than offset by increases in other liabilities such as program obligations, which grew significantly from 1997 to 2001. The net increase in total liabilities over this period was $278 billion. The growth in obligations under programs such as the Canada and Quebec Pension Plans, the Old Age Security, and the Medicare systems has been a focus of this debt study for many years. Specifically, the concern lies in the size of these obligations and what this implies for the future health of these programs. Largely due to increases in program obligations, in 2001/02 federal, provincial, and local liabilities added up to $180,421 for each Canadian taxpayer or $87,291 for each Canadian citizen.

Among the provinces, Ontario carries the heaviest future tax burden. Federal, provincial, and local liabilities add up to $95,591 for each Ontarian. Residents of Quebec and Alberta also have per-capita liabilities well above $80,000. From 1997/98 to 2001/02, all of the provinces decreased their direct debt as a percentage of GDP. Alberta led the way with a 47.0% decrease in direct debt as a percentage of GDP, followed by Ontario at 27.6%. On the other hand, it is a concern that program obligations as a percentage of GDP have grown in four of 12 jurisdictions. For example, the Yukon experienced a 7.3% increase in program obligations, followed by Saskatchewan at 5.6% and British Columbia at 5.3%.