Platform crunch: Debt projections of the parties

There was a lot of talk in last night’s debate about budgets, deficits, and program funding. So it seemed like a good time to look at the aggregate impact of the party platforms. In other words, let’s talk about deficits.

The release of the Liberal platform came with much consternation about their updated deficit figures: they were higher, and absent the seemingly requisite commitment to balancing the books in four years (a promise that is apparently necessary for every party, irrespective of the likelihood of keeping this promise or how many cuts it would entail to do so).

When examining macroeconomic issues like government debt, it’s important to put these numbers into context. For example, a common but unhelpful trope is to equate government debt with family debt: obviously a family would be in dire straights if they had a $20 billion credit card bill coming due….but what’s missing from that scenario is that the family in question makes $2 trillion dollars a year (Canada’s GDP). Also often missing from the discussion is that when you’re a big as the federal government, the money required to eliminate the deficit must come from somewhere else in the economy, and it’s not an insignificant amount.

How does debt look across the various sectors of the Canadian economy?  The federal government actually has the lowest debt-to-GDP ratio when compared to provincial debt, household debt, and corporate debt.  Corporate debt has actually been increasing rapidly over the past five years, even as a percentage of GDP.  So, if you’re worried about debt, you should be very concerned about corporations and households leveraging up, and much less concerned about the federal government’s debt (although given the current policy debate you wouldn’t know it).

The most helpful way to examine federal debt and deficits is not to look at them in isolation, instead they should be compared with other sectors, and put in the broader historical context.

Sources: StatCan tables 36-10-0580-01, 36-10-0103-01

With respect to what the parties are planning (at least for the two that have released full platforms – I’ll update this as more platforms are released) and the federal debt-to-GDP ratio, an interesting picture emerges. The Canadian economy is large, and in the broader historical context what’s been proposed up to this point by both the Greens and the Liberals would result in quite small changes to the federal debt position. Relative to the size of our economy, their proposed deficits (and their impact on the federal debt) simply aren’t that big.

Then there is the perennial requirement that leaders commit to balancing the books over the four years, even though that rarely happens.  Here’s why: these are the deficits of the sectors of the Canadian economy in 2018-19, the latest full fiscal year of data.

Sector Deficit in 2018-19 fiscal year
Corporate (non-banks) -$163 billion
Households -$79 billion
Provincial governments -$61 billion
Federal government -$31 billion

Source: Statcan Table 36-10-0580-01 and author’s calculations
Notes: This is on a cash basis, not an accrual basis and it measures change in loans and debt securities over four quarters, which is slightly different than government reported “deficit” but it does allow for consistent comparisons across sectors.

The corporate sector has been taking out loan after loan, resulting in an astounding $163 billion deficit last year, much of which has found its way into shareholder payouts, corporate take-overs and real estate speculation, none of which are particularly economically productive. Households for their part are still taking out mortgage debt, the primarily contributor to that sector’s nearly $80 billion deficit last year.  The (recently) higher provincial government debt levels are due in part to federal downloading.  And at the bottom of the list, the federal government has increased its debt over the past year, but in comparison by much less.

Debt is neither good nor bad on its own. However, it comes with deeply engrained moral judgements which are then applied to government leaders who are deemed “virtuous” if they end up with a surplus but “immoral” if they run a deficit. But these moral judgements are only possible in the absence of context.  Because it’s incredibly easy to balance the federal books – it’s just that Canadians would hate the consequences.

Easy ways to eliminate the federal deficit:

  • We could cut the Canada Health Transfer to the provinces by $31 billion or 75%. New federal deficit: $0. New provincial deficit: $92 billion (up from $61 billion) as they attempt to compensate for the massive health care funding gap.
  • We could increase corporate income taxes by 60%. Boom: federal deficit eliminated. Consequence: the new corporate deficit rises from $163 billion to $194 billion as they pay those new taxes.
  • We could boost the GST from 5% to 8.75%. Bingo: federal books balanced. Consequence: household deficit rises from $79 billion to $110 billion as Canadians pony up on every purchase.

You can see where this is going. The sectors of the economy are all interlinked, which means if you want to balance the federal books, you have to transfer the federal deficit to another sector, either through tax increases or service cuts.  But as the feds have the smallest deficit already, it’s hard to see why that’s necessary.  It’s much tougher to moralize about “balancing the books” when its clearly at someone else’s expense.

Ultimately, in a country with a growing economy and a growing population, new debt is manageable as long as it pays off more in GDP growth than it costs in interest.  And with interest rates at almost record lows, that’s not too hard to do.

Editor’s note: An earlier version of this article ran with a graph depicting federal debt to GDP levels for only the Green and Liberal parties. Following the full platform releases from the Conservative and NDP parties, the graph has been updated to include debt projections for all four parties.

David Macdonald is a senior economist with the Canadian Centre for Policy Alternatives. Follow him on Twitter at @DavidMacCdn

The CCPA has done extensive research and analysis on a wide range of federal policy issues, most notably through our annual Alternative Federal Budget. As we head towards the October 2019 federal election, we’ll be sharing our independent, non-partisan analysis and fact-checking of campaign promises and platforms from all the major parties.


  1. > Also often missing from the discussion is that when you’re a big as the federal government, the money required to eliminate the deficit must come from somewhere else in the economy, and it’s not an insignificant amount.

    What’s especially missing is that unlike provincial, municipal or household debt is that the federal government issues its own currency so it needs to spend before it taxes and all of the “debt” that it issues exactly equals all of the profits and savings in the private sector for the year. Further more, when it “borrows” from the Bank of Canada, all interest payments go back to itself. These are huge differences.

    Lastly, even if you set all that aside, the ratio of debt to GDP is of little-to-no practical value. At worst, you should be comparing the interest payments as a proportion to the GDP as debt at 10% isn’t the same as debt at 0% (see Japan!).

    I think it would be far more interesting to be advocating for the federal government to take a much larger proportion of the debt, even to the point of lending to provincial governments for some projects. Our federal government’s debt has no default risk while other levels do. Federal debt can be either to itself (via the BoC) which is effectively free money or to institutions as a means of controlling interest rates, but provincial governments are currently forced to borrow on the open market which is effectively a transfer of wealth to the bond holders.

    1. I came here to make many of the same points. I hope the conversation can consider the real-world aspects of federal government financial operations.

      While this article hints at the idea, it should be made explicit that any fed deficit is, by definition (one party’s debt is another party’s asset), a private sector surplus.

  2. From a 2015 CBC article…
    “Rocco Galati challenges Bank of Canada to offer interest-free loans: …has taken on a case for a group called the Committee for Monetary and Economic Reform, or COMER, which wants the central bank to return to the practice of lending federal and provincial governments interest-free money for infrastructure.”
    The crux of Comer’s argument was that the B of C is a publicly owned institution (Gov of Canada), was established for precisely this purpose, but has been subverted in this and in its lawful governance mandate (responsible to the people of Canada) since the gov’t (illegally, according to the plaintif) made it subject to the rules of the International Bank of Settlements. As the CBC piece goes on to explain…
    “The Bank of Canada was set up in 1935 in the wake of the Great Depression to provide a means for settling international accounts and to provide interest-free loans to government to finance infrastructure investments…Projects like the St. Lawrence Seaway and the Trans-Canada highway were funded in this way, and the central bank also underwrote Canada’s Second World War effort as well as the building of hospitals and universities.”
    “But in 1974, the central bank stopped providing interest-free loans to government so it could join the Bank for International Settlements, a kind of central bank of central banks.”
    “Galati argues that from then on private banks became government’s lender, contravening the act that established the central bank.”
    I can’t remember the outcome. I think maybe the suit was dismissed on appeal then the Supreme Court refused to hear it(?) Not sure why.

    1. The Supreme Court never gives reasons for refusing to hear a case, but I assume it agreed with the reasoning of the lower courts, or at least that Galati was unable to Show that the lower courts’ reasoning was wrong.
      The Bank of Canada Act allows the Bank of Canada to lend to the federal and provincial governments, but nothing in the Bank of Canada Act or any other legislation requires it to. How much the Bank of Canada lends to the government is entirely a policy decision.
      Much of what COMER and Galati claimed was false. The Bank of Canada never stopped lending to the government, it has done so continuously since 1935.
      The purpose of the Bank of Canada was never to provide interest-free loans to government to finance infrastructure investments.

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