The Fraser Institute

The Fraser Institute

November 14, 2006 06:00 ET

The Fraser Institute-Media Release; Total Canadian Government Debt $2.7 Trillion: Each Canadian Taxpayer Owes $171,000

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 14, 2006) - Each Canadian taxpayer owes $171,032 in federal, provincial, and local liabilities, according to Canadian Government Debt 2006, an updated report released today by The Fraser Institute.

Federal, provincial, and local governments have accumulated $798 billion in direct debt and more than $2.7 trillion in total government liabilities (see Table 1 below). Total liabilities include direct debt and programs that the government has committed to provide such as Old Age Security and Medicare (Canada's public health care system).

Net direct debt (liabilities minus assets) of all three levels of government fell from $832 billion to $798 billion between 1999/2000 and 2003/2004. However, this is a miniscule decline compared to the growth of Canada's debt since 1990/1991 when our net debt stood at $533 billion.

"The decline in direct government debt is certainly a welcome development," said Niels Veldhuis, Senior Research Economist and co-author of the report. "However, the greatest concern for taxpayers is the growing unfunded liabilities associated with programs such as Old Age Security and Medicare."

Unfunded liabilities of government programs

The report shows that the unfunded liabilities of Medicare, Old Age Security, and the Canada Pension Plan total $1.5 trillion and have increased by 19.7 per cent during the five-year period covered in the study. The unfunded liability of Medicare alone grew by more than 28.5 per cent between 1999 and 2003.

At their inception, funding for programs such as Medicare, Old Age Security, and the Canada Pension Plan was based on the assumption that population demographics, economic growth rates, and wage growth prevalent in the 1960s would persist. 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 have proven entirely false.

Birth rates have declined, income growth has stagnated, and mortality rates have decreased. In 1956, the proportion of the Canadian population that was under 20 years of age was 39.4 per cent while the proportion of those over 65 was 7.7 per cent. By 2004, the ratio of those under 20 years old to the total population had decreased to 24.6 per cent and the ratio of those over 65 had increased to 13 per cent.

Estimates of these ratios for Canada predict that those under 20 will make up only 20.1 per cent of the total population by 2040 while those over 65 will make up 24.3 per cent. Expected demographic changes will continue to undermine the ability of these programs to provide the intended level of benefits.
"Unless governments take action to address the growing unfunded liabilities of these programs, Canadians will be faced with reduced benefits and/or tax increases," Veldhuis concluded.

Debt among the provinces

Among Canadian provinces, Ontario carries the largest total liabilities per person at $92,490, followed by Quebec ($88,778) and Alberta ($87,630). Prince Edward Island has the smallest total government liabilities per capita at $64,841.

With the exception of Alberta, all provinces have total liabilities greater than 200 per cent of annual gross domestic product (GDP). If the government of Quebec, which has the largest total liabilities compared to GDP, taxed 100 per cent of all income, it would still take more than two and a half years to pay off all of its debt and program obligations.

International comparison shows Canadians carrying high debt

When compared to other high income nations, Canada has the ninth-highest debt burden among 20 high-income countries. (The World Bank defines high-income nations as those with average incomes exceeding $9,386 US).

"It is critical that Canadians understand the size and nature of public debt and other liabilities," said Veldhuis. "Debt reduction and the proper funding of obligations, such as Old Age Security and Medicare are essential to Canada's future economic health."



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Table 1: Total government liabilities (a) ($millions), 2003/2004

Contingent
Liabilities and Total
Direct Debt Contractual Program Government
Debt Guarantees Commitments Obligations Liabilities

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British Columbia 19,513 167 2,589 67,070 89,339

Alberta (15,620) 13,065 11,945 68,759 78,149

Saskatchewan 9,242 129 7,542 14,088 31,001

Manitoba 11,498 950 817 16,090 29,355

Ontario 107,025 14,066 28,821 246,554 396,466

Quebec 112,674 43,221 23,951 261,729 441,575

New Brunswick 6,330 461 576 9,700 17,067

Nova Scotia 12,039 271 1,054 13,199 26,563

Prince Edward
Island 1,361 28 84 1,696 3,169

Newfoundland &
Labrador 10,705 1,657 252 6,265 18,879

Yukon
Territory (281) 43 66 516 344

Northwest
Territories (b) 227 237 430 1,484 2,378

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All Provinces 274,713 74,295 78,126 707,150 1,134,285

Federal
Government 523,648 54,112 85,661 910,778 1,574,199

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Canada
(All Inclusive) 798,361 128,407 163,788 1,617,928 2,708,484

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Note a: Provincial data includes liabilities of local governments.
Note b: Includes Nunavut.

Sources: Statistics Canada, Federal and Provincial Public Accounts, Office
of the Superintendent of Financial Institutions; calculations by the
authors.


Established in 1974, The Fraser Institute is an independent public policy organization with offices in Vancouver, Calgary, and Toronto. The study (in pdf) and media release are posted at www.fraserinstitute.ca.


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