The Fraser Institute
May 20, 2008 06:00 ET
The Fraser Institute: Total Government Debt Exceeds $2.4 Trillion; $150,211 for Each Canadian Taxpayer
VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 20, 2008) - Each Canadian taxpayer owes $150,211 in federal, provincial, and local liabilities, according to a new study released today by independent research organization the Fraser Institute.
The study, Canadian Government Debt 2008, shows that federal, provincial, and local governments have accumulated $791.2 billion in direct debt and more than $2.4 trillion in total government liabilities. 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).
Although net direct debt (liabilities minus assets) of all three levels of government fell from $800.4 billion to $791.2 billion between 2000/2001 and 2004/2005, this is a small drop compared to the growth of Canada's debt since 1990/1991 when our net debt stood at $533 billion, said Niels Veldhuis, Fraser Institute director of fiscal studies and co-author of the study.
"The fact that most governments are making an effort to balance their books and pay down debt is certainly welcome news. However, the $9.2 billion drop in total debt is more than offset by the enormous growth in unfunded liabilities of programs such as Old Age Security and Medicare between 2000 and 2004."
Veldhuis points out that the net increase in total liabilities over this four-year period was $243.9 billion. The concern lies in the growth in unfunded liabilities associated with programs such as Old Age Security and Medicare and what this implies for the future health of these programs. Due to the increase in program obligations, total federal, provincial, and local liabilities in 2004/2005 added up to $150,211 for each Canadian taxpayer or $75,942 for each Canadian citizen.
Unfunded liabilities of government programs
The unfunded liabilities of Medicare, Old Age Security, and the Canada Pension Plan add up to $1.3 trillion and have increased by 22.9 per cent during the five-year period covered in the study. The unfunded liability of Old Age Security by itself grew by 27.3 per cent between 2000 and 2004.
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 24.4 per cent and the ratio of those over 65 had increased to 13.1 per cent.
Estimates of these ratios for Canada predict that those under 20 will make up only 17.2 per cent of the total population by 2040 while those over 65 will make up 26.5 per cent. Expected demographic changes will continue to undermine the ability of these programs to provide the intended level of benefits.
"If governments continue along the current path without addressing the growing unfunded liabilities of these programs, future generations of Canadians will face reduced benefits, substantial tax increases, or both," Veldhuis said.
Debt among the provinces
Quebec has the largest total liabilities per capita at $81,820 per person followed by Ontario ($80,580) and Alberta ($76,870). Prince Edward Island records the smallest total government liabilities per capita at $58,028, followed by New Brunswick ($61,056) and Manitoba ($62,504). With the exception of Alberta, provinces have total liabilities as a percentage of GDP in excess of 150 per cent. If the government of Quebec taxed 100 per cent of all income generated, it would still take it almost two and a half years to pay off all of its debt and cover all program obligations.
International comparison shows Canadians carrying high debt
International comparisons allow Canadians to get an idea of the relative severity of Canada's direct debt burden. In rankings generated by comparison with other high-income nations (high-income nations, as defined by the World Bank, are those with average incomes in excess of $10,066), Canada records the 13th highest debt burden among 20 high-income countries.
"The data are crystal clear: obligations stemming from the promises Canadian governments have made to this country's citizens are not sustainable and must be restructured to take into account the impact of future demographic change in Canada," Veldhuis said.
Canadian Government Debt 2008 can be downloaded as a free pdf from the Fraser Institute web site at www.fraserinstitute.org.
The Fraser Institute is an independent research and educational organization with offices in Calgary, Montreal, Toronto, and Vancouver. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.