Talking about government debt can be difficult to understand.
Terms like debt, deficit, GDP, debt to GDP ratio, gross debt vs interest-bearing debt all intermingled with numbers in the hundreds of billions of dollars can make even the most avid financial wonk go cross-eyed.
Before launching into my second in a series of articles on Canada’s debt and deficits, I’d like to, first, define a couple of these terms.
The term “deficit” refers (primarily) to budget shortfalls: the amount by which the government is short in being able to pay for their spending. For example, the Liberals currently have a budget deficit of $381 billion. They have spent (or intend to spend) $381 billion more than what the government is receiving in revenue sources (i.e. taxes).
When politicians use the term “debt” they are (typically) talking in terms of the overall amount of money owed by the federal government accumulated from previous year’s deficits (over-spending). Our national debt, currently, sits around the $1.4 trillion mark.
Deficits (over-spending) adds more money to our overall debt forcing governments to spend more to service (pay the interest on) that debt. It’s a vicious cycle.
Racking up deficits and record levels of public debt is nothing new to the Trudeau’s.
In a recent CBC piece, a well credentialed Canadian scholar laid Canada’s debt and deficit issues squarely at the feet of the Trudeau family.
It was under Trudeau senior that debt and deficits first began to snowball.
Up until the 1970’s Canada’s national debt was relatively low. Then, in 1972 the Trudeau (senior) Liberals wound up in a minority government situation and decided on a strategy to spend their way to a majority—sound familiar? They got their majority in 1974 but continued to spend, adding to the debt at record peacetime levels until Trudeau seniors’ resignation in 1984.
Trudeau’s debt served to hamstring the incoming Mulroney PC Government. They were able to control spending, but the interest continued to compound on the accrued debt. As a result, during the Mulroney (and early part of the Chretien) years, the Government of Canada lacked the resources to stimulate the economy and pay down debt.
Between the Chretien, Martin and Harper years, those governments were able to slowly reign in deficit spending and, as a result, Canada’s debt.
Our previous Conservative Government left the incoming Trudeau (junior) government a balanced budget—this despite weathering the worst financial crisis since the great depression in 2008/9.
Let me say that again, Justin Trudeau inherited a balanced budget. But rather than use the strong position we left him to further pay down Canada’s debt, like father like son, he chose to spend and started adding record levels of new debt.
Trudeau (junior) promised four years of “modest” ($10 billion) deficits. At the end of his first term, he had doubled that, adding some $73 billion to the national debt—with little to show for it.
Since COVID-19 hit early last year, the Trudeau Liberals have kicked their spending habits into overdrive, spending $381 billion in new deficit spending—with the promise of $100 billion more.
Next week, we’ll begin to explore that $381 billion, and I think Canadians will be shocked to learn where that money has actually gone.