Canada’s relative debt fifth highest in industrialized world: Report


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Canada’s relative debt load compared to other developed nations is far worse than the Trudeau government claims, according to a new study by the Fraser Institute released Tuesday.

It says while the Liberals’ boast that Canada had the lowest net debt to GDP ratio among G7 countries heading into last year’s pandemic recession, that falls to 25th place out of 29 nations with comparable economies when its gross or total debt is calculated compared to the size of the Canadian economy.

“In other words, Canada’s total debt relative to GDP is the 5th highest amongst the industrialized world,” better than only the U.S., Portugal, Italy and Japan, said study co-author Jason Clemens in the report, Caution Required When Comparing Canada’s Debt to Other Countries.

By comparison, Canada is more indebted relative to the size of its economy than 24 other developed nations, including Estonia, Luxembourg, Taiwan, Czech Republic, Sweden, New Zealand, Switzerland, Denmark, Latvia, Lithuania, South Korea, Netherlands, Ireland, Australia, Finland, Germany, Israel, Iceland, Slovenia, Austria, UK, France, Belgium and Spain.

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Using the same calculation of gross debt to GDP ratio versus net debt, Clemens said, Canada falls from first to fourth place among G7 nations — in worse shape than Germany, the U.K and France, while ahead of the U.S., Italy and Japan.

The study says the reason Canada’s debt position deteriorates so dramatically when gross debt is measured, is that net debt includes the assets of the Canada Pension Plan and the Quebec Pension Plan — $488.1 billion as of March 31, 2020 — or about one-third of the difference between Canada’s net debt and gross debt.

Clemens notes the public pension plans of most other countries invest only in things like government bonds, meaning every time they make a purchase with surplus funds there is no change in the net debt because the government investment carries with it an equal government liability.

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By contrast in Canada, the CPP Investment Board, created under changes introduced by the Chretien government in 1996, is allowed to invest in a broad portfolio of market instruments including bonds, equities, private placements and other investments which are counted as government assets.

The problem is, “the idea that the assets of the Canada and Quebec pension plans are available to governments and should be counted against the debt distorts the gravity of Canada’s indebtedness,” Clemens said.

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“The earnings of the CPP Investment Board (and the equivalent in Quebec) are not available to the federal or provincial governments and are specifically retained within the CPP. The assets of the CPP are similarly not available to the federal or provincial governments for use outside of funding the retirement and related benefits provided by the CPP … including the assets of the CPP and QPP without considering the future obligations (i.e., liabilities) associated with the assets further complicates the assessment of Canadian indebtedness.

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“Including the assets of the CPP (and QPP) in the country’s net debt statistics overestimates the value of available financial assets to Canadian governments and in so doing provides an underestimate of the indebtedness of Canada, particularly when compared to other countries.”

Finally, Clemens notes that while it is true Canada has the lowest net debt to GDP ratio, as opposed to gross debt, among the G7 countries, “our rank falls to 11th when the group of comparison countries is expanded to the 29 advanced countries — including many European countries and Australia, for which comparable data exist.”

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