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December 07, 2006
Canadian National Debt vs. GDP
If examine Canada's spending habits versus income (national debt or federal debt versus GDP) over time, it seems that we are slowly coming around to being fiscally responsible again...
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I'm not overly concerned with the minute details of the federal budget each year. What I'm more interested in on an ongoing basis is: how much is our country in debt? To put it into personal perspective, I think that what my wife and I choose to spend our money on each year will vary as our priorities shift, but we had better not over-spend and put ourselves into debt that we can't repay.
The gross domestic product (GDP) of our country is the market value of all the goods and services that we as a nation produce. Yes, it's a bit of a flawed indicator, but it isn't a worthless one. So we use it.
Taking a look at a graph of our national debt versus GDP makes an interesting graph:
When looking at that graph, it's apparent that we incurred some debt before 1983 (I'm not sure when, and can't find that online right now), and the almost straight-line increase in debt from 1983 to 1994 implies to me that we simply didn't bother to remember that we were supposed to pay that debt down over time. We didn't even bother paying off the interest portion of the debt so that it would flat-line! No, we just continued letting it grow, until our debt was over 60% of GDP. That's not good. Actually, it's quite bad.
In 1995 we saw some increases to GDP without any decrease of the national debt, so our debt-to-GDP ratio actually decreased. I hope that Canada didn't simply change it's formula for measuring GDP then... but I don't think it did, since this is set out by the IMF.
Then in 1996, we started not only paying off the interest portion of the debt, but we also made some payments toward the principle. What a concept.
The graph continues to fiscal year 2004-05, where debt-to-GDP ratio has fallen again back to about 40%. I see elsewhere on the government's web site that we currently have a plan to reduce that ratio to 25% in the next 7 years - good, we'll see if that happens! You can see this graph and more on the Department of Finance web site. Check it out, there is a lot to see there, including a more up-to-date fiscal report (but that report didn't have the graph I wanted).
I checked the actual dollar amounts of net federal debt used to generate this graph, and unless Statistics Canada is posting blatant lies on its web site, the graph is accurate.
Just to provide some absolutely fresh budget numbers, here is the actual and short-term estimate of federal debt to GDP ratio as of right now:
Now, here's the shock: how does Canada compare with its neighbour to the south, the United States? It's not looking too good for the USA:
(See zfacts.com for a more in-depth analysis of United States National Debt to GDP ratio)
In 1980, the United States had its debt-to-GDP ratio around 40%, or where Canada was in fiscal year 2004-05. But since then it's taken off, and it is now above 60%. That's not good, and it doesn't look like it's getting better in the short term, given the recent deficit budgets that they have been implementing. It's certainly possible to get back from that situation - Canada has shown that - but they don't even realize that they have a problem. Or at least, I don't see any USA media coverage of this.
It's a good time to live in Canada.
I have posted an update to this article that examines the current Debt to GDP for Canada (January 20, 2008).
Posted by Hammer at 11:42 AM | Comments (29)