Prime minister wrong about Canada’s debt

In the House of Commons recently, Prime Minister Trudeau proclaimed that “Canada actually has the strongest fiscal position of any of the world's advanced economies.” Upon close examination of the data, however, this statement is categorically false. In reality, Canada is one of the most indebted advanced economies on the globe.

The prime minister’s proclamation originates from the 2024 federal budget where the government pointed to data from the International Monetary Fund (IMF) that states Canada has the lowest level of net debt (as a share of its economy) among G7 countries that include Germany, Italy, Japan, France, the United Kingdom and the United States.

However, this specific measure of Canada’s indebtedness is flawed because it assumes the country’s financial assets can be used to offset debt and therefore subtracts these assets from total government debt. And this is a significant problem because Canada’s financial assets include the assets of the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP), which were valued at a combined $717 billion at the end of 2023.

Obviously, Canada cannot use CPP and QPP assets to reduce government debt without compromising the ability of those public pension plans to pay benefits to current and future retirees. That’s why it’s misleading to use net debt to compare Canada’s indebtedness to other countries; it makes it appear that we have a stronger fiscal position than we actually do.

So, what’s a more accurate way to measure Canada’s government debt burden?

In a recent study, we compared Canada’s total (a.k.a. gross) government debt, which measures all government liabilities and is not offset by any financial assets, with 32 advanced economies worldwide (not just the G7 countries, which are all conveniently highly indebted like Canada). We found that Canada ranks 26th out of 32 on total debt relative to the size of the country’s economy. Clearly, despite the prime minister’s claim that Canada has the “strongest fiscal position” in the world, the evidence shows Canada is actually among the most indebted advanced economies and that fellow G7 countries Germany and the United Kingdom have lower debt than Canada.

Why should Canadians care?

Because government debt has immediate and long-term consequences. In the short-term, governments must pay debt interest on their borrowing—federally, debt interest costs are projected to surpass $54.0 billion this year. At the provincial level, Canadian taxpayers are expected to collectively spend another $37.1 billion on government debt interest costs.

Long term, future generations of Canadians must repay the debt through a combination of tax increases and/or a reduction in services. Despite having no say over current government decisions, in the coming years and decades Canadians under the age of 18 will likely repay most of today’s debt accumulation.

Prime Minister Trudeau’s assertion that Canada has the “strongest fiscal position” of any advanced economy is incorrect. We are, unfortunately, one of the most indebted advanced economies in the world. It’s important for policymakers to root their statements in facts rather than conjecture.