The coming hangover

Given the current pace of public debt accumulation, the next generation is in for a terrible fiscal hangover.

Have you noticed that there hasn’t been much talk of public debt lately? If you think that’s because governments are more disciplined and the situation is under control, you’re in for a big surprise.

In 2009, the year I wrote my first column on the issue in a local newspaper, Canada’s national debt was $515 billion (in 2016 constant dollars). In 2016, it stood at $628 billion, a 22% increase over seven years. In that span, the federal government added nearly a fifth of all the public debt in our nation’s history. And that was during a period of economic growth, not recession.

I recently did a similar analysis of the situation in Quebec for a client. In 2009, the province’s public debt was $233 billion (in 2016 constant dollars). By March 31, 2016, it had increased by about 20% in only seven years, jumping to $276 billion. In other words, the governments of the past seven years have accumulated nearly one-sixth of all the debt in Quebec’s history.

But, without a doubt, Ontario sits at the bottom of the class. In gross dollars, the province’s debt has more than doubled in the past nine years, and now exceeds the $300-billion mark. That’s right: it doubled in nine years. According to the Canadian Taxpayers Federation, Ontario’s debt is growing by $33.4 million a day, or $387 a second.

The pace of debt accumulation is out of control and irresponsible.

The greatest concern is not how all this debt will be paid off: it will never be, or rather, governments will simply reimburse the maturing portion, often through new loans. Instead, what’s most troubling is to admit that we need to pile on such debt in the first place and to see that our governments are living beyond their means. Let’s not forget that on top of this exponential liability, the taxman has been increasing his revenue by taking a little more from taxpayers each year.

And despite this, governments still cannot make ends meet.

It’s true that interest rates are low and as a percentage of GDP, the size of the public debt can be downplayed since our production also increases every year. But you’d have to be rather naive to believe that racking up this much debt is a good thing.

Some will argue that government borrowing is justified to pay for infrastructure projects, such as roads and bridges. However, our public debt is not mainly the result of infrastructure spending. As many economists have shown over the years, a major portion of our debt is used to pay for bread-and-butter items, such as the day-to-day functioning of the government apparatus and all its programs.

Unfortunately, this trend shows no signs of reversing. For instance, Ontario’s debt continues to grow unabated. According to Ontario’s Financial Accountability Office, an independent body, the province’s net debt will rise by $54 billion over the next five years in order to finance infrastructure spending plans, among other things.

We all recognize that, over the years, the nation’s infrastructure — from roads to waterworks to schools — has been neglected, with many a politician preferring to defer capital spending to a later day. But debt accumulation invariably leads to future income taxes, as servicing the debt becomes more and more costly for governments. Given the current pace of debt accumulation, a terrible fiscal hangover awaits the next generation.