The Conservative government no longer has targets for erasing Canada's federal debt, which grew by $125-billion since the recession.
Finance Minister Jim Flaherty confirmed Wednesday that the recession has derailed Ottawa's long-term debt plans and new targets won't be set until the government starts posting yearly surpluses again – which is not forecast to happen for three more years.
The minister said rating agencies look favourably at Ottawa's finances but do raise concerns with him about provincial debt loads. He said it's up to provincial governments to balance their books.
The federal debt stood at $582.2-billion for 2011-12, which is up from $457.6-billion in 2007-08.
It was just five years ago that the government was promoting an ambitious plan called Advantage Canada that promised to erase the country's net public debt "by 2021 at the latest," according to Mr. Flaherty's 2007 budget.
Net debt is a measurement that includes federal and provincial government assets and liabilities, including accounts like Canada Pension Plan funds.
"Obviously that target has been stretched," said Mr. Flaherty Wednesday, when asked for an update on Ottawa's long-term debt targets.
Talk of the target disappeared in Ottawa after the recession hit. In recent years, Ottawa has refused requests to provide a long-term assessment of Canada's bottom line. On Tuesday afternoon after the Auditor-General joined the calls for such information, Finance Canada complied.
The department projected federal debt as a percentage of GDP won't be erased until about 2042. It also said Canada's total government net debt stood at 34 per cent of GDP in 2011. When asked directly if his government's new target for erasing the debt is 2042, Mr. Flaherty replied that any new government targets won't be set until Ottawa's back in surplus.
"Our priority now is on the deficit and to eliminate the deficit in the medium term," Mr. Flaherty said. "We're still on track to do that. Once we do that, then we can do as we did before in 2006, 2007, and that is start to use surpluses to – in part certainly – pay off public debt and then we'll be able to plan a schedule for the elimination of federal public debt in Canada."
Though the Auditor-General called on Ottawa to report on the long-term sustainability of provincial and federal finances, Mr. Flaherty said it's up to the provinces to report on their own debt projections.
Opposition parties jumped on the Auditor-General's findings Wednesday, accusing the government of creating a false crisis over public finances to justify changes to Old Age Security and provincial transfers for health and education.
Meanwhile, the fiscally conservative Canadian Taxpayers' Federation said the government should be pressured to stick with its original debt plan, regardless of the recession.
"By abandoning it, they're saying they're adrift," said Gregory Thomas, the federation's federal director. "I think the fiscally conservative base of the government has to be profoundly concerned."
Doug Porter, deputy chief economist with BMO Capital Markets, argues Canada's new recession-era debt load needs to be looked at in perspective.
"It's the reality that almost every industrialized world economy is dealing with this," he said. Targeting the elimination of net debt was a reasonable goal before the recession, said Mr. Porter, but he questions the need for a target now.
"To have the federal government basically mandating a target that the provinces have at least as big a say in is perhaps not a useful exercise," he said. "Canada is still definitely seen as a very favourable investment destination, and part of that is because of the more general perception that our finances are in better shape than most other countries and I think that's still the case."