Skip to main content
Access every election story that matters
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Access every election story that matters
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
// //

Then-federal finance minister Bill Morneau, centre, his deputy minister Paul Rochon, left, and Deputy Governor of the Bank of Canada Carolyn Wilkins, right, prepare to meet with provincial and territorial finance ministers in Ottawa, on June 19, 2017.

Fred Chartrand/The Canadian Press

Possibly we will discover the departure of Paul Rochon as deputy minister of finance the day after the fall economic statement was not entirely coincidental. Were I in his place, I would not wish to be associated with that dog’s breakfast of bookkeeping tricks, uncosted spending and rosy scenarios, either.

If it was not clear on the day, it is abundantly clear by now that the government is quite literally keeping two sets of books. The random bits of deceit strewn throughout the document – the “3 to 4 per cent of GDP” stimulus that is actually a third of that amount; the subtraction of $16-billion from program spending by renaming unexpected increases in the cost of government employee benefits as “net actuarial losses”; the casual “oh, by the way” revelation that last year’s deficit was $20-billion over budget – are but a distraction from the larger duplicity, which is that the headline figures for spending, the deficit and the debt are utterly invalid, if not altogether meaningless.

What is the point of laying out a five-year track for, say, the deficit, showing it declining majestically to $25-billion from $382-billion, only to acknowledge that none of this actually applies – that the actual deficit for any given year will be at least $10-billion and as much as $50-billion more than what was just announced, once promised-but-not-costed “stimulus” spending is added in?

Story continues below advertisement

What meaning do we attach to spending projections that leave out, not only the $100-billion over three years for “stimulus,” but also the (unstated, but likely in the tens of billions annually) cost of a universal child-care program, national pharmacare, plus a sizable reform of the fiscal stabilization program, all of them promised in the same document? We are accustomed to projections that are rendered meaningless by future budgets – spending in future years almost always exceeds what was forecast, often by a wide margin – but it is a little much to see them issued and invalidated on the same day.

The government keeps two sets of books for two sets of voters: the ones it wants to keep tantalized with the promise of billions in new spending, to be delivered just in time for a spring election, and the ones it wants to keep reassured that the whole thing can be afforded without significant tax increases. The media can be relied upon to give prominent play both to the unbudgeted increases in spending and the deficit and debt figures that exclude them, while the contradiction between the two is consigned to paragraph 19.

So while officially the debt-to-GDP ratio will peak somewhere south of 53 per cent in 2022, declining gently thereafter, once you account for future spending increases (announced and unannounced), a worse-than-best-case impact of the pandemic and possible-to-probable increases in interest rates, the actual number is almost certain to exceed 60 per cent.

But not to worry – interest rates are at historic lows! And even if they should rise, the government has a plan to “lock in” the current record-low cost of servicing the debt by financing more of it with long-term bonds and less of it with shorter-term securities. Which is fine, as far as it goes. But while long-term bonds – over 10 years maturity – will make up a larger share of the government’s total borrowing this year, it’s still a relatively small proportion: 15 per cent versus 6 per cent last year.

Indeed, through the first eight months of the fiscal year, it was less than 10 per cent. The vast majority of its borrowing is in treasury bills and short-term bonds – the kind that have to be rolled over frequently and thus leave the government exposed to increases in interest rates. The statement claims “every country faces the same challenge.” But in fact Canada issues a smaller proportion of its debt in long-term bonds than any Group of Seven country except the United States. Britain and Germany have financed more than 40 per cent of their borrowing this year in the long end of the market; Italy, more than 25 per cent; France, almost 20 per cent.

The point that has to be emphasized about this depressing picture is this: The feds aren’t the problem. Neither is the fiscal crisis we are rapidly approaching really about the pandemic or other short-term dilemmas. The real problem is long-term – and provincial. The federal debt-to-GDP ratio may have jumped 20 points in the space of a year but, barring a really catastrophic increase in interest rates, is still probably sustainable in the long term.

The provinces are another story. The pandemic made things worse, but the country’s provincial governments were already heading for trouble without it, thanks to the remorseless arithmetic of population aging, with its crushing combination of higher costs (mostly for health care) and lower revenues (with fewer people of working age to earn income or pay taxes on it). On a standard set of assumptions, the provinces’ collective debt-to-GDP ratio is likely to hit 120 per cent by mid-century.

Story continues below advertisement

That’s the average. For some provinces the ratio could be two or three times that amount. Which means that much of that provincial debt is, effectively, federal debt. Newfoundland is already in the midst of a slow-motion bailout by the feds. Others could follow. And why not? What incentive do any of them have to do the hard work of putting their finances back in order if they can count on Ottawa to spare them the trouble?

For that matter, what incentive does the federal government have, so long as it can count on the Bank of Canada to bail it out? The main reason all this borrowing, in Canada and around the world, has not pushed interest rates higher already is that central banks have been financing much of it. The Bank of Canada is currently buying $4-billion in bonds every week on the open market, plus 13 per cent of every auction. All told, economists at the Bank of Montreal calculate the central bank is “on track to buy just under 80 per cent of gross issuance this year.”

Eventually, the bank will have to start to unwind this unprecedented expansion in its balance sheet or risk seeing inflation ignite. That should be fun.

Keep your Opinions sharp and informed. Get the Opinion newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies