Debt levels fall as governments balance budgets: Fraser Institute

(April 24, 2003) Canadian government debt is on the decline thanks to the recent focus on balanced budgets, according to a study released today by the Fraser Institute. Federal, provincial and municipal debt was $797 billion in 2001, down from $851 billion in 1996. However, the debt drop was more than offset by increases in liabilities, such as health and pension programs, the study says.

Although the debt decline is relatively small, at 6%, it’s still good news, says Jason Clemens, the Fraser Institute’s director of fiscal studies. “Governments have begun to balance their books and some have started paying down their debt,” he says.

Unfunded liabilities, where the future benefits exceed the future expected revenues, such as the CPP, OAS and Medicare, increased $266 billion over the same five-year period to $1.4 trillion, the institute says. “The concern lies in the size of these obligations and what this implies for the future health of these programs,” the study says.

The problem is a demographic one, dating back to the programs’ creation in the 1960s, economist Nils Veldhuis says, when researchers assumed birth, income and wage growth would remain constant.

“Those assumptions proved to be overly optimistic,” he says, adding that declining birth rates, stagnant income growth and decreasing mortality rates will continue to undermine the ability of pension and health programs to provide the intended level of benefits.

“Government should determine what percentage of their revenue will likely be required by existing programs over the next 50 years and justify any new spending to Canadians,” says Veldhuis.

The Fraser Institute estimates that combined debt and liabilities add up to $83,927 for each Canadian citizen.

“Our most important message is that achieving and maintaining a balanced budget is only the first step toward fiscal responsibility,” Clemens says. “Debt reduction and the proper funding of obligations, such as OAS, are also essential to Canada’s economic health.”

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca