In her 2021 budget, federal Finance Minister Chrystia Freeland made much of the alleged fact that, despite a binge of COVID-19 spending and resulting massive deficits, Canada is well-placed compared with other western countries.
Specifically, she claimed that we have the lowest net debt ratio among the G7 members.
A brief explanation is needed here. A country’s gross debt is the total amount owing by all levels of government — in our case federal, provincial and municipal.
Net debt is arrived at by subtracting from that larger amount whatever marketable assets these governments possess.
A simple example: Suppose you have a $10,000 car loan. But let’s also say you have a second car worth $5,000 which is all paid off. In this case your gross debt is $10K, but your net debt is $5K, because you could, if needed, sell the second car to pay down part of the loan.
So is Freeland telling the truth? Definitively no.
Here’s what she’s done. Canada’s gross debt is 120 per cent of GDP. That puts us fifth worst among 25 developed countries, and fourth worst among the G7 countries.
Not a happy scene, and certainly no grounds for embarking on an epic spending spree.
But what about our net debt? Here, according to Freeland, we owe just 33 per cent of GDP, which would indeed place us lowest among the G-7s if it were true.
It’s not. She accomplishes this piece of statistical legerdemain by including in our “assets” the holdings of the Canadian Pension Plan, and the Quebec Pension Plan. These are worth half a trillion, and would indeed reduce our net debt by the amount Freeland claims, if in fact they could be considered assets.
But they cannot. By law, all of the CPP and QPP holdings are placed beyond government reach, and are held exclusively for the benefit of retirees. Ottawa cannot claim these funds as assets in order to reduce its gross debt. This is flat-out persiflage.
If we use gross debt as a percentage of GDP, Canada is worsted by only four countries out of 25 — the U.S. (and then only just), Portugal, Italy and Japan.
This is not the kind of company you want to keep.
The countries we should expect to be in line with, such as Germany, France or Britain, far outperform us. Germany’s gross debt as a share of GDP is half Canada’s.
Does any of this matter?
Yes, for two reasons. First, we’re not talking here about the usual sort of hype or selective choice of facts we routinely hear from politicians. This isn’t mere exaggeration.
At best, Freeland is trying to fool us, and at worst she’s just plain lying. But she isn’t some featherhead backbencher. This is the country’s chief financial officer.
Again, there is purpose in this deception. Freeland speaks for a government that has committed itself to nearly unprecedented levels of spending and borrowing.
You have to go back to the Second World War to find anything comparable.
But this amount of borrowing is being justified by a false premise, namely that our debt levels remain healthy.
And that is the real concern. It’s not merely a question of whether Freeland is trying to fool us. The larger issue is whether she and her colleagues are trying to fool themselves.
For down that road lies a very nasty ending.