Blogs are opinion pieces and reflect their author’s views

How Big is the Federal Debt?

It is budget season again and that means it is time for the media and politicians to express outrage about just about everything in just about every government budget.  In my experience these outrages are usually the result of a failure to properly understand some very basic measurement issues.  A good example of this involves the size of the federal government’s debt.

In 1997, the federal government’s net debt – that is, the difference between its financial assets and its financial liabilities – measured $609 billion.  To that point in Canada’s history, that was the largest it had ever been.  That meant that in 1997 every man, woman and child in Canada owed $26,227 in federal debt.  To put it one more way, the federal debt was equal to 70% of our collective income, or GDP. 

In 2012, the debt had grown to $650 billion.  That is an increase of 7% from 1997.  One could legitimately claim that this was the highest level of debt in Canada’s history.  But wait, prices have increased since 1997 and so a dollar today is worth less than a dollar from 15 years ago.  If we account for inflation, the debt has fallen by 23% since 1997.  But population has also increased since 1997.  If we account for both inflation and population changes, by 2012 every person in Canada owed $17,312 in federal debt.  That is a 34% reduction from what was their debt burden since 1997.  But there is more because since 1997 our collective income (GDP) has also increased.  By 2012, federal debt has fallen to 36.5% of our collective income; a fall of 48% since 1997.

Any reasonable measure of the size of the federal government’s debt suggests that it has fallen by a large amount since 1997.  Understanding this is important.  It is important for voters and taxpayers to fairly assess the performance of their government and in so doing give them appropriate signals about what they judge to be desirable adjustments to spending and/or taxes.  Judging our governments by looking at the wrong numbers will only encourage poor economic policy choices.