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Daunting debt: What the pandemic public spending spree will mean for Canada’s post-COVID economy

Click to play video: 'Pandemic blamed for Alberta’s deepening debt, as Canada’s deficit balloons' Pandemic blamed for Alberta’s deepening debt, as Canada’s deficit balloons
WATCH: Despite expecting a lower deficit, Alberta's total debt remains at more than $100 billion due to the pandemic, while Canada deals with a national debt of more than $1 trillion. Jeff Semple looks at how worried Canadians should be about all the spending, and how it's already impacting cash-strapped Albertans – Aug 31, 2021

University of Calgary student Justin Gotta just spent four months looking for a part-time job.

The fourth-year economics major wants to be part of Alberta’s transition to a low-carbon economy but says the pandemic has made the province’s current job prospects even worse.

“To say the least, it’s been really tough,” he said. “I’m extremely worried for my future.”

University of Calgary student Justin Gotta spent four months looking for a job and is worried about what Canada’s “ballooning” debt will mean for his future prospects. Global News

Among his concerns, Gotta points to Canada’s “ballooning” debt.

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“I see it as the bill is being footed on us as young people,” he said.

Over the course of COVID-19, Canada’s deficit has grown faster than any other developed country, with the debt forecast to hit $1.6 trillion this year.

Click to play video: 'Alberta’s projected budget deficit shrinks to $7.8B due to energy demand' Alberta’s projected budget deficit shrinks to $7.8B due to energy demand
Alberta’s projected budget deficit shrinks to $7.8B due to energy demand – Aug 31, 2021

But unlike election campaigns past, there’s been little discussion of balancing the books for the foreseeable future.

“There’s not really much differentiating the three major parties currently in terms of their approach to the federal public finances,” said Livio Di Matteo, Professor of Economics at Lakehead University.

“None of them seem to be particularly preoccupied about the debt. And in the short term, that’s of course quite understandable, in that the pandemic has resulted in an extraordinary level of expenditures.”

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Read more: Did Justin Trudeau’s COVID-19 spending boost live up to the Liberal government’s billing?

Economists largely agree that the pandemic public spending spree is both necessary and manageable, thanks in part to record low interest rates.

“Government debt is not like household debt,” said Alex Hemingway, an economist at the Canadian Centre for Policy Alternatives.

“Governments can borrow over a very long time span. They don’t necessarily ever need to fully repay that debt.”

Hemingway points to Canada’s debt-to-GDP ratio, which compares the country’s public debt to its gross domestic product (GDP). Canada’s ratio is forecast to hit 51 per cent this year — historically high but still significantly smaller than during the mid-1990’s (73 per cent) or the mid-1940’s (109 per cent).

Click to play video: 'Pandemic blamed for Alberta’s deepening debt, as Canada’s deficit balloons' Pandemic blamed for Alberta’s deepening debt, as Canada’s deficit balloons
Pandemic blamed for Alberta’s deepening debt, as Canada’s deficit balloons – Aug 31, 2021

During the Second World War, the government sent more than a million Canadians to fight and built one of the world’s largest air forces and navies.

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To pay for it, Canada ran up record deficits. But in the 1950’s, after the war ended, interest rates were low and Canada’s economy emerged stronger than ever.

“We are in almost exactly the opposite situation now,” said Ian Lee, an associate professor in the Sprott School of Business at Carleton University.

“I really worry about my children and my grandchildren because the debt has become so gargantuan,” said economist Ian Lee. Global News

Lee was born in 1953 after his father returned from the war. He was one of four siblings, which was about the average at that time. Canada’s birth rate today is around 1.5.

Economist Ian Lee was born in 1953 and had three siblings. The current birth rate is around 1.5 and Canada’s ageing population is expected to send health care costs soaring. Ian Lee

“We’re almost at the other end of that continuum where the boomers are moving into retirement,” Lee said.

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“This large cohort is moving completely into retirement and there’s many fewer younger people behind us because of the collapse of the birthrate. So, that that comparison to the 1950s just simply doesn’t hold demographically.”

In the coming decades, Lee warned Canada’s ageing population will send health care costs soaring. And when interest rates eventually rise, the government debt will make it harder to pay those bills.

Daunting debt: What the pandemic public spending spree will mean for Canada’s post-COVID economy - image

“We’re not able to borrow our way through this,” said former Bank of Canada Governor David Dodge.

He expressed concerns that Canada’s growing debt-load and monetary policy have been mostly ignored during the current election campaign. The Conservative party is promising to balance the books within 10 years, while also promising billions in new spending.

Justin Trudeau was recently asked by a reporter whether a re-elected Liberal government would consider allowing the Bank of Canada to have a higher tolerance for inflation to avoid raising interest rates.

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Trudeau seemed to dismiss the question: “When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy,” he said. “You’ll understand that I think about families.”

Dodge called Trudeau’s response a “very flippant, stupid answer.”

“It’s really wrong. After all, how have you been able to deal with this (pandemic) so far? He’s been able to deal with it so far, because he’s been able to borrow.”

Click to play video: 'Canada election: O’Toole pledges to balance Canada’s budget ‘without cuts’' Canada election: O’Toole pledges to balance Canada’s budget ‘without cuts’
Canada election: O’Toole pledges to balance Canada’s budget ‘without cuts’ – Aug 31, 2021

Dodge called on the next government to grow the economy through investments in green energy and housing. But unless government spending is curtailed in other areas, those investments will require further borrowing and additional debt.

A recent report by the Parliament’s budget watchdog found that without policy changes or tax increases, Canada will not post a surplus until the year 2070.

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“We have three parties running for election: Spend, spend more and spend even more,” Dodge said.

“I think the campaign has not been very helpful in sensitising Canadians to the situation that they’re going out to make these major investments over this next decade. And that means, reducing our expectations on consumption a little bit so that we have room to make that investment.”

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