Is Canada’s Debt Situation Worse Than it Appears?


It has been found that the federal government of Canada has cut its spending much more than it promised during the last election campaign.(3)  It also is not obvious where this spending was cut. What are the reasons for this? Is there worry that Canada’s deficit is a problem and that these cuts should not be announced? The conservative government now has a majority, so there doesn’t appear to be a risk in losing that majority over a fiscal decision that may or may be made. In fact, the majority has been made even stronger by the number one competitor, the Liberal party having no leader for Canada, nor for Ontario or Quebec – Canada’s two most influential provinces by vote.

Is the spending decline justified because the economy does not need it? Looking at the news of the past year, this does not seem to be the case. Canada exports more than it imports, so trade is very important. Since Canada has many natural resources, the target markets of the United States, China and Europe would affect the GDP. All three of these regions are in growth slowdown mode, and two of them are in debt crisis mode, which would not bode well for economic growth. It appears to be the opposite – Canada may be cutting spending because it may need to do it to balance the books in the next few years. If the spending cuts were enacted to ambitiously reduce the debt, this would have been made public. The news however is indicating that Canada has scrapped its debt targets. (1) This implies that these targets likely will not be met. The spending cuts may also be required for servicing the current debt. The debt itself has also been increasing over the last 5 years since 2008. (1)

Add to the mix the persistence of Mark Carney telling Canadians that consumer debt is a problem (5)(6), and it appears that the government is in damage control or prevention mode. Is this prudent? It depends. If the debt will become a problem, the moves made by the Canadian government may in fact be very intelligent. The lack of awareness of what is going on however may prove to be detrimental if fear within the masses throws a wrench in the fiscal plan.

Sources:

1)      http://www.theglobeandmail.com/news/politics/ottawas-long-term-debt-plans-shelved/article4649919/

2)      http://www.theglobeandmail.com/news/politics/federal-deficit-grows-slightly-but-ottawa-benefiting-from-low-interest-rates/article4679665/

3)      http://www.theglobeandmail.com/news/politics/tories-went-off-2011-script-quietly-cut-spending-by-8-billion/article4786271/

4)      http://www.thestar.com/news/canada/article/1276622–central-bank-faces-challenge-over-consumer-debt-mark-carney

5)      http://www.ottawacitizen.com/business/fp/Containing+Canada+household+debt+problem+requires+vigilance/7475646/story.html

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About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

2 Responses to Is Canada’s Debt Situation Worse Than it Appears?

  1. J avoue qu il y a un long moment que je n avais pas lu un billet de ce niveau !!!

  2. Compliment, c est un plaisir de vous lire

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