Vision, courage and resolve needed to tackle the national debt

By Walter Robinson
web posted December 13, 1999

While much of the pre-budget debate has focussed on the immediate and pressing need to substantially cut federal income taxes, the need for future tax cuts by reducing the national debt is as equally important.

Canadians are acutely aware that they languish under the highest personal income tax burden in the G-7. They also know that their business or that of that of their employer is subjected to an extremely punishing corporate income tax burden - second only to Japan - amongst our trading partners.

But if you ask Canadians about the size of the national debt, its structure or the current debt-to-GDP ratio, their economic literacy on these questions pales in comparison to their knowledge of the tax burden.

This lack of knowledge has allowed the federal government to reduce the national debt at a snail's pace yet pass off this effort as substantive.

And the Finance Committee's pre-budget report clearly shows that the feds are content to continue with this leisurely pace of setting nebulous debt-to-GDP targets as opposed to specific actual debt reduction targets.

However, if taxpayers would take the time to read the Government of Canada's annual Debt Management Report (released on November 30), they would be better equipped to press Ottawa for more substantive and accelerated debt reduction. Consider the following debt facts:

  • Gross public debt is $640.3 billion. This is comprised of $460.4 billion in market debt and $179.9 billion in non-market debt (pensions, etc.) Subtract out cash reserves and the net public debt stands at $576.8 billion.
  • Of the $460.4 billion in market debt, $420.4 billion is denominated in Canadian dollars with another $36.0 billion in foreign denominations and $4.1 billion in CPP bonds.
  • Of this $460.4 billion, Canadians own $346.0 billion of their debt. The biggest domestic holders are life insurance companies and pension funds who collectively hold 28 per cent followed closely by public and other financial institutions at 23 per cent. Chartered banks round own 20 per cent.
  • Debt servicing charges amount to $41 billion/year. That's $112 million/day. Therefore, 27 cents out of every federal tax dollar is goes to bond holders.

Meanwhile the federal government continues to sock away a mere $3 billion a year in a contingency fund (and increasing by an extra billion cumulatively over the next four years) to be used for debt reduction if it's not needed for anything else. At this rate it will still take almost 100 years to pay down our $576.8 billion dollar debt that was racked up over the past 28 years. This is tantamount to intergenerational tax evasion.

It is why the CTF pressed for a legislated schedule of debt reduction in its recent submission to the House of Commons Finance Committee. Annual amounts of $7 billion should be set aside for the next three years for debt reduction and this amount should increase to 9 per cent of personal income taxes collected each year. By having a line item on the books for debt reduction (just like provincial transfers and public pensions) instead of a rainy day account, the federal government could whittle down our national debt to zero in the space of 50 years or less.

But don't hold your breath for this plan of action in the next federal budget, such an approach requires vision, courage and resolve … qualities sorely lacking in Ottawa when it comes to the national debt.

Walter Robinson is the Federal Director of the Canadian Taxpayers Federation. The Debt Management Report can be found at www.fin.gc.ca. The CTF pre-budget submission is on-line at www.taxpayer.com.




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