B.C. Business Matters:
Jock Finlayson >>
A Snapshot of Government Debt Across the Land
The start of the 2014 government budget season is an opportune moment to update the figures on accumulated public sector debt for Canada’s ten provinces as well as the national government.
Let’s start with the federal government, whose financial situation was summarized in the budget presented by Finance Minister Jim Flaherty on February 11, 2014. According to Mr. Flaherty, Ottawa is on track to eliminate its annual operating deficit in two years’ time, by 2015-16, after racking up a string of budget deficits in the wake of the 2008-09 global recession. The return to deficits came after a decade of budget surpluses that had the effect of significantly reducing the federal government’s nominal debt. As a result of the red ink spilled since 2008, Ottawa’s debt has been climbing again, both in absolute terms and when measured as a proportion of gross domestic product (GDP). The figure below shows the path of the federal government’s debt/GDP ratio as well as the actual amount of debt. For the current fiscal year (2013/14), the debt/GDP ratio stands at 33%. Going forward, it is expected to decline slowly before reaching about one-quarter of GDP in 2018/19. This projection assumes consistent budget surpluses beginning in 2014-15 and modest economic growth over the next several years.
Turning to the provincial level, the BC budget tabled on February 18 reports that the province’s net debt will amount to almost $42 billion in 2013-14, equal to 18.5% of British Columbia’s GDP. As with the federal government, BC’s net debt/GDP ratio has been rising since the 2008 economic downturn, owing to a period of generally sluggish economic growth, annual government operating deficits, and borrowing to fund capital spending on infrastructure and other physical assets in the broad provincial public sector. But the BC government sees this trend reversing, with the debt/GDP ratio expected to edge lower over the next three years, to 17.8% by 2016/17. It should be noted that BC, like other provinces, undertakes “off-budget” capital spending that is not captured in the government’s annual operating budget. The borrowing required to fund capital outlays shows up in the figures for net public sector debt, however. The federal government differs from the provinces in that it includes its capital expenditures as part of the regular budget.
How does BC stack up against other Canadian provinces when it comes to the relative burden of provincial government debt? Answering this question requires that we look at the levels and trends in the provinces’ net debt/GDP ratios. Table 1 below summarizes the net debt/GDP ratios for all ten provinces in three years: 2000-01, 2007-08 (just before the most recent recession), and the current fiscal year, 2013-14. It is interesting to observe that British Columbia had a smaller government debt burden than most other provinces over the entire period. Today, only Alberta and Saskatchewan are in a stronger financial position than British Columbia, based on the key metric of net provincial debt as a proportion of GDP. Worst off are Quebec, where net government debt is equivalent to half of the province’s GDP, and Ontario, Nova Scotia and PEI, which have debt/GDP ratios approximately twice as high as that in British Columbia.
Table 1: Provincial Government Net Debt/GDP Ratios
(net public sector debt as % of province's nominal gross domestic product)
|* Because Alberta has financial assets that more than offset its public sector debt, Alberta's net debt/GDP ratio is reported as a "negative" number.
Source: RBC Economics, "Canadian Federal and Provincial Fiscal Tables," January 16, 2014. Note that the 2013-14 data for British Columbia is from the February 2014 BC Budget.
 Net debt is defined as total provincial debt minus the debts of certain financially self-supporting Crown Corporations.