Facts and Fictions about Government Finance in Canada

Nearly a year ago, we published a report digging into the facts and fictions about government finance in Canada. In it, we concluded that “Canada is in a very enviable fiscal position globally and is not on the brink of experiencing a debt sustainability crisis.”

Since then, we have received new estimates and forecasts of government fiscal circumstances here and around the world. But the conclusion we reached in 2023 hasn’t changed. As we’ve said in the past, Canada remains one of the cleanest dirty shirts in the fiscal laundry basket.

On a total government basis, the IMF expects Canada to run the smallest average annual deficits in the G7 plus Australia, New Zealand and Spain over the next 5 years. The same is true for the federal government for at least the current fiscal year, although the latest monthly numbers from the Fiscal Monitor suggest that top ranking could be at risk. (See our recent note on the in‑year federal deficit tracking.) Keep in mind this is just a comparison of actual and projected budget balances, and isn’t an endorsement of any specific fiscal policies.

Looking to gross total government debt to GDP, Canada is middle of the pack. But on a net debt basis, Canada leads most advanced economies, in large part due to financial assets held by public pension plans. When drilling down to just central governments, Canada’s net debt as a share of GDP is broadly in line with other top-ranked countries like Australia, Germany and New Zealand.

Canada’s relative fiscal outperformance is not a new story. But it’s one that is seldom told at home despite being widely recognized internationally. However, this is an important story that more Canadians should be aware of. Indeed, a common understanding of a shared set of facts will help them to better decide whether fiscal policy in Canada is heading in the right direction. Otherwise, they risk basing their views and decisions on works of fiction.