OECD issues warning for government and household debt

Canadian debt levels are a risk to economy and growth

The Organization of Economic Co-operation and Development (OECD) has released its economic outlook concluding that Canada is in the worst shape compared to nations around the world when it comes to households and businesses borrowing money. These debt burdens are causing a high risk to our economy as a whole and current economic growth levels.

With the two massive annual budgetary deficits and about $38 billion borrowed over the first two years (despite their own promise to have three “small” $10 billion deficits) the Liberal government, by the fourth quarter of 2016, had managed to put Canada’s debt level above that of the United States and China. The OECD observes that, “Indebtedness of households and non-financial corporations in many advanced and emerging market economies is high. In many countries, it is continuing to rise.”

This is important because in 2015, the federal government had a balanced budget. Going forward, the federal government was set to operate “in the black”; no longer growing the accumulated national debt (over $645 billion). In fact, Conservative governments always pay down on the accumulated debt when operating without a budgetary deficit. The current Liberal government refuses to announce a date when it will operate with a balanced budget. Some economists predict that if the Liberal government continues their borrowing, it will be 2055 before the federal books can be balanced again.

The Liberals claim that their massive borrowing will grow the Canadian economy to the point where in the future (they don’t stipulate a particular year) these deficits will be ‘overshadowed’ by tax revenues flowing to the federal government from high annual economic growth levels. That’s what led Justin Trudeau to infamously conclude in 2015 that “the budget will balance itself.” Canada’s current relatively high growth levels are short or medium–term at best according to the OECD (and many would say a result of a growing U.S. economy – Canada’s largest customer).

Normal growth levels are bound to return soon and hopefully we will not experience low or negative growth levels. The OECD warns that financial shocks, international incidents, and a host of other calamities could force positive economic growth numbers to be insufficient or even disappear. In the interim, too many Canadian households and businesses are borrowing too much to finance real estate, energy, regulatory, taxation and other costs.

Interest payments must continue to be made and selling-off assets to pay interest or reduce debt loads are not so easy or lucrative when markets are tight and potential buyers are also debt-strapped. This OECD report means that the over-taxing and deficit–ridden Liberal government will be able to do very little to help Canadians in the event of an economic crisis.

The Liberals have broken too many of their promises since being elected and they have disappointed too many Canadians with their failure to deliver ‘sunny ways’ and real change for the average Canadian family. Now, Canadians are facing higher risks for the debt we incur while operating our households and businesses. The OECD has given us ‘fair warning’ and as your Member of Parliament, I report that to you.

If you have any questions or concerns regarding this or previous columns you may write me at 4945-50th Street, Camrose, Alberta, T4V 1P9, call 780-608-4600, toll-free 1-800-665-4358, fax 780-608-4603 or e-mail Kevin.Sorenson.c1@parl.gc.ca.

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