Poilievre’s “debtonation” is much ado about nothing

In his ongoing attempt to become the Jordan Peterson of elected officials, Pierre Poilievre has released another lengthy, laboured video about the policy failings of the Trudeau government. This time, it’s the first in what will apparently be a four-part series on Canada’s so-called “debtonation,” an awkward portmanteau that suggests an imminent reckoning. Poilievre invokes the wisdom of Seneca, Churchill, and Ecclesiastes (Laurentian elites, anyone?) to argue Canada is careening toward a Greek-style debt crisis — and that, of course, only he can prevent it from happening.

It starts, as most of Poilievre’s political messages tend to, with a misleading representation of reality. Canada, the video ominously intones, has racked up $10 trillion in debt, more than three times our annual GDP, and it’s about to blow up in our faces. But this deliberately commingles personal and corporate debt with government debt to make the number as large as possible. It ignores the fact that household and corporate debt is more than covered, by many, many multiples, by underlying assets they helped finance.

As University of Calgary economist Trevor Tombe wrote in a recent piece for The Hub, this framing of household debt is misleading. As a percentage of assets, Canada’s household debt is just a smidge over 15 per cent, which is where it’s been for most of the last 30 years. “It’s actually on the relatively low end of things historically,” Tombe says.

But what about government debt? Here, too, Poilievre is bending the truth to his purposes. As Tombe pointed out, the net debt of all Canadian governments (federal and provincial) was 20 per cent of GDP as of 2022. In the United States, it’s nearly six times as high. Only a small handful of mostly central European and Scandinavian countries have a better ratio than Canada, with major G7 peers well behind.

What really matters is the government’s debt-servicing costs, which were the impetus behind the Chretien Liberal government's deep spending cuts in the 1990s. As the Globe and Mail’s Mark Rendell wrote back in September: “We’re still a long way from the fiscal crisis of the early 1990s, when the federal government was spending more than 30 cents of every dollar it collected on interest payments. The budget projects an interest expense-to-revenue ratio of around 9 per cent in the coming years. That’s up from an average of 7 per cent in the five years before the pandemic, but still low by historical standards.”

You might be wondering: given the nearly continuous increase in the national debt, why hasn’t Canada’s “debt bomb” exploded yet? As Poilievre notes, it’s because interest rates have remained low for most of the last few decades. Right now, Canada’s combined $10 trillion in debt carries an average interest rate of 4.72 per cent, while the historical average over the last six decades is 7.6 per cent. “What happens if at some point down the road, the interest rates paid on our debt return to their normal historical averages?”

This is the crux of his argument: if it happened before, it’ll happen again. As he says in the video: “What has been, will be again. What has been done, will be done again. There is nothing new under the sun.” But when it comes to interest rates, this is almost certainly incorrect. Central bank interest rates haven’t hit seven per cent in Canada since the late 1990s, and an awful lot has changed since then. When you account for the deflationary impacts of technology and declining energy prices (sorry Pierre!) along with rapidly slowing global population growth, the odds of interest rates averaging above seven per cent going forward (or even anywhere near it) are almost impossibly small. If Poilievre is taking bets here, I’m happy to make a friendly wager.

It’s tempting to challenge Poilievre even further on his underlying thesis here. Instead, let’s take him at his word. Let’s assume he’s genuinely worried about a potential debt crisis and its impact on mental health, suicide rates, and other potential negative outcomes. How, exactly, does he intend to shrink Canada’s debts? What programs and services will he cut to balance the federal budget so he can start paying them down? Eliminating the CBC won’t get the job done. Neither will getting rid of the ArriveCan app or any other ideological hobby horses he and proxies like Melissa Lantsman trot out when asked this question. Where are they going to find the $40 to $60 billion in annual savings in the federal budget?

One seemingly inevitable answer is new tax cuts for businesses and the rich — sorry, “job creators.” But as we’ve already seen in the United States, that only makes the hole they’re supposedly trying to plug even bigger. The massive tax cuts passed by Presidents Bush and Trump — ones that, remember, were supposed to “pay for themselves” — have already added $10 trillion to the U.S. national debt. “Without them,” the Center For American Progress noted, “debt as a percentage of the economy would decline indefinitely.”

The truth is that there are no free lunches here, and we should be wary of anyone trying to sell one. Governments can’t rack up debt indefinitely without it eventually constraining the choices and opportunities of future generations. But governments also can’t implement the deep spending cuts (or tax increases) needed to meaningfully reduce our national debt without hurting some people along the way. What we need is a serious conversation about the trade-offs involved, not politicians who pretend they don’t exist.