Of the hundred-some-odd pages' worth of commitments in the Tories' Economic and Fiscal Update, none caused as much of a stir as the aspiration to eliminate Canada's net government debt by 2021. “Foul!” cried the press and the Opposition. “You're not talking about the 'real' national debt. That will take 160 years to pay off under your plan not 15.”
Which side was right? Actually, both. And neither.
Balance sheets can be tricky things. For an individual, it's pretty simple. You add up assets like your house and your stock portfolio, subtract liabilities like your mortgage and your credit card balance, and presto, you've got your net worth (which, if it's negative, is your net debt). For a business, it can be a lot more complicated, often requiring contentious judgments on both the asset side (like the value of a brand) and the liability side (like the potential cost of future lawsuits). In business, it also matters where you draw the lines: the balance sheet for the operating portion of a certain energy-trading concern looked fine; obviously, not so much for the one that properly included all of its affiliated entities.
For a sprawling entity like government, getting a handle on the balance sheet can be even more complicated. The Tories' “no debt” view for 2021 was on a measure called total government net debt, which includes the positions of provincial and territorial governments and the public sector pension plans (CPP and QPP). It's a perfectly valid measure of the public sector's balance sheet, used by the Organization for Economic Co-operation and Development for cross-country comparisons. For Canada, that figure now stands at about $415 billion, and will go to zero by 2021, based upon the reasonable projections laid out by the government. The federal government's debt would still be sizable only a bit smaller than the current $481 billion but it and the provincial debt would be offset by growth in the already-sizable surpluses building in the pension plans.
“Foul!” you may cry again. “Those pension surpluses shouldn't be counted. The government owes us that money in retirement.” Well, to whom do you think the government owes its own current debt? Only about $58 billion of it is really “national debt” in the sense that it's owed to holders outside of Canada; the rest we already owe to ourselves.
Ideally, what we want to know is the true big picture: what are the government's total obligations that will eventually have to be met, including promises not only of pensions but also of health care and the like, and what resources does it have available to meet them? Unfortunately, attempts at an answer here are even more wildly divergent. A 2003 International Monetary Fund study estimated that Canada's total government net debt, including the implicit debt related to the future unfunded obligations of current policy, totalled more than 400% of GDP, or about $5 trillion. That was even worse than in the United States, where total net debt was only about 260% of GDP. But a recent international study conducted by Standard & Poor's estimated that Canada would actually have a net asset position even in 2050, compared to U.S. net debt of 350% of GDP. Two independent studies one says we're in fine shape, the other says we're basically broke.
In fact, no one really knows what the government's true all-in financial position is, to the extent that such a truth even objectively exists. But we do know two things. One, our population is aging. Two, what doctors can do for us improves every year. Put the two together, and we can be confident that the draws on the public purse will get ever larger in the decades ahead, absent changes in policy. We can be further confident that the debate on how policy will have to evolve so we can afford our society will intensify. The sooner that debate gets going, the better, in my view.
But in the meantime, one thing the government can do is not make things worse. Making things worse would mean running big current deficits and thus piling on still larger future obligations, as a number of countries (notably the United States) seem to be doing. On that, we now seem to have a national consensus, with the Tories' commitment to balanced budgets as firm as the Liberals' before them. So long as we all agree on that one, we're going in the right direction whatever definition of our current position anyone wants to use.