Deficit to reach almost $20 billion – does it matter?

Ben Ronald / March 20th, 2019

The Federal Budget contains money for millennials, seniors and indigenous people
(pixabay)

2019 is the year the Trudeau government was supposed to balance the budget. Instead, the federal Liberals announced they would run a $19.8 billion deficit.

The budget, which includes $22.8 billion in new spending over five years, also projects a $15 billion dollar deficit in two years, falling to $10 billion in 2024.

Though billion-dollar deficits seem to grab everyday peoples’ attention, how significant is a $20 billion deficit in a country whose overall GDP is over $1.5 trillion?

“Countries can run ongoing debt so long as the debt-to-GDP ratio remains stable. It’s like a credit card: as long as you manage it wisely, you’re fine. ” Kevin Wainwright, PhD Economics

Some economists look at the debt-to-GDP ratio as a better measure of a country’s economic health than looking at overall debt. And given Canada’s relatively good standing in this regard, there might not be too much cause for concern.

“It looks like the debt to GDP ratio has gone down over the last 6 quarters (…) which most economists would consider positive,” said Ron Correll, BCIT School of Business.

In 2017, Canada ranked seventh among G20 countries with respect to debt-to-GDP at 89.6%; higher than the United Kingdom (84%) but much lower than the U.S. (105%) and Japan (253%).

Macroeconomics has long theorized that running deficits leads to inflation, which can drive counties into recession and shrink GDP growth. Though, this theory has come under scrutiny.

Either way, Canada is in a relatively better position than it was in 1997, when debt-to-GDP was in excess of 100%. 

Debt to GDP Ratio in Canada 1980-2017


source: tradingeconomics.com

“These anticipated deficits are less than 1% of GDP. Given the modest relative size, the debt-to-GDP ratio should trend gradually lower.” TD Bank, Federal Budget 2019 scorecard

The opposition Conservatives have derided the spending measures in the 2019 budget. Saying that prolonged deficits are untenable and will lead to tax increases in the future.

Meanwhile, Jagmeet Singh and the NDP criticized the budget by saying it doesn’t include enough for the average Canadian.

MP’s will debate the budget in Parliament starting today, with a vote expected to come Thursday or Friday.