“Politically, it’s easy to ignore debt because it’s a slow-burning problem in the background. When it’s not your money, there is much less sense of urgency”


billion. That amount could finance 400 tickets for trips to the moon and back. So how did we get this far down the debt hole — and is there


any way back up? Some experts say we’re headed for another fiscal crisis before it gets better. Many agree that leſt unchecked, this spending trend could turn into a permanent ball and chain on future generations. “Politically, it’s easy to ignore debt because it’s a slow-burning problem in the background,” Wudrick says. “It’s not like get- ting your mortgage bill and seeing the consequences of not paying your debt. When it’s not your money, there is much less sense of urgency and the problems are only evident when you hit a crisis.” Nevertheless, rising interest rates are an immediate concern,


in Wudrick’s view. “Even if everything stays the same, [the $26 billion we are paying in interest] will eventually rise to $30 billion and taxes will go up,” he says. “[And] why would a young person want to stay here if they have to pay more taxes?” Wudrick links Canada’s downward debt spiral to the unre-


strained growth in government spending over the past decade. According to the Fraser Institute, while the federal government substantially reduced its debt between 1996 and 2008, it began running deficits over the next eight years that cumulatively amounted to nearly double what it had managed to cut. A TD bank report released in early 2016 estimated that the federal government is on track to rack up $150 billion in budgetary defi- cits by 2021. With an aging Canadian population just starting to leave the workforce, Wudrick believes we are headed for decades of shrinking per capita incomes and eroding wealth. He points out that there were 5.4 workers for every retiree in 2000 and by 2030 there will be only 2.7. “So consider there will be far more people receiving benefits like CPP and fewer people to carry the burden,” he says, adding that eventually our pension program may simply go bankrupt. “There are people who think we should spend more in a


downturn, but that shouldn’t apply now that we’re not in a reces- sion,” says Wudrick. “Government has chosen to ignore this and focus on spending and it’s going to come back to bite us.” That said, we’re not the only spending hounds around


and Canada hasn’t quite made the world’s top-10 list of over- indebted countries. According to the Organization for Eco- nomic Co-Operation and Development, we rank 11th out of 32 developed countries with the highest total gross debt to GDP (which includes debt from all levels of government). Meanwhile, in October 2016 the International Monetary Fund (IMF) reported that the global debt of the nonfinancial sector (com- prised of government, households and nonfinancial firms) has hit an all-time high of US$152 trillion or 225% of the globe’s


46 | CPA MAGAZINE | MARCH 2017


gross domestic product. In terms of government debt, Japan leads the pack with a debt-to-GDP ratio of more than 200%. Globally, only about a third of advanced economies have


made inroads in improving general government net worth (including reducing their debt) since 2012, and those inroads have been minimal at best, according to the IMF. And we have low interest rates to blame for it. Initiated by central banks to counter the effects of the global financial crisis in 2007-’08, this prolonged period of low interest has created an environment that makes it more challenging to tackle outstanding debt: with interest rates so favourable, there’s no incentive to pay back our dues any time soon. The money being spent on servic- ing this debt means less revenue for priorities such as tax re- lief and spending on social services and healthcare. Danielle Park, president and portfolio manager of Venable


Park Investment Counsel, a chartered financial analyst, regular media commentator on global money matters and best-selling author of Juggling Dynamite: An Insider’s Wisdom about Money Management, Markets and Wealth that Lasts, says paying down debt is contra to our DNA. “Everywhere you look around the world, when cash flow is great, people spend their brains out and borrow more,” she says. “It would be wonderful if instead they paid down debt and built up savings, but as a whole we just don’t think that way.” While some argue that countries, unlike individuals, have an


infinite lifespan to borrow and repay debt, Park says reckless spending on a national level that doesn’t improve a nation’s productivity over the long term will result in major inefficiency and waste. “We saw it in 1993 where we had a federal debt crisis in Canada when our interest rates spiked because we had too much debt relative to our GDP,” she says, adding that histori- cally that has been the case in every country. “Yes, there is an intelligent amount of borrowing that can go on to invest in a long-term asset such as a railway, but that’s entirely different than borrowing money to bail out banks time and time again, for example, because they have been doing reckless things.” Park points to the example of China, which accumulated


US$4 trillion from selling goods to the West. When the eco- nomic downturn hit, the Chinese government stockpiled its warehouses with raw commodities that it bought from various countries, intending to use them to make products that it would sell to the West when consumption came back. But it never did. “Rather than tackling their debt or doing things to promote pro- ductivity in their own country, they were up to their eyeballs in commodities and are struggling with that to this day,” she says. Similarly in Canada, the federal government announced a


stimulus package in 2009 to rouse the economy aſter the global recession. “And Canadian consumers went back to spending


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