Debt is bad for your financial health; too much debt is even worse.
That sentence sums up the popular and majority attitude of Canadians toward debt.
Still we continue to keep racking up debt at the personal, municipal, provincial, and federal levels as if there were no tomorrow.
Reasons for fearing debt vary from having less money to spend after debt payments to possible bankruptcy and loss of possessions as debt overtakes ability to repay.
Older people, the generation from the 1930s Great Depression and the one after, often have an attitude that debt is sinful — a repercussion of what happened to borrowers in the Great Depression.
Leaders and financial experts continue to warn about personal high debt levels. Nobody apparently pays attention.
The Bank of Canada reports Canadian consumer debt has reached 173 per cent of income, an increase from 150 per cent 10 years ago.
Total provincial debt levels have increased by 24.5 per cent in 10 years with federal debt levels up almost 13 per cent in 10 years to $631.9 billion, not to speak of municipal debt.
On Coffee Row one hears the question about government debt: how are we going to pay it back?
The significance and devastation of debt depends on how much control the borrower has of the situation.
For personal or corporate debt, there is little control. If you live beyond your means too long, bankruptcy and fire sale of possessions is inevitable.
Municipalities face the same scenario with the possibility that senior governments might bail them out.
Provinces have some control over debt other than an end to spending. Provinces have numerous tax and fee raising opportunities to make interest payments and the possibility of federal bailout.
The federal government has more ways of handling debt than others. The feds can use high debts to manipulate foreign exchange rates, even improve the economy. And federal governments have a broader tax base than any other government level.
With the exception of Alberta in 2007, no provincial or federal government has ever repaid all its debt or intended to do so. Alberta did it for political show-off purposes.
Key to government debt is managing debts in tune with Gross Domestic Product (GDP) — total income in the jurisdiction.
Keeping debt levels below 33 per cent of GDP seems to be the worldwide benchmark. At that level interest levels aren’t too large a part of annual budgets.
Provincially, debt varies from a high of 49.5 per cent in Newfoundland and Labrador to a low of three per cent in Alberta. Saskatchewan debt sits at a very comfortable 11.5 per cent of GDP.
Federally, debt is manageable at 32.1 per cent of GDP and down from 63.7 per cent of GDP in 2007.
Continued economic growth allowed increased debt but moved the percentage of GDP down to manageable levels.
As long as government revenue from growth continues, debt remains manageable. For personal borrowers, continual income increases make debt less of a burden.
During the soon-to-be federal election voters will hear a lot of talk about debt, much of it, as is usual, will be political baloney.
One constant in our lives: provincial and federal debt will never be repaid. Politicians enjoy spending our money too much to pay off the debt.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
