Peak Debt

Friday's Financial Post ran an article by Paul Vieira on Canada's national debt, claiming that Harper has "wiped away" eleven years of debt progress. The old peak debt was $562.88 billion in 1997, and it is true that the current debt passed $562.88 billion on Friday. It now stands a little higher than that, and growing. So is Vieira right?

No, he isn't. He doesn't even try to give any context on the numbers he provides. Canada is in a much better fiscal position today than it was in 1997, and I've got the numbers and context to prove it.

Output
Debt is often measured as a ratio to GDP. This is useful as it gives some perspective-- $500 billion is a lot more significant to the Canadian economy than it would be to the American economy. Thanks to economic growth, even the same level of debt is lower as a ratio of GDP. Nominal GDP in 1997 was about $883 billion, so $562.88 billion in 1997 dollars was 63.7% of GDP. But nominal GDP in 2010 was more than $1.6 trillion. A debt of $562.88 billion in 2010 dollars is only 34.7% of GDP-- only a little more than half what it was at the peak!

(According to the World Bank and StatCan, nominal GDP was $882,733 million in 1997, and $1,621,529 million in 2010. Why am I using nominal numbers rather than real? Because Vieira does, and I'll adjust for inflation further down.)

Population
Another measure of debt is how much each citizen owes. In 1997, every person in Canada owed $18,771 of the $562.88 billion in national debt. Today, there are about 13.7% more people, so the same amount of national debt means that each person owes only $16,502. If the population continues to grow at the same rate (about 1% per year since 1997), and the debt continues to increase by $39 billion every year, we will reach the same amount of nominal-debt-per-person sometime in 2013-- which, again, doesn't even account for inflation.

(According to the World Bank, Canada's population in 1997 was 29,987,200, and grew to 33,739,900 by 2009-- 2010 is not yet available. StatCan's number for 2009 is slightly lower, at 33,720,200, but essentially the same, while the StatCan number for 2010 is 34,108,800.)

Inflation
Five hundred billion today doesn't buy as much as five hundred billion in 1997 bought, thanks to inflation. To be more specific, you would need $725.55 billion in 2010 to buy what $562.88 billion bought in 1997-- a difference of $162.67 billion. Even if the Conservative government fails to reduce the deficit at all, and we keep adding $39 billion of debt every year, it will take more than four years to reach the previous peak debt.

(According to StatCan, CPI was at 90.4 in 1997, and 116.5 in 2010, with 2002=100. By setting the CPI in 1997 equal to 100, we get a value in 2010 of 128.9. This means prices in 2010 were 28.9% higher than they were in 1997.)

Putting It All Together
Adjusting for population growth and inflation, the national debt-per-person is just 68% what it was in 1997. As a percentage of GDP per capita, the national debt-per-person has fallen from 63.8% in 1997 to just 34.9%. In other words, in 1997 the average Canadian would have had to give up 63.8% of their income to pay their portion of the debt. In 2010, the average Canadian would only have to give up 34.9% of their income to pay their portion of the debt.

Make no mistake, I would love for Canada to return to a budget surplus, and the sooner the better. But misrepresenting the data is not the way to get there.