Federal “Market Debt” First Exceeded $1 Trillion Six Years Ago Under the Harper Government
The print and TV media recently picked up on a statement in the 2018 Budget that the federal government’s “market” debt would exceed $1 trillion. They reported this as the tipping point for federal finances, as if the government had hit the proverbial “fiscal wall”.
The former Parliamentary Budget Officer, Kevin Page, observed, “the $1 trillion threshold is extraordinarily important”. He looked at this number and lamented the lack of a commitment by the government to eliminate the deficit. The Conservatives, lacking any corporate memory, were quick to pick up on this.
However, nothing could be further from the truth. Under current borrowing procedures “market debt” in its broadest sense exceeded 1 trillion in 2012-13. The government is not facing a structural imbalance between revenues and expenditures or a fiscal crisis; and deficit elimination is not a necessary requirement for fiscal credibility.
In the 2018 Budget, it is projected that “outstanding government and Crown corporation market debt will reach $1,066 billion in 2018-19, including $755 billion in projected year-end government market debt and an anticipated Crown corporation market debt for three of the financial institutions of approximately $311 billion”.
However, these two components of market debt are not the same.
In the 2008 Budget, the Harper Government announced that the Government would consolidate the borrowings of the Canada Housing and Mortgage Corporation (CMHC), the Farm Credit Corporate (FCC) and the Business Development Bank of Canada (BDC) into the federal debt program, rather than having them borrow individually in the private market. It was argued that consolidating the borrowings of these Crown corporations would reduce borrowing costs for them by eliminating the “agency spread”.
However, the budget also stated that the consolidation of these Crown borrowings would not have any effect on the federal government’s debt. This is because assets in the form of loans to these Crown corporations match federal borrowings related to these Crown corporations. In fact, these three Crown corporations are in a net asset position.
It is rather ironic that the Conservative opposition has now raised this as an issue when it was the Conservatives, when in power, who consolidated the borrowings of these Crown corporations. Prior to then, the federal government did not undertake borrowings for these financial Crown Corporations.
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