Prairie provinces debt levels a ticking time bomb

Prairie provinces debt levels a ticking time bomb
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If politicians don’t take this subject seriously, it will be a time bomb paid for by today’s young and future generations

The debt in Canada’s Prairie provinces has grown colossally during the COVID-19 pandemic, just as debt has in the rest of Canada and around the world.

At the end of 2020, Alberta’s debt was estimated at $98 billion, Manitoba’s was $28.6 billion and Saskatchewan’s was $15 billion.

These debts are an economic burden for the taxpayers and their effects will be felt in the long term. The younger generations will be the most affected. They will inherit degraded public finances and higher risk of paying for it.

Repaying the debt will be challenging for governments, even those with the best of intentions. Even with large provincial surpluses, it will take a long time to repay the debt.

Alberta’s largest surplus, in 2005-06, was about $8.5 billion; Manitoba had a surplus of $562 million in 2004-05; and Saskatchewan’s surplus in 2008-09 was $3 billion.

Based on those surpluses, it would take 12 years for Alberta to repay its debt, 50 years in Manitoba and five years in Saskatchewan. And that would occur only if these provinces enjoyed their largest surpluses year after year without interruption, and didn’t account for interest or the federal debt.

That’s not realistic, so it will take much longer to pay down the debt in each province. And we need to remember that these provinces were in deficit situations even before the COVID-19 crisis.

These debts could last for decades. And the political and social landscapes may have changed significantly in that time.

History shows that countries change and states are transformed. For instance, Czechoslovakia divided itself into the Czech Republic and Slovakia in the early 1990s.

In Canada, factions in provinces like Alberta and Quebec desire independence. Even if we’re still far from secession, the future remains unstable. And in such cases, who would pay the debts?

The debtors face significant risk: political events affecting the government’s ability to repay will create turmoil.

If politicians don’t take this subject seriously, it will be a time bomb paid for by today’s young and future generations.

Based on the 2016 census, people under the age of 19 number 1.019 million in Alberta, 283,000 in Saskatchewan and 326,260 in Manitoba. Based on each province’s total population, the debt per capita is approximately $22,000 in Alberta, $19,500 in Manitoba and $12,000 in Saskatchewan. But if we consider only people under the age of 19, the debt per capita is $96,173 in Alberta, $87,660 in Manitoba and $53,003 in Saskatchewan.

Post-pandemic, millions of young Canadians will be indebted even though they had no control over the circumstances that led to this debt. Political decisions taken when they were children or before they were born will have created the debt.

The growing debt creates a risk of intergenerational divide: new generations will have to pay the debts of old generations. Politicians’ choices are creating a situation in which everybody will lose.

As a result of the pandemic and the accompanying economic crisis, more and more young people, especially those who don’t have post-secondary education, are jobless. Returning to a pre-COVID-19 economy will be difficult. And the debt burden won’t help.

Some argue that public debt will fund public services and state subsidies will help. But which is better for young people: government help financed by debt, or the liberty and possibility to work without restrictions and high taxes?

Persistently degraded public finances aren’t a viable solution in the long term. European countries like the Netherlands, Sweden, Denmark and Austria understand that and have been very critical of the debt accumulation in other countries. It might be helpful to take inspiration from them.

By Alexandre Massaux
Research associate
Frontier Centre for Public Policy

Alexandre Massaux is a research associate with the Frontier Centre for Public Policy.

Courtesy of Troy Media.

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