Election Campaign Stokes Canada's Debt Debate
Rising provincial deficits add to overall problem, economists warn
WANTED: Someone to talk turkey to Canadians about their huge and growing federal and provincial debt load - in an election year.
Ross Perot from Texas meet Garth Turner from Ontario.
Flashing charts showing dire economic data as Mr. Perot did during last year's United States election campaign, Mr. Turner has learned a thing or two from his US counterpart. In his bid to succeed Prime Minister Brian Mulroney as leader of the Progressive Conservative Party in federal elections this fall, Turner is also pitching a 1-800 number to build grass-roots support and running a national campaign from volunteers' homes.
There is, however, one stark difference. "I'm Ross Perot without the money," says the conservative backbencher, who concedes that, lacking the Texas billionaire's bucks, his candidacy is a long shot.
Still, he says he is providing a national service at least as valuable as the one Perot provided Americans: bluntly informing a nation of its big debt problem.
"We've got more than $600 billion [Canadian; US$480 billion] of federal and provincial debt for a population smaller than California's," he says. "If that's not a crisis I don't know what is. Thirty-three cents of every [govern- ment] dollar goes just to pay interest on our debt." Widespread concern
Turner is not alone. A chorus of economists has been singing the blues in the run-up to Canada's provincial and federal budget-setting months of March and April. "Conditions for a crisis are developing," warned economists meeting in January as part of a C. D. Howe Institute forum. They point to several signs.
Ontario, for example, is considered the nation's economic engine and had no problem recently selling billions in bonds to finance its growing debt. Yet even Ontario last year saw its coveted triple-A bond rating drop to double-A, costing it millions in additional interest costs. Last fall Standard & Poor's, the New York debt-rating agency, knocked Canada's federal external debt down a notch, another signal that the Canadian system is under strain.
Despite the Mulroney government's transformation to an operating surplus, interest on the debt has more than doubled the national debt from $206 billion in 1984 to $423 billion this fiscal year. Net provincial debt this year was $130 billion, C. D. Howe estimates.
Indeed, there may really be only one big item on the nation's economic agenda in the post-Mulroney era: paying off debt.
"Canada has been deferring the [debt] problem, passing it to the next generation, and nobody knows whether that would develop into a crisis 10 years from now or two years from now," says Judith Maxwell, former chairman of the Economic Council of Canada, now associate director of policy studies at Queen's University. "I think people will continue to lend us money. But we've now been through a number of rather scary periods where there's been a speculative attack against the dollar, and we've had to go th rough a very sharp run-up in interest rates to defend it."
Meanwhile, outside the federal spotlight, the country's 10 provinces have been tightening their fiscal belts under the gaze of foreign lenders and rating services.
Ontario Premier Bob Rae faces a potential $13 billion deficit this year, causing the government to scramble to try to sell the Toronto Skydome stadium, and to contemplate schemes like the sale and leaseback of commuter trains.
Thousands of miles west is Saskatchewan, an agricultural province with a million residents and about $5.5 billion in net debt, according to C. D. Howe analyst Irene Ip. The province's "draconian" budget cuts March 18 set the tone for the country, analysts say. The province will cut $100 million and add $200 million in higher taxes, bringing next year's projected budget deficit to $296 million, half this year's deficit.
Saskatchewan's tough action follows a decade of deficits that have put the province nearly on par with the nation's perennial deep debtor, Newfoundland. Saskatchewan New Democratic Party (NDP) officials, elected in 1991, say they have a mess to clean up. Saskatchewan woes
"Our per capita debt is among the highest in the country," says Simon de Jong, a NDP Member of Parliament from Regina. "Just comparing ourselves with Newfoundland makes people shudder because everyone knows that things are pretty bleak for them."
Unlike other regions, Saskatchewan already has developed strong public concern over the province's economic straits, making deficit reduction easier.
"What has really jolted politicians this time around is that it was not a short recession," says Brian Neysmith, president of the Canadian Bond Rating Service. "Politicians seem to have decided they better get very serious about deficit reduction."
A key problem for Canada's federal politicians, however, is how to go about reducing the federal deficit. In the US, President Clinton is calling for higher taxes. But that solution won't fly in Canada, many say. "Politicians don't have many levers to pull," Mr. Neysmith says. "Canadians are one of the highest-taxed people in the world."
The dilemma now, he says is that this "election year is also a critical economic year." But Canada's version of Ross Perot says he'll be raising the issue, whether or not others like it: "I intend on trying to win, but also making ... sure that people listen to the cry I am raising," Turner says.