Explained: Government debt

A debt represents something, whether a payment or otherwise, that is owed by one party to another. Government Debt (also referred to as public debt or national debt), is used to refer to the total accumulated debts, owed by a government, to other parties. While Government Debt tends to refer to the debt of a specific national or provincial government, Public Debt, on the other hand, refers to the combined total of the two.

Alternatively, a Government Deficit refers to the difference between government receipts (revenue) and spending in a single year. Generally speaking, if deficits are consistently positive (surpluses) the debt will decrease, whereas if the deficits are consistently negative, the debt will increase.

Example

To illustrate this point consider a government with receipts (revenues) of $10, and spending of $12 for a given year. The difference between revenue and spending for this year is -2 (10 – 12 = -2) leading to a deficits of $2.

If the government had a National Debt of $100 at the beginning of the year, it could expect its National Debt to increase to $102 by year’s end (increasing by the amount of the deficit). Multiply this example by billions and one can begin to understand how sustained and prolonged deficits can plunge a country deeper and deeper into debt.

Every day the federal debt
grows by $940M

Over $343B in new
debt from COVID-19

Your share of the national debt is over $34,000 and $154,000 after factoring in unfunded liabilities.

Explained: Unfunded liabilities

A liability is a future debt or performance obligation that one party owes to another at some future date in time. It is commonly settled through a payment or performance of a service.

An unfunded liability is used to describe any liability that does not have savings set aside for it. It can be calculated by determining the difference, at any point in time, by which future payment obligations exceed the expected future stream of funding.

In respect to governments, an unfunded liability is simply a future financial commitment that has not yet been paid for. By some accounts the Canadian government has well over a $1 trillion dollars in unfunded liabilities.

Two major unfunded liabilities in Canada are found in our health care system and pension plans.

Example

Since Canada’s modern-day health care system was devised in the 1960s, a series of assumptions were made that needed to hold true for the system to remain sustainable. None of them did.

Canada’s rate of wage increases declined, birth rates slowed, and the mortality rate decreased. Put simply, people were living longer, having fewer kids and not making as much money as anticipated. Unfortunately, our politicians did not react to this change and have left us with a massive unfunded liability the size of our federal debt – and is footing future generations with the bill!

Why it all matters

Why are debts, deficits and unfunded liabilities a problem and why do they matter to you? Well, the economics is simple: governments go into deficit whenever they spend more money than they collect in revenues. The debt is what you get when you add all those deficits together.

And right now, Canada’s federal and provincial governments are all spending more than they collect – way more. Last year the collective provincial debt totaled $531 billion; the federal debt hit $716 billion. 

To make up for those massive budgetary short falls, governments are borrowing money hand over fist. 

In fact, Canada’s national debt now stands at an incredible $1.5 trillion and counting.

We don’t have to be screwed

It’s time to start telling our government how we feel about our growing debt. Join Generation Screwed to be a part of a growing Canadian movement, directed at those who are making the decisions in our government.

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