To Pay or Not to Pay: Should the Federal Government ‘Pay Down’ its Debt?

To Pay or Not to Pay: Should the Federal Government ‘Pay Down’ its Debt? develops a fiscal model to forecast the impact of several scenarios on the federal debt between now and fiscal year 2008-09. The analysis shows that the federal debt will decline steadily and substantially from its estimated 1997-98 level of 69 percent of GDP, even with spending increases and tax cuts. If Ottawa devoted its future surpluses only to reducing the debt, by 2008-09 it would reach a debt-to-GDP ratio of 20 percent. This debt burden would be the second-lowest in the postwar period, next to 1974-75 when the federal debt represented only 18 percent of GDP. Even if the federal government spent more and cut taxes, the debt would continue on its downward trajectory. The study explores three scenarios with varying levels of expenditure increases and tax reductions. Under all the scenarios examined, by 2008-09 Canada would have one of the lightest debt loads of the G7 nations, second only to Japan’s today. The report challenges the federal government to make public its own long-term debt forecasts.

ISBN – 1-895796-96-2