How to Defuse Canada’s Debt Bomb

“The problem with socialism is that you eventually run out of other people's money” – Margaret Thatcher

The current Canadian government under Justin Trudeau is monomaniacally focused on a global climate emergency (which is a real concern, but not something Canada can meaningfully affect with our 1.5% of global emissions). As a result, our government is currently sleepwalking into a national debt emergency, which if not prevented ends with a sovereign debt default crisis, and/or rampant inflation as we print money to pay off the debt, thus devaluing our currency. Economic crises tend to also lead to environmental backsliding, so for any green transition to be sustainable it would need to be underwritten by solid economic fundamentals, which is currently…..not the case in Canada to put it mildly.

For starters, a primer on just how bad the Canadian debt situation is:

• National debt service charges are now among the top spending commitments in the federal budget, interest payments alone are roughly in line with health care support to provinces (and that’s before any actual debt reduction payments)

• General government debt is 113% of GDP; the debt is spread across multiple levels of government, but it all carries interest costs and all has to be paid back somehow

• Household debt is another 107% of GDP (largely from sky-high mortgages)

• Canada has a rapidly aging population – Baby Boomers are converting en masse from high-income taxpayers into sickly pensioners. This “Grey Tsunami” will both lower tax revenues and increase public expenditures on health care and retirement benefits

• Unaffordable housing is hampering economic productivity, which coupled with an onerous regulatory environment and high taxation is leading to capital flight

• GDP per capita is shrinking and we’re caught in a “population trap”

• OECD forecasts that Canada will be the worst-performing advanced economy over the next 40 years (until 2060 if we’re lucky)

• Nearly every province and territory is poorer on a per-capita GDP basis than the poorest American states (think Alabama, Mississippi, etc.)

• The current government’s notion of “fiscal responsibility” is targeting slightly smaller deficits than they’d originally planned for, which is a bit like driving towards the cliff at only 80km/h instead of 100km/h. And even those milquetoast targets aren’t being met

Add all that up, and “Canada Is Broken” is unfortunately a pretty fair assessment. Canada went through a similar debt crisis in the 1990s, but back then we had both healthier age demographics and a sturdy economic foundation (exporting natural resources like oil).

Between the Grey Tsunami and anemic economic prospects (which would only be compounded by higher taxation), we certainly can’t grow our way out from under the debtload, let alone pile more taxes on an already faltering economy. Which means a choice between:

• aggressively reducing debtloads at the federal, provincial, municipal, and household level (i.e. austerity),

• increasing monetary supply until we hit 20% inflation, or

• continue spending borrowed money until Canada eventually faces a complete national economic meltdown (think Venezuela’s collapse into famine, or Greece but with nobody there to spend a decade bailing us out.).

What Would A Canadian Debt Crisis Look Like?

What it would take to avert a debt-fueled economic meltdown:

Assuming 20% inflation and/or Greek/Venezuelan national bankruptcy aren’t the direction we want to go, here are a few policy proposals to rein in deficits that range from ‘mildly controversial’ to ‘I may get my bank account frozen just for posting this’. I suppose it’s better to post now before the Liberal Party rolls out its new legislation calling for lifetime prison sentences for hurt feelings on the internet.

1. Drill Baby Drill for oil and natural gas. Canada’s emissions are a drop in the bucket in global terms (looking at you China), and we really, really, REALLY need the tax/royalty revenue that comes from digging high-value commodities out of the ground. The Grey Tsunami breaking all across the world will put a pretty massive dent in global emissions anyway, as populations shrink and countries are forced to deindustrialize (looking at you again China).

2. For the love of God, stop subsidizing Greentech jobs to the tune of $4 million a job. While we’re at it, how about we stop sandbagging pipeline approvals until investors back out and the feds have to step in and turn a $5 billion privately-funded pipeline into a $30 billion taxpayer-funded pipeline. Say what you will about capitalism, but it’s supposed to be self-sustaining without necessitating bribes from the federal government to keep employment numbers up. Get big government out the way, let capitalists do capitalism, and then all the corporate welfare with borrowed money becomes unnecessary.

3. End the socialist monopoly on health care. The health care system is already collapsing, and it’s only going to get worse from here with the Grey Tsunami. Yes, introducing an element of for-profit healthcare likely will, to at least some extent, lead to the dreaded “2-tier system”, but the public system is already swamped and we need the release valve of private operators to have any hope of shortening wait times. Plus, ending the Canada Health Act monopoly on care means med schools can lift their cap on graduates because they no longer need to benchmark against government funding, so we get an increased supply of doctors. National pharmacare needs to be aborted, obviously.

4. Raise the CPP/OAS ages from 65 to 72* (the current age thresholds were set when life expectancy was well below what it is today). Otherwise, before long CPP/QPP contribution rates would have to start increasing significantly to meet their current solvency requirements (CPP has a cash in > cash out rule as of 1997) and CPP’s ostensible solvency assumes no federal government tries pilfering the CPP/QPP funds as the debt bomb goes off (and also that there’s no imminent default on those “low risk” government bonds CPP is required to hold). OAS/GIS, at this point, is pretty clearly insolvent. Sucks for the boomers to see their promised retirement dates be pushed back on them at the 11^th hour, but hey they’re the ones who arguably got us all into this mess, and see #5 for how to soften the blow.

5. *As a caveat to #4, the current age rules of 65/67 should remain in place for those who can demonstrate they spend minimum 20 hours/week providing volunteer childcare (grandchildren would of course count). That way, the government can scrap its unaffordable and unworkable national childcare program. Plus, let’s face it, kids raised in impersonal, take-a-number childcare facilities tend to wind up with significantly increased rates of development/behavioural issues. Everyone is better off if those kids (or as many as possible) are babysat by their grandparents. Aspiring retirees can still volunteer at daycares if they don’t have grandkids, and unlock their early benefits that way.

6. Lift all tuition caps* and scale back funding to universities. Universities spend way too much money on administrators anyways, and we’re well past the point of taxpayers being able to shoulder the cost (especially since those administrators love to enforce 24/7 woke groupthink on every campus). Sucks for highschoolers and their parents, but there’s plenty of administrative bloat to be cut so its not like tuition would increase dollar for dollar with reduced subsidies, and see #7 for how to soften the blow.

7. *As a caveat to #7, there should be tuition caps for students with 3+ years of military experience (high school graduates will therefore have an incentive to join the military which should help the recruitment crisis). Anyone who doesn’t want to join the military but does want to attend postsecondary is free to pay the higher tuition. Canada is unfortunately coming to the end of being able to get away with freeloading in NATO, so this is one area where government spending almost certainly has to increase (which means to defuse the debt bomb even more savings are needed elsewhere).

8. Rein in public sector headcount; it has ballooned by 40% since Trudeau took office, and service has only gotten worse in that time (see: passport renewal timelines). DEI/ESG/BigWoke positions should be first to go, as well as lavish benefits (like free sex change operations for CUPE members). Next up can be enforcing a return-to-office policy and hope that drives the laziest parasites to quit.

9. Defund the Woke Industrial Complex; that includes Anglo-CBC, CAHN, the Laith Marouf grift, and just generally stop throwing borrowed money at every progressive nonprofit under the sun. Any provincial or municipal funding that finds its way into woke organizations (including buried in school budgets for equity consultants) should be subject to clawbacks – for every dollar wasted on Big Woke, the organization responsible should have a dollar of taxpayer funding stripped away. Ditto for universities and any other public-private partnerships like museums that get caught spending any funds on noncore services (there is nothing “core” about a bias response team). Obviously the military has no business spending money on woke bullshit that alienates the very group of people they most need to recruit from (namely young men).

10. Pivot immigration strategy to rural-oriented populations. We really do need skyhigh immigration rates as demographic ballast for the Grey Tsunami, but targeting citydwelling professionals is causing too much collateral damage to the housing market. We should be poaching farmers and Oil & Gas workers from Europe, India, South Africa, and just about anywhere else that has pissed off rural populations.

11. Stop with the demand-side interventions in the housing market. The trouble with “helping” aspiring homebuyers with deficit-financed extra tax writeoffs and looser lending practices is those “solutions” inject more cash into the housing market, which then drives housing prices even higher. Depending on who you ask, this inevitable upward pressure on housing prices is either an unintended side effect, or a stealth-gerontocratic program of pretending to address housing affordability (which would help millennials and Gen Z) while not-so-accidentally juicing property valuations (to make boomer/Gen X homeowners wealthier on paper). At the risk of stating the obvious, Canada cannot afford to keep spending borrowed money on further inflating unaffordable housing prices. To that end….

12. Push foreign capital out of the housing market and into government bonds. Technically this increases government debt, but if it makes housing more affordable then it’s worth the tradeoff. UHT and the temporary foreign buyer ban make for a very small start, but at some point we may have to resort to mass expropriation of foreign-owned real estate (with the government issuing payouts via bonds instead of cash) to free up housing stock that can be promptly sold off to Canadian citizens (thus increasing supply to improve affordability aka reduce prices). Capital flight backlash can be remedied via relaxing natural resource development per #1, and while Boomer homeowners would hate seeing a true housing market correction, because it would mean their net worth (on paper) takes a hit, no bubble lasts forever and the longer we delay the housing reckoning the worse it will be.

13. Abolish First Nation reserves. This one gives me pangs of white guilt, but reserves were never designed to be economically viable. In fact the opposite is true; they were often deliberately placed on land nobody else wanted because it had nothing to offer economically. Living in isolated communities on worthless land might make it easier for First Nations to preserve their culture, but it comes at a high price in the form of a pervasive lack of economic prospects. Living standards on reserves are generally quite low and that’s before the federal government eventually runs out of borrowed money to throw at them. First Nations Canadians are going to have to find ways to assimilate into the broader economy, which likely means some combination of becoming:

    a.       Oil & Gas workers (or other resource-based activities)

    b.       Farmers

    c.       City-dwellers

    Some First Nations have already begun transitioning towards economic self-sufficiency (they don’t get much press because they tend to support Drill-Baby-Drill economic policies), but many others are either completely dependent on the government teat, or else weaponize the Supreme Court invention of “duty to consult” to extort funds out of whatever capitalists dare tread near their turf. Duty-to-consult shakedowns may be lucrative in the short term, but it’s a strategy subject to seriously diminishing returns, especially when paired with a federal government obsessed with cooking every golden goose it can find for the sake of good vibes on the environmental front.

14. Calculate provincial electoral riding allotments based on both relative population AND relative GDP (or better yet, on net equalization transfers). People will always spend their own money more judiciously than they will someone else’s money. Alberta’s net contributions to the equalization system between 1968 and 2018 was roughly $630 billion, while electoral riding counts in Western provinces are routinely lowballed so Quebec’s riding count can be inflated, which makes it tougher for Albertans to fight Laurentian impositions like a production cap on the oilsands. It’s currently far too easy for Laurentian Elites to throw around prairie-province tax revenues at every wild virtue-signal and/or vote-buying scheme they can think of, while also attacking any economic foundation and utility grid that smells remotely of hydrocarbons. As Peter Zeihan put it: “if you think hamstringing a region’s economic growth while depending on its tax payments is a less-than-tenable long-term strategy, you’re not alone.” The equalization system is now so lopsided that economically speaking, Alberta and Saskatchewan would be better off separating from Canada than continuing a futile attempt to bankroll the rest of Confederation while also being pressganged into decarbonization-at-all-costs.

15. Vote Conservative for at least 2 federal election cycles (3 would be better). In an unprecedented reversal of electoral demographic trends, older Canadians are now the base of the Liberal Party, while young Canadians are the base of the Conservatives. (The NDP base is basically people who are high in socioeconomic resentment while also being terrible at math).

    Because the Liberal base is made up of older Canadians, they’re also the party of homeowners and pensioners, so the Grits are hopelessly compromised in any efforts to tackle home affordability or reign in unaffordable spending programs. Hence why the Liberals make mathematically impossible promises like they will improve affordability without lowering the value of existing housing stock, and why nearly every Liberal intervention in the housing market has the “stealth gerontocracy” effect noted in #11.

    That leaves the Conservatives as the only major political party in Canada capable of winning an election while telling NIMBY Boomers to kick rocks. That doesn’t mean the Tories WILL defuse the debt bomb, merely that they’re the party with the most electoral latitude to do so, in addition to being the party that understands Canada can’t pay for social benefits without tapping into natural resource wealth.

Bottom line: if public debt isn’t brought back under control, and soon, what few fiscally solvent provinces remain in Canada might seriously have to consider abandoning ship.