Gardner’s Gross Error on Debt
In an attempt to mould the facts around his ideology, Dan Gardner claims that Canada’s public debt is worse than Spain’s. This will come as a surprise to Moody’s, S&P and Fitch, all of whom have downgraded Spanish government debt and maintained a triple-A rating for Canada’s.
Gardner uses the gross debt-to-GDP ratio to superficially support his case. The measurement is meaningless, because it ignores the other half of the balance sheet: assets. Imagine a farmer who has a million dollars in debt. He has a big problem right? Not if he has $4 million worth of land, tractors and other income-generating assets to balance it off. The same is true for governments.
That is why economists use the net debt-to-GDP ratio to determine the size of a country’s debt relative to its economy. According to the IMF’s most recent World Economic Outlook Report, Canada’s net debt-to-GDP is 35%. Spain’s is almost double at 67%. By the same measure, Canada has lower debt than any other nation in the G7. Low debt results from low-cost government. For the fourth year in a row, government spending as a percentage of GDP has been lower in Canada than in all of the European countries seeking a bailout.
Gardner’s theory is that these debtor governments are only in trouble because they do not spend enough. This idea sounds nonsensical in theory and is proven so by fact.
Pierre Poilievre
Member of Parliament for Nepean-Carleton
– END –
In response to Dan Gardner’s Ottawa Citizen Article, “Don’t blame the Euro welfare state.” June 19, 2012. http://www.ottawacitizen.com/opinion/columnists/blame+Euro+welfare+state/6808433/story.html