Big Debts on The Prairies: A Burden for Future Generations

Commentary, Economy, Alexandre Massaux

The Prairie provinces’ debts have grown colossally during the COVID-19 pandemic, just as they have in the rest of Canada and the world. Indeed, at the end of 2020, Alberta’s debt was estimated to be $98 billionManitoba’s $28.6 billion and  Saskatchewan’s $15 billion. These debts are an economic burden for the taxpayers and their effects will be felt for the long term. The younger generation will be the most affected. They will inherit a situation with degraded public finances, and the risk of literally paying for it.

Repaying the debt will be a challenging task for governments, even with the best will. For example, even with the largest provincial surpluses, it will take a long time to repay the debt. Indeed, Alberta’s largest surplus was in 2005-06 at about $8.5 billion; for Manitoba, it was in 2004-05 at $562 million and for Saskatchewan in 2008-09, it was $3 billion. Accordingly, it would take 12 years for Alberta to repay its current debt, 50 years in Manitoba and five years in Saskatchewan. It would still be the case if these provinces had enjoyed their largest surpluses year after year without interruption, and did not account for interest or the federal debt. This situation is not realistic, so it will take a lot longer to pay down the debt. Moreover, we must remember that these provinces were in a deficit situation even before the COVID-19 crisis.

The debts could last for decades or even centuries. Will the current government still be in place in that last option? History shows that countries change and states are transformed. For instance, Czechoslovakia divided itself into the Czech Republic and Slovakia in the early 1990s). In Canada, provinces like Alberta or Quebec have some desire for independence. If we are still far from secession, the future remains unstable. In these cases, who would pay the debts? The debtors face a significant risk: political events affecting the government’s ability to repay will create turmoil. If politicians do not take this subject seriously, it will be a time bomb paid for by the young and by future generations.

Based on the 2016 census, people under the age of 19 number  1.019 million in Alberta283,000 in Saskatchewan and 326,260 in Manitoba. With each province’s total population, the debt per capita is approximately $22,000 in Alberta, $19,500 in Manitoba and $12,000 in Saskatchewan. But if we consider only people under the age of 19, the debt per capita is $96,173 in Alberta, $87,660 in Manitoba and $53,003 in Saskatchewan. The youngest generations who will grow up in a post-pandemic situation with an economic crisis will be indebted. They will have no control over this because political decisions taken when they were children or before they were born will have created the debt.  

The growing debt creates a risk of intergenerational divide: the new generations fragilized by the current economic situation will have to pay for the old ones. Politicians’ choices are creating a situation in which everybody will lose. With the pandemic and the economic crisis, more and more young people, especially those who have not attended college, are jobless. Reviving the pre-COVID-19 situation will be difficult. Adding the debt burden will not help.

Some argue that public debt will fund public services and that state subsidies will help. But which is better for young people: government help financed by debt or the liberty and possibility to work without restrictions and high taxes? 

The problem of debt must be taken seriously. A persistently degraded public finance is not a viable solution for the long term. European Nordic countries like the Netherlands, Sweden, Denmark and central European Austria understand that and have been very critical about the European debt. It might be helpful to take inspiration from them.

Alexandre Massaux is a research associate with the Frontier Centre for Public Policy.
Photo by madeleine ragsdale on Unsplash.