What Must Be Done to Curb Canada’s Household Debt

Canada is struggling economically. From inflation and deficits to investment and employment, everything that should be up is down, and everything that should be down is up. One striking symptom […]
Published on December 23, 2021

Canada is struggling economically. From inflation and deficits to investment and employment, everything that should be up is down, and everything that should be down is up.

One striking symptom of economic rot is household debt, which is rising faster than incomes. Relative to after-tax income, it is approaching 200 per cent. As Daniel Wong of Better Dwelling explains, “Canadians on average had $1.59 in debt for every dollar they made last year. Now they have $1.73 in debt for every dollar.”

Turning a blind eye to this problem’s sources will fail to resolve the rising costs and stagnant earnings of a suffocated and increasingly centralized economy. In the absence of substantive liberalization, young Canadians face a bleak outlook.

The bright side is that, with sufficient will and imagination, there are remedies to strike at the root.

Rather than resort to partisan finger-pointing or explaining household debt away with COVID-19, Canadians would best take a look in the mirror and consider two realities.

First, although there has been a bump over the last year, household debt has been on the rise for 30 years, with an escalation over the last 20 years. Further, the partner to unsustainable debt is bankruptcies, and they were already spiking in early 2019. The causes of indebtedness run deep and will not go away with a new coat of paint.

Second, Canada is blessed with natural resources and opportunities that are the envy of the world. Canada is a predominantly English-speaking nation, has the common-law tradition and shares a peaceful border with the most lucrative trading nation on the planet. Canada has no one to blame for her economic challenges but herself.

In the long term, there is no getting around paying for one’s spending. If a man wishes to lower his debt burden—or at least contain its growth—he has to tighten his spending or raise his earnings, or do both. The same applies to the broader economy. In other words, Canadians must address rising expenses and faltering incomes.

That begs the question: what are the most onerous and rising expenses facing Canadians? One need not look far for the answer. The lion’s share of household income goes to taxation and housing, both of which have been rising glaringly over the past two decades.

As noted by senior economist Jake Fuss of the Fraser Institute, “the average Canadian family spends more on taxes than housing, food and clothing combined.” Although there are various ways to calculate the precise burden, it comes to about 39 per cent or 2/5 of the Canadian economy, with pent-up taxes from deficits set to raise that level much higher.

The Frontier Centre has for many years published the Demographia International Housing Affordability report. This rich ranking and overview has detailed the disastrous decline in housing affordability, especially in Canada’s major urban centres of Toronto and Vancouver. The 2021 report finds only one per cent of housing affordable in metropolitan areas. Affordable housing has become a quaint idea in Canada, as has a vibrant middle class. 

The earnings side is just as concerning, since in real terms GDP per capita is back to 2006–2008 levels, those seen prior to the global financial crisis. The economy never bounced back and in the COVID-19 era it has regressed to even worse than the pitiful-growth new normal of the 2010s, the worst decade for growth since the 1930s.

This impeded growth stems from two chief sources: a misallocated, poorly prepared labour force and the lack of a competitive, well-capitalized private sector for employment. Canada’s sprawling higher education sector, in particular, is weighed down by social justice activism and is churning out graduates ill-suited to a dynamic economy. More than 1/3 of those earning minimum wage now have a post-secondary diploma.

Writing for the Financial Post, Philip Cross has lamented Canada’s lack of business ambition and “values that foster innovation.” He is right: mediocrity, egalitarianism and the status quo will not cut it in an increasingly competitive world with nations battling for precious capital. Struggling Canadian families tell the tale.

A clear sense of household indebtedness and its causes points to imperative reforms. Canada is overtaxed, under-housed, poorly educated and unfriendly to investment. Struggling households underline the need for fiscal austerity, the reduction or elimination of zoning and occupational barriers to construction, an overhaul and downsizing of higher education and a return of Canada’s economic freedom to among the best in the world.

For those addicted to a cradle-to-grave nanny state and hellbent on education for social engineering, pertinent reforms will not come easy. However, the do-nothing alternative means Canada will slide into backwater status. It also means the long-term bleeding of her best talent to the United States, akin to the loss of talent from Atlantic Canada to Alberta in past decades.


Fergus Hodgson is a research associate with the Frontier Centre for Public Policy.

Photo by Binyamin Mellish from Pexels.

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