The federal debt

By 1995, the federal government had been spending more than it collected in revenues for 25 consecutive years. The deficit (the amount by which government spending exceeds revenues in any given year) was $37.5 billion on a public accounts basis. As a result of persistent deficit financing, Canada's total debt load (the accumulation of all past deficits and surpluses since Confederation) had grown from $20 billion in 1971 to over $545 billion in 1995. By 1994/95, covering the interest costs alone was costing Canadians $42 billion—more than the annual deficit and some 26% of the entire federal budget. By March 1997, the net federal debt reached an all time high of $588 billion.

In 1994, the federal government undertook a massive program to reverse the nation's financial course. Because of a reduction in program spending and a growing economy, Canada was well on its way to achieving a financial turnaround before the decade ended. By 1997/98, the government recorded a surplus for the first time in 28 years; the following year marked the first back-to-back surplus in almost 50 years. With consecutive surpluses continuing into the new century, the net federal debt had been reduced to $534 billion as of March 2002.

Surpluses both achieved and anticipated have allowed the government to direct more money toward paying off the accumulated debt. As a result, the cost of paying interest on the debt has dropped from a high of 33 cents of every dollar of revenue collected by the federal government in 1995/96 to 19 cents in 2001/02. Another promising sign is the decrease in the debt-to-GDP ratio, which gives a picture of the size of a nation's debt in relation to the size of its economy. Though still high by historical and international standards, Canada's debt-to-GDP ratio had fallen from 69% in 1995/1996 to 46% in 2001/02.

Compared with much of the world in 2002, including the United States, which was experiencing an economic slowdown, Canada performed relatively well. Throughout 2002 and into 2003, the Canadian economy remained robust. Canada's GDP grew faster than any other G7 country and employment was strong. Also, interest rates reached record lows, thanks in large part to a low and stable rate of inflation. Low interest rates further contributed to Canada's strong growth, especially in the housing market. The Government of Canada has also consistently balanced its budget over the last several years. Although a number of shocks did have an impact on the economy, economic conditions are still fundamentally strong in 2003.