A Nation is Not a Household – It’s an Engine of Growth. There is a common belief that a country’s budget should be managed like a household checkbook—that deficits should be avoided, and debt should be paid off as quickly as possible. While this may sound like responsible fiscal management, it overlooks a crucial reality: Canada is not a household. It is an economy. And like a successful business, Canada must invest in its own future to remain competitive, prosperous, and resilient.
One of the best indicators of financial health is a country’s credit rating—just like a company or individual’s credit score. Canada holds a AAA credit rating, the highest possible, meaning global investors view Canada as a low-risk borrower. Countries with this rating—like Canada, Germany, and Australia—have strong economies, stable governments, and responsible fiscal management.
A Triple-A rating allows Canada to borrow at very low interest rates, which means that even with deficits, our ability to repay debt remains strong. When interest rates are low, borrowing for long-term investments becomes not just responsible but financially saavy.
Smart Debt means investing in growth. Successful businesses do not avoid debt; they use it strategically to expand operations, develop new products, and improve infrastructure. The same applies to national economies. Canada has historically used deficits to fund essential investments that drive long-term prosperity, such as:
- Infrastructure (roads, bridges, transit) that increases productivity and trade.
- Education and Skills Development that create a stronger workforce.
- Healthcare and Social Services that maintain a healthy, productive population.
- Innovation and Clean Energy that keep Canada competitive in the global economy.
These investments yield returns by boosting Canada's GDP, increasing tax revenue, and enhancing our economic competitiveness—just like a business investing in expansion to generate future profits.
Using deficits to create economic strength is a long-proven strategy for financial success. Often called using "Other People's Money", it makes sense for a country to use their own.
Historically, Canada has run deficits during challenging periods, only to emerge stronger. Consider these examples:
- World War II & Post-War Boom: Canada’s debt-to-GDP ratio exceeded 100% after WWII. Instead of causing economic collapse, government investment caused rapid economic growth in the 1950s and 1960s and by the 1970s, the debt burden had significantly decreased as a share of GDP.
- 2008 Financial Crisis: The Harper government ran deficits to stabilize the economy. Cutting spending too aggressively in that downturn would have led to a deeper recession. As a result Mark Carney, Stephen Harper's Bank of Canada, steered Canada successfully through the recession unscathed.
- COVID-19 Recovery: Emergency spending prevented mass layoffs and business closures. While debt rose, it kept the economy afloat, allowing for a stronger recovery.
The key takeaway is that debt used wisely fuels growth and resilience.
Interest rates and debt affordability can be gamechangers, though. When considering national debt, what matters is not just the amount borrowed but the cost of borrowing. Right now, Canada can borrow at historically low interest rates, meaning the cost of servicing debt is manageable.
- If a business can borrow at 2% interest but expects a 15% return on investment, taking on debt is a smart financial move.
- Similarly, if government's investments generate economic growth that outpaces the cost of borrowing, the debt readily pays for itself over time.
Some argue that cutting spending and balancing the budget should be a top priority. However, history shows that austerity measures can slow economic growth, reduce revenues, and ultimately make debt harder to manage. Just like a business cutting its Research and Development budget risks falling behind competitors, a government that underinvests in its economy risks weakening its future.
Instead, Canada’s strategy should focus on targeted investments that drive economic expansion while maintaining responsible fiscal policies. I'd like to see Canada invest in taking control of the National Food Chain, reserving it for Canadian producers who get first kick at the can when selling to Canadians, not last place in a graveyard section of the grocery store.
The bottom line is that Canada can easily afford to invest in its Future. Any country with a solid AAA credit rating, a strong economy, and access to low-interest borrowing doesn't need to fear strategic deficits. Just as businesses and homeowners use debt to fund their future growth or retirement, Canada can use smart borrowing to strengthen its economic foundations as well.
Long-term prosperity for a country comes from building, innovating, and investing in the future—not from shortsighted budget cuts that sacrifice tomorrow’s growth for today’s balance sheet. Canada has lots of room to manoeuver, so long as it has a strong investment plan for growth.