My Own Advisor recently wrote about the heavy austerity in Greece, and thanks his lucky stars that things are nowhere near this bad in Canada. I agree that those in Canada are very lucky that the country has weathered the financial storm in relatively good shape, and not only that but the Canadian government has wasted less of the people’s wealth on “stimulus”.
Unfortunately, there was some populist waste, but it certainly could have been worse. The country has not built entire ghost cities under central direction, nor are they doing stupidities such as scrapping perfectly good used cars in order to stimulate the car industry (yes, there are programs, but not on the same scale). On those levels, Canada is not doing too badly at all.
On the other hand, there are storms on the horizon. The centralized medicare program is doing a poor job of providing decent health care to the masses. It takes months to get an elective operation that may be necessary for quality of life, doctors rush you through and care more about throughput, and it can take a year or more to get a MRI or another diagnostic test done.
The alternative is for Canadians to pay for these procedures out of pocket. Private solutions for MRIs and private specialists exist, while paying for an elective procedure might cost a fortune. There is a double burden of having to pay taxes to support the public system while paying for private costs out of pocket.
Unfortunately, these costs are still growing much more rapidly than economic growth. This is a storm brewing on the horizon that threatens to cause further disruptions in the future.
Another point of worry is the increasing provincial and personal debt. Quebec‘s total public debt burden is near Greek levels and lies at close to 120%, while Ontario’s fiscal situation is not much better with a debt burden near 90%. These provinces have now joined the “have-not” group of Canada’s equalization program, which was originally developed to promote economic equality, but has unfortunately ended up sponsoring provincial profligacy.
The western provinces, such as British Columbia, Alberta, and Saskatchewan, are in much better shape, but this imbalance is being taken advantage of by the two big eastern provinces of Quebec and Ontario, which threatens Canada’s unity and sense of fairness between east & west.
Personal debt levels are also nearing dangerous levels. According to The Globe and Mail,
“The debt burden of Canadian households has surpassed levels of both the United States and the United Kingdom and, by at least one measure, they are hurtling toward those countries’ peak levels of 2007, new Statistics Canada data show.”
Housing prices in major cities in Canada (such as Toronto, Montreal, and most notably Vancouver) are at sky-high levels, yet Canadian salaries, after tax, are what they are. At least in places like San Francisco, the high salaries help to compensate. According to the Bank of Canada,
“With this renewed vigour building on the decade-long boom that preceded the crisis, the average level of house prices nationally now stands at nearly four-and-a-half times average household disposable income. This compares with an average ratio of three-and- a-half over the past quarter-century…”
“As in many other countries, cheap credit has been used to bid up the price of Canadian houses, a non-tradable good, rather than invest in expanding the productive capacity and export competitiveness of our businesses. For example, over the past decade, housing debt grew by more than 150 per cent, while business borrowing rose by only 40 per cent. As a result, the stock of housing-related debt went from less than business debt to almost two-thirds more. “
This is definitely something to be worried about. While Canadians have been relatively well-insulated from the global shocks so far, it is the time to be prudent and work at reducing debt and improving opportunities; it is too soon to pop out the champagne just yet.
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