The Ghost Election Issue We Need to Get Real about: Personal Debt

Is Canada still a moral leader? Our reputation on the world stage was hard earned by championing the end of apartheid, landmines, CFCs and acid rain. Lester Pearson invented peacekeeping and won the Nobel Peace Prize for his efforts to make the world a safer place.

Today we manufacture armoured vehicles for the brutal regime in Saudi Arabia while fretting about domestic job losses if we don’t.

Conservative Leader Andrew Scheer pledges to slash Canada’s already paltry foreign aid budget by 25 per cent in favour of consumer tax cuts.

Climate change is the defining issue of this century, yet Canada has the highest per capita carbon emissions in the G20 and is far from a global leader in fighting fossil fuels.

What happened to the storied Canadian character?

The reason Canada cannot act in a more moral manner might lie in ballooning amounts of household debt. Canadians now owe an eye-watering $2.2 trillion or 178 per cent of disposable income — a measure that has doubled in the last 20 years. Personal bills now amount to more than our entire GDP, making us the most indebted citizenry in the G20 and fourth highest in the world.

Over half of Canadians report they are only $200 per month away from insolvency.

How can you care about climate change or global stability when your credit cards are maxed out or you are dodging debt collectors? Owing vast amounts of money seems now a defining Canadian characteristic and is increasingly enabled by indulgent political leaders. Andrew Scheer and Canada’s conservatives are unapologetic in pandering to those who gorged on cheap credit.

The belated Conservative campaign platform pledges to cut infrastructure investment by $18 billion in favour of reduced taxes. Scheer’s simple message is parsed for those most myopically interested in their pocketbook: “If you pay income tax, you will pay less under my government.”

The Trudeau government made baby steps to rein in ballooning levels of household debt by bringing in a mandatory mortgage stress test. Scheer wants to review that restriction and extend mortgage terms of 30 years, which experts warn could increase already inflated house prices by six per cent. Why would a national leader put forward such a reckless economic policy? Offering ever more credit to gluttonous Canadian borrowers is of course an easy sell in a tightly fought election campaign. It is also a shrewd political investment in demographics. If you have crushing long-term debt, you are probably a long-term Conservative voter.

When announcing the Conservative plan to slash foreign aid by $1.5 billion, Scheer promised, “We will redirect that money here at home to help Canadians get ahead.”

Canada is already well below our international commitments for international aid, and Scheer’s plan would drop us to second last among the G7. It is telling that Conservative strategists apparently concluded that many financially stressed Canadians would feel comfortable benefiting from funds previously earmarked for the world’s poorest.

Clues on how our national obsession with cheap money affects public policy are seen in areas where household debt is greatest. A recent story in the Globe and Mail mapped how dangerous levels of debt are concentrated in sprawling suburbs around Toronto, Edmonton, Calgary and Vancouver. These also include some of the most conservative areas in Canada, such as Ford Nation and the Fraser Valley where Canadian politics is squarely fixated on pocketbook issues.

In contrast, urban centres tend to elect more NDP, Liberals or Greens and are seen as more politically progressive. These areas (other than the outlier of Vancouver) often have a lower debt burden, since many homeowners in older neighborhoods managed to pay off their mortgages before Canadian house prices increased fivefold since the mid 1980s. The divide in Canada may not be so much of ideology, but disposable income.

For instance, Alberta is in a perpetual lather about perceived interference in its energy industry. But it’s also the most indebted part of Canada. Average consumer debt (excluding mortgages) in Alberta is $29,000 — $6,000 higher than the rest of the nation. And in Fort McMurray, the ground zero of Alberta oil rage, consumer debt has reached a stunning $39,900. The one-time boomtown is now the insolvency capital of Canada.

A recent financial survey showed almost two-thirds of Albertans are worried whether they can pay their bills, yet a similar proportion raked up even more consumer debt in 2018.

“For many Albertans, paying down debt or saving for the future is seen as more of a luxury,” said Donna Carson, a Licensed Insolvency Trustee with MNP Ltd. that commissioned the survey. “Living on credit has become the only way to make some household budgets work and a whole industry has grown up around making that feasible, from payday lenders to credit card companies, to buy-now-pay-later retail offers.”

“Albertans are maxed out right now and what makes the situation more alarming is there is no real plan for paying back what they have borrowed. If the economy deteriorates further or interest rates rise, there’s going to be a significant number who will be forced into bankruptcy or insolvency.”

Those numbers could go a long way in explaining why somehow a significantly fewer proportion of Albertans believe that climate change is real, or the provincial obsession with building pipelines in hopes of goosing another oil boom. The same lottery-ticket logic has afflicted successive Alberta governments that have squandered vast resource wealth, saved virtually nothing and racked up $62 billion in public debt. Could our nation fail at tackling climate change because Alberta apparently is incapable of managing money?

The biggest source of debt for most Canadians is mortgages. Other nations have crafted policies that encourage less costly home-ownership. For example, less than half of Germans own their home, and their household debt to GDP is similarly smaller. A vast post-war public investment in mostly rental stock means that Germans now have secure housing without the mountain of mortgage debt that often goes with it.

If Canada has a financial moral injury, it is largely self-inflicted. No one forced consumers to incur such massive personal debts for the trappings of a detached house and everything that goes in it. Canadians spend $2 billion every year on lawn mowers and $85 billion on new vehicles.

What is non-consensual, however, is the pervasive pressure to borrow. Consumers are bombarded with ads from financial institutions and credit card companies encouraging them to borrow ever more. Aggressive marketing by mainstream and B-list lenders targets those least able to carry more credit. If civilization collapses due to inaction on climate change, the marketing departments of major banks should reflect on their contribution to that apocalyptic outcome.

All this debt might seem more rational if it made people happy, but evidence suggests the opposite is true. Forty-eight per cent of Canadians fret that they are on the edge on insolvency. Financial worries are the number one source of stress.

Personal debt is the elephant in the room of Canadian public policy. Decades of cheap money have undermined our national character and now prevents us from being a more principled nation. Canada remains an incredibly compassionate country but in order to meet the moral challenges of the coming century, we need to ditch our debt.