Canada’s federal net debt will reach $542.4 billion by March 31, 2013. That’s almost $100 billion higher than the $444.5 billion projected for 2013 in the 2008 budget released a year ago. That adds significantly to the debt that Canadian taxpayers will have to finance and repay; it also leaves Ottawa with less room to cut taxes and/or increase program spending.

But this is something Canada can afford, given its fiscal record. In the past decade, debt fell to $457.6 billion from its March 31, 1998, peak of $559.9 billion.

Furthermore, debt as a percentage of gross domestic product is projected to be 29.5% as of March 31, 2013. That’s not much higher than the 28.6% estimated for the March 31, 2009, fiscal yearend, although it is 4.4 points higher than the 23.6% that was projected for March 31, 2013, in the 2008 budget.

Of the $51.6 billion to be spent in 2009 and 2010, Ottawa’s actual outlay to support incomes and jobs in these difficult economic times is expected to be $39.9 billion; it’s counting on the provinces to kick in another $11.7 billion, mainly through joint infrastructure projects.

These monies have to spent in the next two years. If all of the $29.3 billion earmarked for calendar year 2009 is not spent, the remainder won’t necessarily be available in 2010 — and the same is the case for the $22.3 billion in planned spending for 2010.

Of that $51.6 billion, $20.7 billion is earmarked for infrastructure; $8.8 billion for business and communities, with $4 billion for autos; and $9.2 billion for housing construction. In addition, there is $12.8 billion “to help Canadians and stimulate spending,” including $8.3 billion for training and transition support and $4.5 for personal income tax relief.

The federal Department of Finance estimates that Ottawa’s spending under the package will increase Canadian real gross domestic product by 1.2% this year while the provincial spending assumed in the program adds another 0.4%. The result is a 1.6% improvement in real GDP.

Given the average private sector forecast before the budget of a drop of 0.8% in real GDP in 2009, that suggests that the package will result in a positive 0.6% growth rate. The plan is expected to add only 0.2% to GDP in 2010, although it will still be adding to employment. Finance estimates that the plan will also create an additional 189,000 jobs – 142,000 this year and 47,000 in 2010.

In addition to the fiscal stimulus package, Ottawa is providing up to $200 billion in liquidity to the financial system. This doesn’t increase the government’s net debt because what Ottawa is doing is buying assets from the private sector, which increases federal assets, and issuing government bonds in equivalent amounts.

What it does do is increase the amount of Government of Canada debt, with the stock of outstanding Treasury bills expected to be $223 billion as of March 31, 2010, vs $117 billion two years earlier, and the stock of marketable bonds to be $349 billion vs $254 billion. These, combined with the small amounts of retail stock, Canada Pension Plan investments and foreign bonds, will result in $592 billion in total market debt vs $394 billion.

To help facilitate the marketing of the latter, the government is re-introducing three-year bonds.

IE