What Comes After a Trillion?

In the effort to combat the pandemic, the sheer amount of stimulus pledged by governments globally has been staggering. In July, then Finance Minister Bill Morneau delivered Canada’s economic update, which replaced the regular spring budget. It was an economic tally of the measures taken to date. The 2020-21 deficit is expected to be $343.2 billion, largely attributed to pandemic relief programs.1 

At latest count, $212 billion will have funded the government’s four major initiatives: the Canada Emergency Business Account and Canada Emergency Wage Subsidy, supporting businesses; the Canada Emergency Response Benefit, supporting workers; and the Canada Emergency Student Benefit, supporting students.

What is a Trillion?

The crisis is expected to increase Canada’s national debt by over 30 percent. Prior to the pandemic, Canada held $1.083 trillion of debt on its balance sheet.2 In 2020-21, this will rise in excess of $1.4 trillion. However, this pales in comparison to the U.S., which had national debt of over US$23 trillion at the start of the year,3 and is expected to add trillions of dollars in fiscal stimulus to combat the crisis.4

Just how much is a trillion? To put the magnitude of the jump from one billion to one trillion into context, if we were to travel back in time by a billion seconds, we would be in 1989. However, to go back a trillion seconds would take us to around 30,000 B.C. What comes after a trillion? A “quadrillion.” At the start of 2020, it was estimated that global debt totalled $257,600 trillion, or $0.26 quadrillion.5

Is There Need to Worry?

Current national debt levels do not indicate any risk of imminent default, so long as economies and fiscal institutions continue to function and taxation continues. Canada also entered the crisis with one of the lowest government debt-to-GDP ratios of the major developed countries.6 With interest rates at historical lows, the cost of borrowing has gone down, so it’s not a terrible time to be adding debt. According to Morneau, “the government will save over $4 billion in public debt charges in 2020-21 compared to the forecast presented in 2019” due to lower interest rates.2

How Will We Pay for This Stimulus?

Given these daunting figures, how we will pay for these efforts? Even prior to the pandemic, there were concerns about our high debt levels. Governments can reduce national debt in three main ways: cut spending, raise taxes, or grow the economy faster than debt — faster growth can produce more revenue and also increases the economy’s capacity to carry debt. 

Few would dispute the need for stimulus — crisis times are precisely when government spending should occur. However, down the road there may be a significant economic cost for the generations to come who will likely shoulder our continuing debt.

  1. cbc.ca/news/politics/fiscal-snapshot-morneau-highlights-2020-1.5642115
  2. canada.ca/en/department-finance/services/publications/fiscal-monitor/2020/03.html
  3. cnbc.com/2020/01/14/the-us-is-23-trillion-in-debt-why-that-might-help-your-wallet.html
  4. ft.com/content/d211f044-ecf9-4531-91aa-b6f7815a98e3
  5. reuters.com/article/us-global-debt-iif/global-debt-shattering-records-iif idUSKBN1ZC1VQ#:~:text=%E2%80%9CSpurred%20by%20low%20interest%20rates,to%20break%20above%20%2470%20trillion
  6. investmentexecutive.com/news/research-and-markets/how-will-canada-pay-for-its-covid-19-response