Newspaper article The Canadian Press

Higher Public Debt Has Helped Slow Build-Up of Household Debt: Bank of Canada

Newspaper article The Canadian Press

Higher Public Debt Has Helped Slow Build-Up of Household Debt: Bank of Canada

Article excerpt

Higher public debt slowed private debt: Poloz

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OTTAWA - The federal government's steps to amass more public debt have helped Canadians avoid an even faster build-up of their personal debt loads, even though such household burdens have still managed to hit historic highs, the Bank of Canada governor said Tuesday.

Stephen Poloz said Ottawa's spending in the last couple of years on programs such as enhanced child benefits and infrastructure, have contributed to economic growth.

The extra public investments have also helped push interest rates up to a level higher than they would have been without the government stimulus, he said.

From there, those higher rates have helped slow the accumulation of household debt and, while it's still climbed to record levels, it's lower than it otherwise would have been had Canada continued with government belt-tightening approaches of the past, Poloz said.

"It's always hard to imagine the counterfactual, but if rates had to stay lower for longer that would mean more household debt -- and the federal government has accumulated some fiscal debt instead," Poloz said as he responded to questions following his speech at Queen's University in Kingston, Ont.

"And I think that's a trade-off that, of course, you have to make in policy-making space."

All things considered, Poloz added that this "mix has worked better for the economy than the old mix."

He said he didn't want to comment on the merits of specific fiscal policies of the past. But he noted the current approach has helped guide Canada's economy closer to reaching its full capacity, or "home," as Poloz calls it.

His remarks come a couple of weeks after the Trudeau government tabled a federal budget that has faced criticism for its plan to continue running annual multibillion-dollar deficits across the five-year projection horizon -- despite the country's surprisingly strong economic performance.

The government opted to use billions of dollars worth of fresh fiscal space for new investments, a decision that left it with no timeline to return to balance. …

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