In rough terms, Canada’s economy is 9.8% the size of the US economy. GDP per capita in Canada stand at $41,500; the US is higher at $49,500 (24thand 12thhighest in the world, respectively). However, and importantly, our smaller, slightly less affluent (as measured by GDP per capital) neighbor to the north did not suffer the housing meltdown that we did in the US, nor is it on the road to bankruptcy.
The average cost of a home in Canada is $352,800, as compared to a median of $172,400 in the US. You may notice that the two systems do not equate given one is an average and the other is a median, but you get the idea nonetheless. The strength in the Canadian market is partially the result of solid banking rules that prohibited the risking lending we had in the US.
It should also be noticed that the Canadian system does not depend on tax incentives from personal mortgage interest deductions. There is no need for any government to prop up a segment of the economy for which there is a natural demand. A slow phase out of the housing interest deduction in the US would not hurt the US housing industry.
Our neighbor to the north also has a great balance sheet, despite what is generally viewed as a more generous entitlement platform that encompasses the entire population. Canada’s federal debt is just 38.9% of GDP (ours is 103.3%). Their federal debt is roughly 3.7% of our federal debt, which is disproportionately small given their economy is 9.8% the size of ours.
How did Canada do this? Simple, they cut spending more than they raised taxes. Raising taxes for more programs is not the answer. Cutting spending and limiting the federal government will reap great benefits in the years to come. Canada has shown us that this is possible and ultimately beneficial, as they will be paying down their national debt in a few years while we are piling it on.
