My thoughts on government debt

So, you’re walking down the street with your buddy when you encounter a needy person. You decide that you want to give this poor unfortunate a leg up, maybe a couple of days of meals and a pair of warm boots. You reach into your wallet for a $100 bill only to find that your wallet is empty. No problem, you think; I’ll borrow $100 from my buddy. As you do so, you tell your buddy, “Don’t worry if I don’t pay you back in my lifetime. I’ll tell my son and daughter to pay you back, sometime in the future.”

According to the Fraser Institute, the total debt incurred by Canada’s federal and provincial governments is projected to reach $1.4 trillion by 2016/17. That works out to $37,476 for every man, woman and child living in Canada.

When a government runs a deficit budget, that deficit is added to the overall debt. When you buy something, you have to pay interest on top of the amount borrowed. Governments have to do this too.

The current federal Liberal government has been borrowing heavily since they came to power two years ago. This week, the Liberal government released its fiscal update, and it had good news to report. Finance Minister Bill Morneau told us that instead of the projected $28.5 billion deficit for this year, the deficit is now projected to be only $19.9 billion. The economy is doing well with 3.1 per cent GDP growth expected for this year, and unemployment rates are way down.

It is now expected that over the next seven years, the federal Liberals will grow the debt by $100 billion, with no semblance of a plan to return financing back to a balanced budget. In an interview this week with CTV, Bill Morneau told us that because of a downturn in revenues, from the oil industry and other areas, a balanced budget was no longer feasible. He told the interviewer that Liberals had promised fiscal responsibility in the lead-up to the last election. The direction forward to fiscal responsibility is now, apparently, a matter of linking deficit financing to GDP growth.

The Liberal increase in child benefits to families is putting money into the pockets of Canadians who need it. These families are spending this money, which has the effect of stimulating the economy. The problem here is that Canada is borrowing money and paying interest on this money to do this. Can you say living beyond our means?

Here’s the thing. Canadians pay taxes, both personal and/ or business. These taxes go into government coffers to fund programs and project spending. A portion of our taxes go toward making payments on the national debt. If the debt increases each year, that means that a larger portion of our taxes must go towards servicing the debt, which leaves less for program and project spending. To offer the same funding the following year, the government must then borrow more money. It is a neverending cycle into deeper debt.

There are only two ways out of this: reduce spending and/or increase taxes.

Clearly, the Liberal government is not a fan of reducing spending. As far as taxation goes, in recent days, we’ve seen Morneau and the Trudeau government embroiled in controversy for suggested tax changes/increases for private corporations that affect doctors and small family-owned businesses, thinking about taxing employee benefits, and talking about reducing tax credits for those folks who have Type 1 diabetes, among other things. Clearly, this is a government that is struggling to manage the books. The only fiscal plan that I see here is borrow, borrow, borrow, and spend, spend, spend.

So, buddy, how about that 100 bucks? Just add it onto the other $1.4 trillion that I owe you!