Debt chaining down our future
There’s an old bit of wisdom courtesy of Ernest Hemingway that you go broke two ways: first gradually, then suddenly.
With last week’s federal budget, Canada is inching closer to the sudden phase of fiscal disaster.
The Canadian government projects another five years of deficit spending and over a hundred billion dollars added to our already crushing debt. Worst of all, there is no end in sight to government borrowing, and no plan in place to repay that money. It reminds you of the old German proverb: “He who is quick to borrow is slow to pay.”
Last week’s budget also projects that public debt charges — the interest we’re paying on the debt — will climb from just over $54 billion today to more than $64 billion five years from now, a 20 per cent increase.
Ten cents of every dollar of revenue the government brings in is now going straight to interest payments, according to TD Bank, and those interest payments are eating up a bigger and bigger portion of the budget. What’s worse, interest payments on the debt are projected to exceed GST revenues by 2028.
Those interest payments could have gone instead to boosting badly needed health care funding, or to reducing the tax burden many Canadians are carrying. Think of it this way: a new hospital opened in Toronto last week that cost around $1.2 billion to build. If we did not have to make interest payments on our swollen debt, how many more new hospitals could we have built?
Much like personal loans or credit cards, the more debt the government racks up, the higher our federal interest payments get. The danger is that there will come a point where, far from paying off our debts, we will struggle just to make the interest payments on that debt.
A Fraser Institute report on government debt published earlier this year had this grim warning: “Rising government debt has severe consequences for Canadians as more and more resources are directed toward interest payments and away from programs that help families or improve Canada’s economic competitiveness.”
Although the mushrooming federal debt is cause for concern, other levels of debt render the Canadian situation even more dire.
Combined federal and provincial net debt is projected to come in around $2.18 trillion in 2023-24. Meanwhile, total debt in Canada — household, corporate and government debt at all levels — is now around 341 per cent of total GDP, according to the Globe and Mail. In other words, our total debt is more than three times what we produce each year.
The consequences of the buildup of debt extend to all corners of the economy, stunting investment, hobbling economic productivity and lowering living standards.
Earlier this year, University of Calgary economist Trevor Tombe said, “We should be thinking about the longer-term future of federal finances and start making difficult choices, because the longer we wait, the harder it will be.”
Far from making some difficult decisions, the federal government just made our financial future a lot harder — and probably a lot more painful when the sudden day of reckoning finally arrives and jolts us from our sleep.
Former U.S. president Herbert Hoover, no fan of big government or lavish government spending, once wryly remarked, “Blessed are the young, for they shall inherit the national debt.”
Many things in life are not fair. One of the unfairest of all is that the older generation leaves all of the debts it has incurred to the youngest generation, asking it to pay the bill for many of the goods and services it has never even enjoyed or made use of.
It’s ironic that a budget which aims to make life easier and more affordable for young Canadians has instead placed upon them a heavy burden that they will never be able to throw off in their lifetimes. The debt will be a chain around their ankle for the remainder of their working lives, and it will drag down their standard of living all because of our careless and uncontrolled spending.
A national economic charter of rights and responsibilities, which I’ve been strongly advocating for the past year, would get Canada back on the straight and narrow. Such a charter would require the government to balance the budget and reduce the national debt by five per cent per year over 20 years, to make Canada debt-free within two decades. That would wipe the slate clean for the young Canadians and give them a shot at a better quality of life.