statism watch

Flashback: Flaherty sees deficit, debt, and timetable to return to surplus all expanding | Federal deficit hits $7.5B in April-May | Budget officer ‘can’t tell’ if stimulus plan working | Flaherty looks for way to end stimulus | Stimulus cash is flowing – down a hole? | Harper lays out stimulus spending in progress report | ‘Reduced pace of deterioration’ indicates economy on the mend: Flaherty | Federal deficit to top $50B | Harper government plans deficits as deep as $30 billion | Flaherty eyes sale of Canadian government assets | Flaherty lauds Keynesian global ‘economic stimulus’ strategies

Terence Corcoran, National Post
September 11, 2009

The Tory commitment to ‘eliminate’ Canada’s total net debt by 2021 now looks absurd

Debt is good, even for governments. [Ed. Note: How so, Mr. Corcoran? Whither principle? To whom is debt owed by governments?] But it depends on the kind of debt, what it’s used for and what the financial plan is for getting out of debt. Finance Minister Jim Flaherty’s latest revelations on the future of Ottawa’s annual deficits do not fill one with confidence that the federal government has a firm grip on the floodgates that control the level of debt in Canada, not all of which is going to be doing much good for the economy.

By 2015, said Mr. Flaherty in his surprise fiscal update on Thursday, Ottawa will have pretty well tamed the beast. He said the annual deficit in 2015 will be only be about $5-billion, “a very modest number to deal with.”

The trouble with very modest numbers in the $5-billion range is that they tend to pop up without notice on a regular basis in government operations and then quickly, like gurgling slimy creatures in the movies, turn into gigantic long-term problems that are not so easy to handle. The next thing you know, you’re dealing with real money.

For instance, the federal deficit for this year, originally estimated at $50-billion, is now a modest 10% higher at $55-billion. Going forward, Mr. Flaherty laid out a slightly revised series of deficits that would still, under the best of circumstances, run the national debt up by $170-billion by 2015. That would bring Ottawa’s total net debt to $628-billion, a record in nominal dollars and about $19,000 per capita — compared with $608-billion or $20,000 per capital in 1997, the peak year for federal debt in current dollars. The numbers are different in constant deflated dollars, but not that different. The 1997 figure would be equivalent to $24,000 today. For taxpayers, having to carry a debt burden of $20,000 today isn’t a whole lot better than $24,000 in 1997.

That’s not progress, especially from a government that in 2006 boldly committed to “eliminating total government net debt.”

Ottawa isn’t the only player in the all-new national debt game. The provinces and local governments are also running up sizable annual deficits. Ontario is heading for $18-billion this year, and a succession of additional deficits in years to come. British Columbia, Alberta, Quebec, New Brunswick, Newfoundland — they’re all riding deficits that total about $31-billion this year alone. Assuming they follow the same fiscal track Ottawa is on, Canada’s provinces are likely to add close to $100-billion in total new net debt over the next five years.

These are rough numbers, to be sure, in that they don’t take in other elements of net debt calculation. But the trend is unmistakable. At the end of 2008, the net debt of all the provinces stood at $274-billion. If they collectively add $100-billion over the next five years, as seems more than possible, total provincial net debt will rise to about $375-billion by the end of 2015. Add that number to the projected federal net debt of $628-billion by 2015, and Canada is suddenly looking at $1-trillion in debt, or about $30,000 per man, woman and child.

The numbers don’t look quite so bad when measured against the size of the economy. At $1-trillion in 2015, Canada’s net debt to GDP ratio would be about 57.5%. That’s a long way from the 90% levels Canada hit in the late 1990s. But as the chart above shows, Canada’s track to lower debt has been drastically reversed and is now on a new upward curve. As Canadians know from experience, turning annual government deficits into balanced budgets and surpluses is a painful process that implies big cuts in government spending and higher tax levels. Somebody has to repay the debt and cover the interest costs.

Back in 2006, Mr. Flaherty touted his government’s commitment to “eliminate” Canada’s total net government debt. The target date was 2021. To get there technically required fulfilling two different objectives. First, the combined federal-provincial debt, now heading for $1-trillion, had to be down to about $680-billion by 2021. That objective now looks absurd and is wildly beyond reach.

The second key element of the debt-elimination plan was to build up the net value of the financial assets accumulating in the Canada and Quebec pension plans. By 2021, the two plans were expected to have increased their net asset values to $316-billion. The latest actuarial projects aren’t available yet, but it seems certain that those values will not be achieved given recent financial meltdowns and expectations of future market returns.

According to the current economic fashion, the big increase in federal and provincial debt is essential to stimulate the economy. Right or wrong, Canadians will still have to carry a $1-trillion national mortgage.

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