Double Blind

Link: The Fiscal Monitor – The critical paragraph can be said here, bold emphasis mine:

The budgetary surplus is estimated at $635 million for the April to October 2003 period, down $3.6 billion from the restated surplus of $4.2 billion reported in the same period of 2002�03. Budgetary revenues were up marginally, $0.2 billion or 0.2 per cent. This largely reflects the recent economic weakness due to a number of domestic shocks that have hit the Canadian economy. Program expenses were up $4.6 billion, or 6.2 per cent, primarily due to new spending initiatives announced in recent budgets. Public debt charges were down $0.8 billion, or 3.9 per cent, reflecting lower interest rates.

This is garbage. The government has a $635M surplus for the quarter which is all fine and everything, but the problem is the explanation for the sudden drop of the surplus – the link claims that it’s because of “domestic shocks” (e.g. SARS, Mad Cow Disease, etc.) but as a practical matter, these two had a negligable effect on the economy (unless if you were an Albertan cattle rancher, which most of us are not!). The real reason why the surplus is dropping like a rock is because of what I highlighted up above – Jean Chretien is spending money like mad in his retirement. Now that we’ve got the budget balanced (half of it due to offloading the tax burden on the provinces) the government is starting to relax and is starting to ignore fiscal concerns once again.One “domestic shock” that isn’t so domestic is the rise in the Canadian dollar – since we do a lot of exporting, this will slow down our sales internationally and this will affect the amount of revenues we collect from abroad.

This is all bad news. This $635M surplus should really be a $5B surplus, and we should be applying all of that money to punching down the Federal debt (some $600B when I last checked) since it’s the only guaranteed 5% return on capital that any Canadian will ever see out of their government (i.e. for every dollar of debt we pay down, we will never have to pay $0.05/year in perpetuity ever again). The problem is that surpluses don’t last forever since the revenues will start to collapse if the country ever gets into a recession we’ll start seeing big deficits again, especially with the rate that the government is increasing their spending into the bottomless hole of bureauocracy. Let’s hope Paul Martin can get his act together, tighten the belts of the government and start working on a grand plan to pay off the debt.

Paying $600B is no easy feat for a country to perform, but it can be done over the span of 30 years with conscious fiscal planning. Such a committment will keep interest rates low, and keep this country very competitive in the future. Thankfully, the USA is screwing up their fiscal act so badly that it might give us a chance to embarrass our friends down south.

If the Canadian government kept spending at the rate of inflation since 1998 and applied the proceeds towards the debt, we could have paid off $100B of federal debt by now. Not only would we be a hundred billion closer to our goal of a debt-free nation, but we would also be saving approximately $5 billion in yearly interest payments that could have been used to build roads, hospitals and universities, but also to pay down yet more debt.

Imagine if you were working with a $30,000 annual income and a $150,000 loan at 5% interest. You have to pay $7,500 each year just for the interest on your debt payments. What do you do with the other $22,500? Do you spend it on frivolous stuff, or do you tighten up and start paying down that $150,000 loan? This is effectively a decision the country faces today. My vote is simple. Pay down the $150,000 loan first and then ask where you’re going to spend the money. Because right now, you don’t have any until the bills are paid off first.

This entry was posted on Monday, December 8th, 2003 and is filed under Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.