Albas: Increasing gov’t debt imposes real costs

Paying interest on government debt takes money away from programs.

When any level of government releases an annual budget, often the focus tends to be largely and understandably on what programs and projects an elected government will increase or decrease funding on. Seldom is there much of a discussion on the long term impacts of a budget on future generations of citizens.

In the case of the recent federal budget introduced by the Liberal government last week, there are a number of important questions to be asked that I believe all Canadians should be mindful of, one of them I will summarize here. Recently the TD Bank issued a forecast report predicting that the cumulated debt by increased deficit spending of the Liberal government will reach $150 billion over the next five years.

Astute political watchers will know this is very close to the $154 billion in debt that was added under the former Conservative government before it returned to balance.

This raises the question: If both governments are increasing similar amounts of debt, why is this now a concern?

There are a number of reasons why I raise this issue. In the case of the former government, this $154 billion in new debt was added over a 10-year period with many of those years experiencing a worldwide economic recession not seen in decades.

In the case of the $150 billion in new debt from the Liberal government, this is being proposed in just half the number of years (only five) and at a time when Canada is not in a recession but rather a period of slow but positive economic growth. The question to be raised is that if government is increasing debt during a recession and still increasing debt when not in a recession but during a period of slow economic growth and aging demographics—at what point does a federal government ever pay off debt? Why is this concern?

The challenge with increasing debt is that there is ever-increasing interest on that debt that must be maintained—not unlike paying the minimum balance on a credit card each month. In the case of Canada, for the 2013/14 fiscal year over $28 billion was spent just on debt servicing. To put that number into context: The total amount of health transfers from the federal government to the provinces and territories in the same fiscal year was $32 billion.

In other words, from a federal government perspective, we spend almost as much money servicing debt as we do helping to fund healthcare.

As another comparison the National Defence budget for the same fiscal year was $21.5 billion, meaning we spend more on debt than we do on national defence.

From a percentage standpoint currently 10 per cent of the entire federal budget is spent servicing debt and this is before another $150 billion in new debt from the Liberal government is added. Some view government debt as being solely an ideological or partisan concern. The intent of this week’s report is to illustrate that increasing debt imposes real costs that must be paid. Ultimately as debt and interest on debt increases so will the debt servicing costs and money that could otherwise be spent funding more important government programs or services is instead diverted towards debt servicing.

The fact that fiscal capacity is being lost to debt is seldom a focal point in budgetary discussion; however, it is an increasing problem that future generations of Canadians will be left to deal with.  From my perspective few citizens raise the concern of increasing government debt and my primary purpose in raising this topic is to ask citizens if debt and having a balanced budget are concerns you view as important.

Obviously, increasing spending is far easier for elected officials to do than to decrease spending; however, at some point fiscal capacity will be diminished to the extent that future generations will have serious problems, particularly with our aging demographics, a topic I will cover in a future report. More so as most Canadian provinces are also heavily in debt and some taxpayers are now paying in excess of 50 per cent in combined income taxes not counting consumption taxes.

 

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