Debt needs to be budgeted for
After seven years of federal deficits following the 2008 economic downturn and subsequent massive stimulus binge, the federal government is finally on track to be back in the black. While this is long overdue, the government should be applauded nonetheless.
But while balancing the budget is an important milestone, it is only a small part of the big picture. Balancing the budget simply means no more deficits. But the consequences of the past seven deficits are still with us — their cumulative effect has been to saddle Canadians with more than $150 billion in federal debt, for a grand total of around $614 billion. That’s more than $17,000 for every single man, woman and child in Canada.
To put the consequences in perspective, in 2014 the government paid more than $28 billion in interest and other service payments on the debt. That’s $28 billion that can’t be spent on anything else, or returned to the pockets of Canadians. It’s the equivalent of 10 per cent of all government spending, more than is spent on any single federal government department. (The largest department is National Defence, with a budget of approximately $20 billion). It is, in short, a huge sum.
This debt is a burden that was largely incurred over the last 40 years. And it will take at least as long to get rid of it. If the government paid $5 billion a year, indexed to inflation, it would take 66 years to pay it all off. (Although if it also budgeted to use the money saved in lower interest costs towards the debt, it could get it down to about 46 years.)
As a rule, whenever a government is left with a surplus, that surplus is applied to outstanding debt. This is how the federal government managed to pay down $105 billion in debt between 1997 and 2008. However, relying on surpluses to lower the debt is troublesome. The problem is that even when governments find themselves with extra money, the temptation is always to spend it before it can be used to pay down debt. It’s the government equivalent of blowing your unexpected new raise on fancy electronics or an impromptu trip to the mall, rather than paying down the balance on your credit card.
The invisibility of debt to the average Canadian belies the huge burden it places on all of us, and also hides the lost opportunities that less debt would create — lower costs, lower taxes and more money for other priorities. So how can governments help expose the debt and create pressure to eliminate it?
The solution lies in legislating debt repayment as a budgeted, line item expense just like any other government expense, to ensure that minimum amounts go towards repayment each year. Finance, Health, Defence — the costs for these departments are all anticipated and planned. The competing needs of each are weighed against each other, and the government must then decide where to allocate money. By legislating a line item for debt, it would ensure debt is treated as a real, live issue by politicians as opposed to an afterthought.
The Harper government has taken a critical first step in getting the books balanced. What better way to signal its serious commitment to tackling the longer-term problem then codifying debt repayment in legislation? Aaron Wudrick, federal director, Canadian Taxpayers Federation, Ottawa