The latest edition of the Federal Fiscal Monitor is out. This is, essentially, the government's monthly balance sheet.
It's not great news for those Liberals who've been saying that the Conservatives are running us into deficit.
In fact, the federal treasury overfloweth with extra dollars.
Jim Flaherty, in his last budget, predicted that by the end of the fiscal year — in March 31, 2009 — the budgetary surplus would be $2.3 billion.
Well, today's fiscal monitor shows that, after just four months of the current fiscal year, the surplus is $2.9-billion.
Now there is a policy issue here that the parties might tussle over.
The Conservative plan is to take every extra dollar in surplus and use it to pay down the debt. Any savings in interest charges by doing that would be returned to taxpayers in the form of lower income taxes. Last year, the Tories paid down the debt by more than $14 billion but resulting the interest savings didn't really amount to much when it came to income tax cuts.
Once upon a time, the Liberals said they would use unanticipated surpluses differently: One-third would be used directly for tax cuts; one-third would be used for program spending and one-third would be used to pay off the debt. In that scenario, the debt — which is already among the lowest in the industrialized world when compared to national GDP — would not be paid off so rapidly but Canadians would enjoy a bigger tax cut and seee some new government programs.
The different approach to debt repayment, it seems to me, is one of the major differences between Liberals and Conservatives.
“The federal debt-to-GDP ratio stood at 32.3 per cent in 2006–07, down significantly from its peak of 68.4 per cent in 1995–96. Taking into account the projected debt reduction, the debt ratio is expected to fall to 27.5 per cent by 2009–10, the lowest level since 1978–79.”
Now, some Conservatives would like a debt-to-GDP ratio of 25 per cent but I've never heard a clear defence of why 25 per cent is the appropriate level. ('Course, I may have just missed it and would be grateful if you could forward it to me if you happen to have one.)
Unlike a Canadian household — who would prefer to have an overall debt level of zero, if possible — it's very important for the federal government to continue to issue debt in the form of Canada Savings Bonds and other government securities. Everyday Canadian investors like to buy this debt — to lend the government money, essentially — because it's a nice safe investment. The trading of this debt that happens every day on financial markets is important to the overall liquidity of financial market — the ability of a willing seller to be able to quickly and efficiently find a willing buyer for a given security. In other words, if governments, like households, aimed for 'zero debt', Canadians would not be able to buy government bonds and securities and most Canadians would probably see that as an undesireable outcome.
So, given that public debt provides a tangible and definite 'good' to society, the discussion really ought to be about how much debt is 'good debt' and how much debt is 'bad debt.'
And if we agree that there is such a thing as 'good debt', then using scarce surpluses to pay off 'good debt' would seem to be a waste of surpluses that could have been used for some other public good, such as reduced taxes or spending programs. And so we come back to the policy debate for politicians: Where is the line between 'good debt' and 'bad debt'? Is at 25 per cent GDP and, if so, why?
Tags: debt, fiscal monitor, taxes
Everyday Canadian investors like to buy this debt — to lend the government money, essentially — because it's a nice safe investment. The trading of this debt that happens every day on financial markets is important to the overall liquidity of financial market
So what you're basically saying is that everyday investors and the financial markets need to be propped up by the taxpayers who are footing the bill for the interest payments to the tune of $35 billion every year. Is this really your definition of “good debt”?
The federal government 'props up' millions of Canadians in all sorts of ways for all sorts of reasons. Ottawa spends $210 billion a year. Who do you think gets that money? Whether it's paid out in wages, old age support, unemployment insurance, grants to businesses or in interest to buyers of Canada Savings Bonds, that's what the government does, for better or worse — it spends money presumably because the politicians that authorize the spending of that money believe the country will be better off for it.
I find myself in agreement with Robert on this one.
I believe that it is important for Canada to get to a zero-debt status, at which point, taxes could be lowered to an even more reasonable level, further reducing the burden on tax-payers and putting more money into their pockets.
Additionally, the money saved on servicing the debta though interest and principle payments, could be used for the afore-mentioned tax relief, but also for new program spending which would be, going forward, sustainable. Canadian's aren't wholly unreasonable when it comes to deficit/program spending but certainly any “kitchen table” talk in any home is about getting to zero-debt in order to be able to afford the luxuries of life.
As far as the economy goes, we really do need to get away from a debt dependant economy and move towards a debt-free/productive investment strategy for the economy. A financially secure nation shouldn't have to rely on an orchestrated economy driven by debt.
Also, government securities can continue to proceed with the money being taken in going towards particular investments in the nation's future. A whole new industry of Government Securities could crop up. Education Investment Bonds, Environmental Investment Bonds, Technology Investment Bonds etc. These Investment packages could then be specifically directed towards those areas of National Interest through public investment. And under a zero-debt/productive investment fiscal environment, Canadian families and individuals would have the money to do so. By purchasing Bonds in an area of interest, the public can indicate to the Government which areas of investment they want to proceed with, and which areas they don't, putting more money and directive power in the hands of the tax-payers.
Something to think about anyway.