Too many Canadian governments are borrowing too much money

Posted on March 30, 2018 in Governance Debates – Opinion/Editorials
March 30, 2018.   EDITORIAL

The fact is, there’s nothing inherently wrong with debt. It has important uses. The governments of Canada and the United States weathered the Great Recession with timely deficit spending that jolted their economies.

But in periods of economic recovery, it’s not something you want hanging around. Canadian governments seem to have forgotten that. Now that good times have returned, provincial and federal politicians are still piling on debt.

This week’s Ontario budget crystalized the fact. A province with a strong economy and a small budget surplus, but the country’s fourth-highest net debt-to-GDP ratio, plunged itself back into deficit for the foreseeable future, to the tune of about $6.5-billion for each of the next three years.

The rationale seems crudely electoral. Premier Kathleen Wynne’s Liberal government believes in big government and a generous welfare state, but her unwillingness to pay for new promises – including free drugs for seniors and free tuition for hundreds of thousands of students – can’t be chalked up to grand ideas. It may be easy to say Our debt-to-GPD ratio is still manageable, so…, but that is not an ideology.

In fact, social democrats have as much reason as conservatives to be appalled by heavy government debt. That’s because, far from being a reliable source of government revenue, debt quickly begins biting into government spending.

Look again at Ontario. It is going to spend an average of about $13-billion on interest payments in each of the next three years. That’s almost $2,000 per worker in the province.

If that sounds like a lot, even in a big province like Ontario, that’s because it is. Servicing debt has become the provincial government’s fourth biggest expense, after health, education, and child and social services. Ontario spends more on interest than on postsecondary schooling.

No matter where you sit on the ideological spectrum, allow yourself to imagine what you could do with $13-billion a year. The Ontario NDP thinks it can provide universal dental care for $1.2-billion a year; it could really go crazy with 10 times that amount. Conservative mouths, meanwhile, will water thinking of the tax cuts.

With provinces from Alberta to Newfoundland and Labrador gushing red ink, never mind Ottawa, it can be easy to wonder whether getting rid of debt is possible or even desirable. If everyone is larding the stuff on, how urgent can the problem be? If the economy is growing, what’s the worry?

Quebec shows that debt can and should be taken seriously. After years of fiscal mismanagement, Philippe Couillard’s Liberal government began tabling balanced budgets a few years ago, and in 2017, the province’s credit rating jumped higher than Ontario’s for the first time.

Most importantly, Quebec has committed to a debt repayment plan. The province’s Generations Fund, established in 2006, takes in money from booze taxes, Hydro royalties and mining revenues and can only be used to pay down the province’s debt. The Couillard Liberals recently earmarked $10-billion over five years for the purpose.

It’s true that, in historic terms, left-wing governments have been the ones to run up debt and right-wing governments have been more prudent. (The Quebec Liberals are a fiscally conservative breed relative to their Ontario counterparts.)

But these days the debt bug isn’t discriminating. It recently bit the U.S. Republicans, who’ve committed to ballooning debt in exchange for tax cuts on corporations and the wealthy, even though the American economy is racing along.

If the temptation of public debt crosses partisan lines, so should a healthy aversion to it. Spending more than you take in can be justified in a crisis, but in normal times it’s a lazy, dishonest, wasteful way of running government. It leaves less money, in the long run, for whatever your political priorities might be, or for the next crisis.

Plus, it is wrong to pretend there is zero consequence to deficit spending as long as the ratio of debt to GDP remains in an acceptable range. The cost of servicing ever-growing debt always becomes too onerous.

It’s not neurotic to think that, just because you can afford to borrow in the moment, it doesn’t mean you should.

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