That’s how much money the Government of Canada spent in 2007-2008 paying off interest charges on the federal debt. Thanks to lower interest rates and the budget surpluses of the past decade, that number is considerably reduced from the high of over $49 billion in 1995-96. But it’s still nearly $1000 per person in this country.
Most provincial governments have accumulated debt, too. Nationwide, these paid out over $22 billion in debt servicing charges in the same year. That makes the total amount of tax dollars devoted to government interest payments approximately $1,660 per Canadian resident.
I point this all out because federal Finance Minister Jim Flaherty presented his budget to the House of Commons this week. The budget was, of course, full of a dizzying array of very large numbers, much of it connected to the “Economic Action Plan” and “Extraordinary Financing Framework” which are supposed to stimulate our economy out of a recession. Since Liberal leader Michael Ignatieff has said his party will support the plan (with the only condition being that the government submits regular status reports), expect the money to start flowing soon.
I’ll leave the detailed analysis of the budget and its objectives to those who make a profession of such things. But one does not need an economics degree or accountant’s designation to understand the significance of the number at the bottom of the ledger sheet.
As had been revealed in the press the week before the budget, the federal government expects to spend $34 billion more than it collects in revenue this year (2009-2010). That deficit will be piled on to the $457 billion federal debt that was outstanding at the end of last year. An expected deficit of a similar size will add to the total next year.
Experts, analysts, and interest groups of all kinds tell me that these are extraordinary times and that lavish government spending is the best defence against a crumbling economy. I have no grounds to dispute it.
I just want to point out that, if the Government of Canada was not paying interest on decades’ and decades’ worth of debt, it could have made all the exact same fiscal stimulus measures and the budget would very nearly be balanced this year.
A $34 billion deficit, $33 billion dollars in interest payments. Those are numbers worth putting side-by-side.
The budget documents make a point of noting – in easy-to-understand graphical form – that Canada’s debt, at less than 30% of our annual GDP, is not as weighty as that of other G7 countries. That may be true, but I really don’t think this is an area where we should be keeping up with the Joneses.
Maybe it’s just my personality; maybe it’s the way I was raised; maybe it’s because I’m fairly good at math; whatever the reason, in my personal finances I hate the idea of being in debt.
Yes, I have a credit card. I broke down and got it a year ago because it was just becoming too inconvenient to do without. But I haven’t paid a cent of interest on it yet, and don’t intend to start anytime soon. I was shocked – stunned, really – when I found out that some of my relatives had gotten so deep into credit card debt that they are paying many hundreds of dollars a month in interest charges.
My relatives are not a unique case, of course. Personal debt levels are a huge problem in Canada and the rest of the industrialized world. But I still cannot quite fathom how they got themselves into a situation where they are paying as much in interest as my sister pays in rent on her studio apartment in downtown Toronto. Why would anyone want to give that much money to huge corporations, without even getting anything tangible in return?
My perspective is the same when it comes to government debt. The $33 billion in annual interest payments may not be unmanageable compared to the federal government’s $200 billion-plus annual program spending, but neither is it insignificant. And that figure is now expected to rise to nearly $40 billion by 2013-14.
Why would we want to be giving that money away to … well, to whomever? I don’t even know who owns all the government bonds that make up our debt. But I’m pretty sure that, whoever they are, they’re not short of cash.
Think of all the things that could be done with that money if it wasn’t paying off interest. We could create universal, affordable childcare for all Canadian parents (the federal-provincial plan negotiated by the Martin government would have cost $5 billion a year). We could live up to our commitments for foreign aid to help the neediest people in the world (0.7% of our GDP would be approximately $10 billion). Or, we could just put that $1000 a year back into the pockets of individual Canadians, and let them stimulate the economy in the way they best know how.
But of course, we can’t do that, because we’ve got this monster of debt that has to be fed, year in, year out, regardless of all other budgetary plans and priorities. We can’t do that, because a generation ago, politicians and economists decided it made sense to spend money they hadn’t got, and let the vibrant economy of the future pay it back.
At the time, inflation was rampant, and it made more sense to spend money than to save it. Or so they tell me. And, just as my relatives never intended to end up owing tens of thousands of dollars on credit cards, no one intended to have the Canadian government in 2008-09 devoting 1/8th of its budget to interest payments.
But regardless of intentions, the final effect is that, a quarter-century later, the federal government still owes more than $13,000 on behalf of each and every Canadian. And now that we’re in tough economic times once again, we don’t have the flexibility to deal with it properly, because we’ve got that hungry monster breathing down our necks. And what a strange monster it is, too – growing bigger if it doesn’t get fed!
So that’s why politicians have been busy assuring us, these past few weeks, that any budgetary deficits will – of course – only be temporary. There will be no returns to the “structural deficits” of the past, they promise.
It’s something to remember in the coming years, particularly in future election campaigns, particularly as the economy starts to pick up. All the big spending and big tax breaks handed out this year are likely to be addictive. No one will like it when tax breaks are rescinded and spending programs phased out. But all that spending is just money borrowed from the future. And as soon as possible, we need to start paying that money back. We need to start paying that money back, so that one day we can stop paying billions in interest.
Because I hate being in debt.