I am a Ticked off Taxpayer

“We have [taken] extraordinary measures to protect the Canadian economy,” Flaherty told MPs in the House of Commons.  “Like virtually all other countries, we needed to run a substantial deficit to do so. But unlike other countries, we are in a position to ensure our deficit will be temporary.” (Flaherty, March 5, 2010)

Everyone seemed so happy in the House of Commons – there was clapping, back-slapping and cheers.  I’m not sure if I’m the only one to ask this question, but is a $53 billion deficit something to get super excited about?  This is the best that our leaders can do – adding $160 billion to our debt over the next 5 years?  Really?

Admittedly I know very little about domestic finance, but what I do know is that if I applied the same methodology being used by the Federal Government to my own finances, I would be more than bankrupt pretty quickly.  I realize that the goal of government is different than my personal goals, but here’s what I see from the current budget as well as the projected deficits going forward:

  1. Projected revenue is $213.9 billion;  projected deficit = $53.8 billion. If this was my house, I would be in big trouble – 25% of my income being spent on “stuff”, that may or may not better my financial position at the end of the year.
  2. With income decreasing, spending increases? Does this make sense to you?  Is this how you run your house?  It seems contrary to any financial plan that I’m aware of.
  3. Canada’s debt will have increased from $517.5 billion in 2009/2010 to $622.1 billion in 2014/2015. Does it really seem like a good idea for our Government to plan to overspend for the next 5 years (which is seen as temporary)?  This spending spree is really the best idea we can come up with?  I don’t really know what I would say if my wife sat me down and said she was planning on overspending for the next five years, but it was “okay” because by year 6 we’d be back to just spending what we were making (because we would definitely not make plans to repay what we’re borrowing anytime in the future).

As previously noted, I am not an expert in getting a country out of a recession, maybe the only way to do so is to spend your way out.  If so, I guess I’m fine with that.  My main problem with the whole thing is that the Government seems so proud of itself for overspending.  After handing down a budget showing the first deficit since the mid-1990s I think a more appropriate reaction by the finance minister and MPs would be to at least act apologetic.  For 35 seconds (after a rousing 2-minute finale) rather then act apologetic our Government stood and cheered. I don’t have $53.8 billion, I’m pretty sure that readers of this blog don’t have $53.8 billion, but our government thinks that at some point in the future we as a country are going to get together $53.8 billion (and interest) to pay down what they’ve decided to spend this year.

In response to this budget, the opposition parties responded by saying they wanted the Government to spend even more money on such things as pensions, climate change, health care, culture, job creation, tuition fees…….  I’m not really sure what the opposition parties are looking for here – do they figure we’re already in bad shape and we might as well hit rock bottom?

I don’t know where our government gets their ideas from, but maybe they need some new ones?  Am I alone in this, or is there similar sentiment out there?

***As an aside, I’d like to state that I am not really for or against any party.  I generally vote with the one that makes sense to me on the majority of the issues.  This post was not meant as an attack on the Conservative government, more of an address to our current fiscal policy, which doesn’t make sense to me.  To me, it would have made more sense for the Minister of Finance to come out say –
“we’re kind of broke right now and can’t afford to do anything, everyone who wants money, they’re just going to have to wait until we get some” – that is something I can understand.***

18 thoughts on “I am a Ticked off Taxpayer”

  1. “If this was my house, I would be in big trouble – 25% of my income being spent on stuff”

    Except what if you make 100K a year and borrow 25K to add an extension to your house because you have unexpected twins?
    What if you find a great investment idea but didn’t have the cash, but knew you could pay a 25K loan so you borrow to invest?

    “With income decreasing, spending increases? Does this make sense to you?”

    Sure, someone loses a job and decides to go back to school or open a business.

    . . .

    It all depends on how they spend their cash, it’s not like they are borrowing 50 billion and buying BMW’s for all government employees.

  2. I like the way you think Dave. I think we need more financial prudence in all aspects of our lives and that includes the governments.

    The governments have become a business which is why they cheer and clap and do what they do. If it were really a business, you might choose to go into debt if you thought that you could generate enough revenue to offset that debt later. The problem is I am not sure the government is thinking this way. I think with politics it’s about getting votes.

    Debt is a big problem in our society
    (http://www.wealthwebgurus.com/article/645/time-to-get-rid-of-debt.aspx)at all levels and we need more people thinking like Dave.

  3. Welcome to Keynesian economics. It doesn’t make any sense, doesn’t work, and is accepted as gospel by every major government in the world. Spend your way out of debt… that makes sense.

  4. Traciatim has pointed out how the government thinks about it. Government spending, especially stimulus spending, should be an investment. Spending for infrastructure makes sense, in this light. It also creates jobs (which are currently lacking) and the bonds that the government issues do two things: spread the cost over the useful life of the investment (bridge, road, rail line, etc) and create a safe investment for Canadian savers (government bonds).

    Canada is far from irresponsible with finances. I don’t like how much the government spends, but with debt around 25% of GDP and only 2-3 times revenues, it’s not a big problem. Ideally, a country would run with no debt and no deficit, but also no surplus. A debt puts future generations at a disadvantage, but a surplus puts current taxpayers at a loss. I hope that after the deficit is slain (once again), the government will slowly reduce the debt.

  5. Behind all the back slapping there is a lot of hidden fear. The truth is that the bottom can drop out again and we have another 1929 scenario in our lap. This would occur at a time when the governments of the world are already deep in dept.

    If another big market/economic drop was to occur then what? Would the government get public support for another crazy spending spree? They now find themselves between the voters and a hard place.

  6. I like more of the comments. Government is a business, not a household. They spend money to generate prosperity for the citizens, not to consume like you would in a household. Government should never just consume or “waste” the money, that’s crazy. But they should spend money if they think that the population will benefit. They’re not all nutbars.

    In a business you often need money in advance of growth. Debt is usually your cheapest form of money.

  7. @ Traciatim – If I had no money and knew I wouldn’t have money for 5 years and really had no plans to pay the money back that I borrowed I don’t think I’d go for the car or school – would you?

    @ WealthWebGurus.com – Maybe our politicians don’t blink at borrowing a bunch of money at home. Generally speaking personal finance knowledge is lacking in the majority of the country.

    @ Robert – I’m fine with stimulus spending, if that’s the only way our government sees getting out of a recession that’s fine. What I have a problem with is that most governments are happy to do the spending, but have no plans to pay back the debt incurred.

    Here’s a couple of points as well:

    1.) The economic stimulus plan is basically finished – there’s $19 billion left to allocate and that’s finished – so not really much more investment there.

    2.) Flaherty says “”Some are proposing big, expensive new government programs,” Flaherty said in his budget speech. “These experiments would jeopardize our recovery and our long-term growth.” – So not really investing in anything long-term. To me, we’re spending money on “stuff” rather than the bridge, road, rail line etc.

    -I realize that in comparison to other countries we are better, but really, does that mean anything? I would rather we take on no debt and pay off what we have eventually.

    @ Canadian Money – I don’t think that just because voters are not going nuts right now it should mean the government is free to go on a deficit spree for the next half-decade (at least).

    If anything, wouldn’t that give incentive to curb in current spending in preparation for a time where credit isn’t going to be there, if there is a risk of the bottom dropping out?

    @ Customers Revenge – Our government is not acting like a business at all. I sense no pending prosperity for the next 5 years, and my personal debt burden is going to increase by over 20%. I don’t think they know whether the population will prosper or not, perhaps the spending is not a waste, but the interest and growing debt that may or may not be repaid at some future point – that’s a waste.

  8. Well, you might be pissed at the Canadian government, but as an expat from the US living in France, I have to say, you are not the only one who feels that way right now. Grrr. . .

  9. Ok, this is something I don’t get. Why do governments need to operate in debt all the time? Is there some rule that they have to? Perhaps a more obvious solution is pay off the debt and then keep building a portfolio that in time will make taxes not even required. Now I’m fairly certain all parties would love to tell people they have a plan to reduce their taxes to zero in a few decades.

    Anyway, just an idea.

    Tim

  10. @ Tim – I love this idea. I think that this plan is too sensible and contains too much long-term planning for governments to undertake. They seem to generally look 3-5 years ahead and put up blinders after that point (when they’re no longer in office).

  11. @Dave: hopefully there wasn’t too much ‘back slapping’ going on! 🙂

    In all seriousness, I think we need to look at what the Conservatives have been doing with the public purse. Forget stimulus spending for a moment, let’s call a spade a spade – the boatload of cash that has been spent on equipment for our foreign efforts abroad in Afghanistan and supporting the war effort is astronomical.

    Let me be clear – I’m not saying that I do or do not support our efforts abroad, all I’m saying is that we have been spending BILLIONS.

    In late 2006 alone, the Harper gov’t announced it was going to spend $15 billion announced $15 billion on military vehicles, including transport planes, heavy-lift helicopters, troop carrier ships and trucks.

    I also read somewhere that it is plausible that by 2027, Canada will be spending 30 billion a year on its military budget.

  12. I just finished my economics course and I thought it was very interesting when the text book was talking about federal debt. No clear judgment saying debt is wrong, only good debt and bad debt. If the debt is used to improve the economy it’s worth it, while debt used for consumption was bad.

    Just like it is with personal finance. Being heavily in debt is very bad if the money is spend on consumption (i.e. New TV, New Car, etc). Debt that brings future income though is worth it (i.e. Real Estate, Schooling, Stocks, etc).

    The stimulus spending creates more jobs, more spending etc, which has a multiplier effect as the increased income creates more spending. So a billion from the government increases the expenditures by more than 1 billion.

    The oppositions objection are ludicrous. Spending more on Health Care is consumption. We don’t get that money back. Not to get into a health care discussion, I’m just saying this isn’t the way to address the problem.

    There were a lot of things I didn’t like about the Rich Dad, Poor Dad books, but I did like how they addressed the good debt vs bad debt issue. If you think all debt is bad you’ll miss out on some great income producing opportunities.

    I’d go on, but I’ve written far too much already 😉

  13. @ Financial Student: I think that my main problem with “stimulus spending” is that it really isn’t quantifiable. It generally seems that the government is just throwing money at a problem when money may not be what is needed, but taxpayers expect them to do something.

    My other issue is that it’s not like the “investments in the future” or whatever the current government wants to call the overspending is going to increase revenues enough to cover the spending they are doing. The thing with good debt is that it eventually puts you in a better position than you are currently in – the whole goal of the current government is to get back to even, rather then generate a massive surplus to pay back the debt.

    @ The Rat – I’m not really sure that spending on the military would create any return on investment unless we started invading and pillaging other countries 🙂

  14. @Dave: Macroeconomic theory (and practice) shows that this kind of spending does work. In the short-run our GDP is below the potential or long-run GDP. With or without spending we’ll return to the long-run, but without the spending it will be slow and will cause deflation. Transfer payments such as unemployment insurance costs go up if we do nothing as well, so it’s not a free ride regardless. The stimulus spending is to get us back to potential GDP as quickly as possible which I think is a good use of the money. It’s kind of the best case scenario in a bad situation though. The less time spent in a recession means the less cuts need to be made. I’m not an economist, but that’s my understanding from what I learned in my two economic courses.

  15. @ Financial Student – So, our government, who presumably knows that the economy is never going to continue to roll right along like it did for the past decade decides that the only way we’re going to be able to survive is to borrow money that we’ll never pay back ever 10 or 15 years into perpetuity? I can accept the spending, what I can’t accept is that there are no prior plans other then to borrow the money. I realize that having excess cash is draining to taxpayers (we’d be overpaying at that time), but to have zero dollars as a contingency fund for say a five-year period that we’d need $100 billion + dollars to continue on?

    I’d be more then fine with the borrowing, but as governments have shown in the past there is no initiative/incentive to pay down the debts that they or previous governments (usually a different party) have accumulated, hence our debt servicing costs continue to rise and become a larger and larger part of what our government is spending money on, rather then services or products that would better the taxpayer.

  16. At what interest rate do we borrow money from other countries? Why can’t the rate on Canada Savings Bonds etc be attractive enough to compete with banks?

  17. We don’t necessarily “borrow” money, we sell debt either through marketable bonds, t-bills, retail debt (Canada Savings Bonds), CPP Bonds, Marketable Foreign Currency Notes, and Canada Bills (not sure exactly what these are, but from what i could find they’re very short-term (9-month) notes). We could make one product more attractive then others, but the net effect would be we’d still owe a bunch of money.

    I found this information here:

    http://www.fin.gc.ca/dtman/2008-2009/dmr0901-eng.asp#s5

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