Posted by Tim Stobbs on November 13, 2013
So the Saskatchewan Provincial government has realized something important…it is addicted to non-renewable resources revenue. How addicted? Well in the last provincial budget a whopping 30% of the money used to keep the government running came from non-renewable sources. So needless to say there is a huge risk for anyone basing almost a third of their spending on commodity prices like oil and gas or potash.
I give the government credit for at least realizing they have a spending problem. So they are rolling around the idea of creating a sovereign wealth fund where money will go in, but they won’t take the principle back out …ever. Similar to what Norway has done to build their 760 billion dollar fund. Of course Saskatchewan does plan to spend the interest income which is typical. The only problem is they don’t appear to be considering taking any big steps towards solving the issue…at least based on their consultant’s report which merely recommends capping their current spending of resource revenue to…wait for it…26% of their annual spending. Then splitting that mere 4% between paying down debt and saving it. Ugh, it’s like rewarding yourself and having a press conference for deciding to not spend a coffee today…it’s a drop in the bucket.
Then it occurs to me that perhaps our government officials aren’t familiar with how to save. After all taking on debt is much more their style. So perhaps they need a little motivation…so might I offer the following goal: a zero tax provincial government…no income tax, no business tax and certainly no sales tax. None, nil, nothing for tax.
How the hell is that possible? Well you just use the same math on how a person can save for financial independence. You see if you saving 5% of your income (all income here, not just resource based) and get a nice 5% return (after inflation) which you re-invest, with compound interest in 66 years you won’t need to tax anyone ever again. Your investment portfolio will be producing enough income that you should be able to run your current budget without taxes. Oh wait it gets better, if you pull off saving 10% of the government income and reinvest the interest you can be a zero tax province in a mere 51 years. In a generation, you can alter the very way people think about government.
In effect with a bit of will power and a long term plan you can actually have a government that lives in its means and actually saves instead of taking on debt for everything. I fully understand the odds of this occurring isn’t that good, but I thought I would at least point out the option exits. After all when you spend your entire life using credit cards and having a mortgage being debt free is largely incomprehensible.