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.
Posted by Robert on July 8, 2013
This is a guest post by Robert, who lives in Calgary and worked as a financial adviser before retiring at age 35. He is married, has three kids and has returned to school with the goal of eventually living and working overseas.
Previously, Tim wrote about flood insurance. I thought I’d add a couple ideas about health insurance. I got a check in the mail the other day for almost $900 from my dental insurance coverage. Although I never want to have that much dental work done again (it only covers about 70% of the cost, and it doesn’t cover everything), I am glad that we had coverage. I was very fortunate to be in a group (distance graduate students) where I can opt-in to the coverage. So knowing that I was planning to get some dental care, I opted to pay the $500 premium to get family coverage for a year.
Tim pointed out that fire insurance is a viable form of insurance because almost everyone buys it, without knowing if or when they’ll ever need it. As I understand, mortgage lenders require fire coverage. In this case, the probability of loss is fairly well known, so insurance companies can calculate a fair price for insurance premiums. The same is true of life insurance, disability insurance and car insurance. Mandatory coverage ensures that enough people pay premiums that potential losses can be spread out wide enough to keep costs down.
That’s not true of optional coverage, however. So health insurance isn’t necessarily a good idea. Many employees have health benefits through work. In order to make it viable, insurance companies require that all employees (in a given class) be covered. The only way to opt out is if your spouse has coverage. This avoids a situation where healthy people opt out of health insurance, only sickly people opt in and premiums are forced to rise to cover costs. Taken to the extreme, an optional system like this would become pay-as-you-go. That is, you pay a monthly amount that roughly equates, over time, to the total of your health care costs, plus an additional administration cost to the insurance company.
And that’s exactly what you get when you sign up for optional health and dental coverage. In Alberta, we have Blue Cross, which charges premiums that likely equal your health and dental costs, plus an administration fee. Another company, Olympia Trust, offers the same service for small businesses. The benefit to small business owners is that the premiums are tax deductible, so paying for health care with pre-tax dollars (even after the admin fee) saves some money.
Insurance certainly has a place in a financial plan, but not everything that’s called insurance actually spreads costs across a large population. Is your home and car insurance, life and disability insurance adequate and up to date? How do you know? What other coverage do you have or wish you had?
Posted by Robert on March 25, 2013
I’m afraid I don’t have anything original for you today. I don’t even have a good excuse.
But I think you’ll enjoy this post by Seth Godin: The Story of Money.