Posted by Canadian Dream on March 25, 2010
The Saskatchewan provincial budget came down yesterday and I can’t help but noticing a similar theme to the federal budget: knife wielding is now in fashion. Both budgets were focusing on reducing the civil service size and spoke of efficiency and doing more with less.
This is particularly interesting since in the Saskatchewan context since the unions have been dealing with an NDP government for decades prior which has typically been fairly union friendly. So I suspect as union negotiations for wage increases are going to find some very low offers and tough choices brought to them over the next few years from the current Saskatchewan Party government.
It is sort of an interesting twist on the entire auto sector bailout negotiation tactic of: take less or you all lose your jobs. For a while I suspected unions considered the public service a bit different from private sector since after all governments don’t go bankrupt. Well obviously with the crisis situations in Greece’s debt is showing what happens when you ignore a problem for too long. Government can in fact run into debt problems and when they hit that wall the cost cutting isn’t subtle or fair. It’s take a pay cut and the government still hacks services and jobs with an axe rather than a knife and then raises taxes.
I hope everyone, including non-union staff, has been paying attention. This is what happens when you have too much debt. You lose any easy choices and all that is left is the hard ones. So everyone has to start living in their means a bit more and using debt a bit less all the way from individual families to all levels of government. What of course is really interesting is we haven’t even dealt with those big cost items on the horizon of an aging population and health care. I suspect we will have an interesting decade or two in front of us.
Posted by Dave on March 9, 2010
“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:
- 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.
- 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.
- 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.***
Posted by Canadian Dream on February 5, 2010
So after spending almost a week in the US (by the way, 6am flight yesterday so hence no post) I got immersed in the local news and I was trying to wrap my head around the US federal budget that was around $3.7 trillion dollars. WOW, that’s a lot of zeros! But besides that, it is interesting that they are spending about $1.6 trillion more than they earn (that’s about twice the entire US military budget according to the paper I was reading).
In order to make sense of how crazy this situation is lets chop off a few zeros and put this discussion in terms of personal finance for someone named Mr. US. You see Mr. US has a hard life. For some reason he was appointed peace-keeper in his neighbourhood. Yet for some reason now a few years later he is also keeping the peace over in the next neighbourhood which has a lake between them, so he spends far too much of his time worrying about things that have nothing to do with his house. Then to top it off his family is completely dysfunction, they can never decided where to get take out food so they often end up ordering from three different restaurants trying to keep everyone happy. This is also why they live in a 3000 sq foot home and have three cars. This costs a lot of money and he is the sole income earner so the family has a massive spending problem because they don’t agree on anything and therfore have a huge debt.
In terms of pure numbers, Mr. US makes a mere $21,000 a year. Yet this hasn’t stopped the family from spending $37,000 last year ($16,000 more than they made) thanks to their low introductory credit card from the Bank of China. This is despite the fact the family is already still in debt to the Bank of China for a mortgage of $123,000. Yet it gets worse for Mr. US, his aging parents have recently moved in so he expects his health care costs and their living expense in the next few years to eat up even more spending. So his small income which already wasn’t covering the bills is looking rather pathetic right now. Also no one in the house seems to be willing to discuss the obvious that they need to drastically cut their spending or they have to raise their income by having Mr. US get a better job or having Mrs. US get a job until the debt situation is back under control.
It’s a sad situation for a household, it’s even worse for a country. I’m just trying to imagine the effect of having their credit rating shot down a level would have on all of this, which by the way is being discussed already. Perhaps it’s time for Mr. US to cut up his credit cards.
