It outlines the price tag up to now and describes how costs will evolve over the fiscal year. Headlines of the day include a $343 billion deficit for 2020-21 and a corresponding change in our national debt to $1.2 trillion. Expect pundits to repeat this figure over and over again to drum up fear.
The Conservatives thundered doom and damnation as soon as the numbers were announced. But those numbers need to be put in context:
The fiscal shock is serious but less threatening when put in historical perspective and scaled against the size of the Canadian economy. Canada’s net debt may have crossed the trillion dollar mark but, apart from being a big round number, the threshold itself is not particularly frightening. In 2018-19, well before the crisis, Canada’s debt was sitting at 30.9% of GDP. The G20 average for that same year was 82.0%. The fiscal update predicts debt may rise to 49.1% in 2020-21. The end result of this historically bad year is that Canada, after the crisis, will hold a fraction of the debt an average G20 country was carrying before the crisis.
The cumulative impact of the war effort in the 1940s resulted in debt levels as high as 130% of GDP. In the 1980s debt was almost 70% of GDP. At the time, the ten-year bond rates were nearly 12%. The high cost of borrowing made reducing debt challenging. Interest rates today are less than 1%, making any amount of debt accumulated more sustainable. In fact, today’s snapshot predicts debt servicing costs this year will be lower than last year. The government has the ability to spend multiple times what it already has before it reaches debt levels that were experienced – and dealt with – in other periods.
The number is not the problem. The real challenge is how that money is spent:
The better question is how the borrowed money is being spent? In this case, the outlay will save lives now and into the future. Spending will prevent structural damage to the economy that, if unchecked, will limit employment and lower living standards for decades. This is money well spent.
The debt levels announced in the spring fiscal snapshot do not require service cuts to offset increased spending. Making cuts when investment is needed would make a bad situation worse. One day in the not-too-distant future, the health threat will be diminished. Making the right decisions now will make sure the economy on the other side is vibrant, equitable and sustainable. We must protect people’s safety today and their livelihood tomorrow. This means setting ambitious targets to stimulate growth while actively trying to build a better future. When the time is right, temporary crisis spending can be wound down, and a healthy economy will outgrow the debt.
The Conservatives don't understand this. Andrew Scheer said yesterday that the notion he should wear a mask inside Pearson Airport -- a policy the airport has mandated -- is "ridiculous." It's been obvious for some time that Mr. Scheer is no bright light. Unfortunately, those who have lined up to replace him burn less brightly.
Let's hope that, in the immediate future, Canadians don't hand the steering wheel over to them.
Image: The Beaverton
10 comments:
Adding to the perspective your post offers, Owen, yesterday I read in Heather Scofield's column that despite the massive increase in the deficit, the actual additional cost to service it at this point, due to historically low borrowing rates, is $4 billion. While not a number to be lightly dismissed, it is far from the fiscal disaster some would have us believe.
Interest rates are almost in negative territory, Lorne. Anyone with a savings account can see that. This deficit is not about partying. It's about survival.
I always "preached" to my children, Owen, that is not how much money you earn but how you spend it that is important. I would estimate that most people who are in dire financial straights have spent much of their life spending on their "wants" rather than prioritizing their "needs" and making sure they are met first.
Unfortunately, the proliferation of easy credit - especially with the availability of credit cards - is a major contributor to this situation.
Governments are no different, and so, with this pandemic hitting the whole country, we needed politicians who saw the wisdom of dealing with the needs of both people and business owners first and foremost. Unfortunately, Conservative politicians have historically had a difficult time embracing this concept of priorities.
I agree, Lulymay. The Conservatives have always seen spending in terms of "wants," not "needs."
We can not expect much from our governments when it comes to disaster response. It is in their nature to put their decisions through a filter of partisan self-interest.
The Harper 2009 "stimulus" budget was a fine example. Harper, overcoming every instinct in his body, realized the Canadian government had to follow the example of America and elsewhere and inject federal funds into the economy. Harper might have poured tens of billions into infrastructure projects that would have both created new economic activity but also paid dividends well into the future but he could not bring himself to bear the responsibility for spending that money. Instead he took the pinata route, doling cash out to individuals for landscaping or putting a new deck on the cottage, projects they already had in mind anyway. Very little new economic activity, the whole purpose of stimulus spending.
A pandemic is obviously a more complex challenge than weathering a bad recession. People are out of work, in dire need of relief. But where will Canada be when the last cheque is in the mail?
Where I fault this approach is that it assumes the pandemic is a "one and done" problem. We'll disburse the requisite funds and then have a respite, a period of years of relative tranquility over which all will be made right. Who says?
Long before we heard of Covid-19, virologists were warning that we were at risk of multiple viral pandemics. We were told they were already in the barrels, locked and loaded. They urged us to focus on bolstering resilience, acting defensively, which is hardly welcome to those who chase perpetual exponential growth, GDP.
Will Covid-19 be a Trojan Horse? Will we chart our future based on unrealistic expectations and assumptions that, if we get it wrong, may leave irreparable damage? Can we even afford to restore resilience any longer?
Waffling on about the federal debt completely overlooks the extra debt the provincial governments add.
Most countries don't have this intermediate layer of government with their own massive debt to service. So I always cringe when Trudeau or Morneau get up and tell only half the story, because the comparison to other countries is not valid most of the time. Politics. The money's just as real whether borrowed by the feds or the provinces.
It's one thing to service debt when the interest is running about 1%. What's the likelihood of that sying that way for ever? It's a rhetorical question.
Here's another - what's the likelihood of the Canadian dollar staying where it is vis-a-vis the US dollar, say, where a lot of the loose money is coming to finance the new federal debt? If our dollar went down to 60 cents and interest went up to 6%, then we'd all better be prepared to take a long walk off a short pier. Greece is in this situation from accepting too large a loan(s) from the European Central Bank, essentially a German-funded outfit, and basically has had to sell off every sovereign thing they have to pay interest. Principal? You must be joking. Now Greeks live in a giant apartment, and the rent's due every month.
BM
Good questions, Mound. One can hope that this time is different. But vision -- real vision -- is a rare gift, given to a very few.
Greece has become the cautionary tale, BM. On the other hand, most counties have not taken the path Greece has taken. History has proved that debt can be managed. What makes the difference is the people who do the managing.
I was just watching some video of the massive rain/wind storm that pummeled Toronto yesterday. In June, Calgary had the most destructive hail storm in our recorded history. We're witnessing "once in a century" events that now recur once a decade or even less. We're witnessing these things but we're not seeing them. We're not seeing them in the context of their greater or graver significance.
The story of the 2020s is shaping up to be catastrophic heat events, particularly in the tropical latitudes. They've even given rise to a new phenomenon called "flash drought." Canadians are still well removed from the initial onset impacts but we won't be entirely immune to them either, not in our tightly interwoven global community.
Is this not a time to stop taking these events as too commonplace to be flukes? If we wait too long we're at risk of the complacency that results from creeping normalcy and that would put the future of our nation and society in real peril.
I've been feeling pretty pessimistic these days, Mound. In the face of all the warning signs, we've decided to take the Roman approach: Eat, drink, and be merry. For tomorrow we die.
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