With the economic crisis in Europe going full bore, one might expect we’d have near unanimity around the idea that Canada and its provinces should get their houses in order and begin addressing public debt. Instead we continue to hear the call for more economic stimulus.
Granted, Canada’s debt at the national level is not close to that of the worst European nations in terms of percentage of GDP. It is, however, growing at a concerning rate and will consume a significant percentage of annual budgets once interest rates return to historical levels. And this could come sooner than many think as investors around the world are already beginning to drive up borrowing costs for indebted governments—Germany this week managed to attract bids for only 65% of the 10-year bonds it offered for sale.
If not now, then when should we get our spending under control, and by that I mean limiting spending increases to a level at or below the annual rate of inflation and trimming government programs and initiatives that are not a priority or do nothing for the economy. And we need to cut spending enough to generate a budget surplus that we can apply against the debt.
Time is of the essence. The next economic crisis could come at any time, requiring temporary deficit budgeting. By lowering our debt now, we will create room to make future deficits manageable and thereby avoid the mess they’ve created for themselves in Southern Europe.
The situation in Quebec seems most worrying of all, with Ontario not so far behind. Quebec has the highest debt burden in the country, a staggering 61.7% of its gross domestic product—according to an Oct. 7 estimate by debt rating agency DBRS Ltd. Ontario’s debt ratio is not as high, but at 37.2% it will quickly become unmanageable with annual double-digit billion-dollar deficits piling one on top of another.
Quebec is playing a dangerous game by ignoring the time-bomb that is its debt. Perhaps Premier Jean Charest expects the rest of Canada to rescue his province should they be unable to handle debt repayments at some future time. Charest could have pledged the $2-billion windfall his province will receive from Ottawa for their recently announced tax-harmonization deal directly as a debt reduction. He has, instead, used this “found” money to avoid having to make spending cuts.
The Quebec government may not be oblivious to its fiscal situation, but it seems reluctant to make tangible moves to address it. Take, for example, their $7-a-day daycare program. Does this not say all one needs to know about that province’s head-in-the-sand approach to economics?
© Russell G. Campbell, 2011