Government spending – A Canadian national threat?

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by Willem Van Dam

In 1975, the federal debt (accumulation of annual deficits) was $22 billion under Pierre Trudeau and was increasing rapidly during his reign. Deficit financing began in earnest during this time as Keynesian economic management theory gained ascendancy. In the intervening years (1975-2020), the Liberals were in power for approximately 30 years, and the Conservatives for 15 years. In 2019, the debt had risen to $685 billion and is estimated to hit $757 billion by the end of 2020 (this estimate was revised due to COVID and is now estimated to reach $1.2 trillion). The Canadian population has increased by 63.7% (23,059,265 to 37,742,154) from 1975-2020, whereas the debt has risen 3,013% based on the 2019 value. If the 2020 estimate (before COVID) is correct ,the debt will rise 3,340%.

In 1975, total federal income was $32.441 billion under John Turner as Finance Minister and reached $332.2 billion by 2018-2019. The actual federal income has increased by $299.76 billion or 924%. The federal income increase is almost equivalent to the rise in Canadian GDP growth in percentage terms.

In 1975, Canadian GDP was $173.8 billion (US), in 2019 it was $1.741 trillion (US), a 10-fold increase. The federal debt growth in this same period was 3013%. The GDP growth has been outstripped by the debt growth to 2019 by 3.34 times. During this time, government has taken in more actual dollars in income, has spent all of that, and has added ever increasing debt as well. Can that be a good thing?

The Ontario addiction with debt has been similar to the federal addiction. Mike Harris attempted to reduce Ontario’s debt, but actually increased it from $90.7 billion in 1994-1995 to $132.6 billion in 2002-2003, even while cutting government services. Only with Paul Martin as Finance Minister, did the federal Liberals decrease the national debt to GDP ratio, as well as deal with the financial issues associated with CPP and EI.

According to the Fraser Institute, the only time that the federal debt has decreased is between 1998-2007 by around $90 billion. 1975- 1998 saw a meteoric rise in national debt, followed by the Paul Martin era, and another meteoric rise after 2007.

At present, the Canadian Taxpayers Federation calculates the national debt per person at $20,218 and provincial debt at $24,533, for a total debt burden of $44,751 per person. So, if you have a household of four, you have $179,000 of added debt. But the reality is worse than you think! According to CRA data for 2016, 27.5 million people filed a tax return and 9.1 million of those paid no federal income tax. That leaves 18.4 million tax filers who paid all federal and provincial income tax. If it was estimated that the federal debt would have to be paid by tax payers who actually pay federal income tax, it comes to $41,141 per tax payer for the national debt. Provincial debt would be added to that. Bear in mind, these costs are only for debt. They do not include what individuals are already paying for taxes and charges for services.

There was a time when corporate taxes helped to cover a greater portion of tax owing. In 1981, the “all time high” corporate tax rate was 50.9% on net earnings. By 2020 it had been reduced to 26.5%.

At this time, the Ontario debt is the 4th largest expenditure of the government, trailing education, health care and social services. In 2019-2020, the interest on the debt cost $13.3 billion. For the national debt, the interest was $29.5 billion, but the actual debt figures do not include civil service pension obligations, CPP obligations, national bank guarantees (loans to others) underwritten by the government such that, if the borrower defaults, the government must make the payments (like a loan co-signer).

As every nation loads itself with debt, personal freedom will likely suffer. Interest rates must be kept low in order to allow government, business, and private individuals to pay the “carrying charges” of debt and be encouraged to “spend more” in order to keep the economy going. Governments at all levels justify the debt by indicating that “relative to GDP, the debt is not so bad…. we can handle it”. They never speak of the exponential rise of debt relative to the population available to pay the debt.

We have examined Canada’s debt issue as it has grown over the last 45 years, just over the working life span of one man. Another working life span of the same length may lead to greater economic degradation, leaving the citizen as a debt slave (or taxation slave) to the government. Adam Smith wrote: “The practice of funding (i.e. deficit spending) has gradually enfeebled every state which has adopted it” and that bankruptcy was always the end of great accumulations of debt.

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