Canada's Debt Spiral
Living beyond our means requires us to borrow money to cover the difference between our income and our spending. Many Canadians now understand the financial consequences of this practice and regret the choices they’ve made. Unfortunately, Prime Minister Trudeau is not one of them, as evidenced by his government’s budget deficits which are further eroding the financial wellbeing of Canadians. He has broken a campaign promise, ignored basic economic principles, and seems hell-bent on setting an ignominious record. According to the Fraser Institute: "Justin Trudeau is the only prime minister in the last 120 years who has increased the federal per-person debt burden without a world war or recession to justify it."
The Broken Promise
The Liberals had won the 2015 federal election with a pledge to run annual shortfalls of no more than $10 billion over the first three years of their mandate, and to eliminate the deficit by 2019-20.
And now, from the government’s 2018 budget, we read this:
While austerity can come from fiscal necessity, it should not turn into a rigid ideology about deficits that sees any investment as bad spending.
The government says deficits are economically beneficial, and compares deficits to loans taken out by entrepreneurs and business owners. But here's the rub: in order to spend, the government must first raise money by taxing or borrowing (deficits). This deprives the private sector of money which would otherwise be available for businesses to borrow and invest in new production, thereby creating jobs and raising our standard of living.
Moreover, government ‘borrowing and spending’ imposes a financial burden on future taxpayers who must pay pay back both the loan and the interest payments. In contrast, repayment of private business loans imposes a burden on the entrepreneurs — and because entrepreneurs are held personally liable, they are incentivized to be prudent decision makers. Politicians, on the other hand, lacking personal liability, tend to be fickle, reckless, arbitrary, and wasteful.
Why Government Spending is Bad
When a private business earns a profit by converting various resources (labour, raw materials etc.) into products which consumers voluntarily buy, this means it has made efficient use of the resources. Wealth is created. In contrast, a private business incurs losses when it fails to persuade consumers to voluntarily buy its products, which means it is wasting resources. If the firm cannot improve, it will discontinue operations, thereby conserving resources for entrepreneurs who can use them efficiently.
Economic progress (wealth creation, rising living standards) comes from efficient allocation of resources through profitable enterprises, where consumers determine what gets produced. These are the basic economic principles which Justin Trudeau ignores.
Politicians can pander to special interest groups because profit/loss calculations do not exist within government. This prevents consumers (taxpayers) from expressing their preferences as they do in the marketplace, where they "vote with their dollars." The government forces taxpayers to subsidize whatever it supplies, at a price it dictates, whether we want it or not. Thus, the government’s coercive taxing and spending tends to waste resources, which is economically counterproductive. And, as noted earlier, government spending reduces private investment.
As Charles Lammam and Hugh MacIntyre wrote in the Financial Post (emphasis added):
business investment in Canada has declined by a staggering 18 per cent (after accounting for inflation) since the end of the third quarter of 2014."
Crucial to any plan to improve our country’s long-term economic prospects is encouraging private-sector investment, innovation and entrepreneurship … on this front, federal policy choices have been counterproductive.
And Morneau’s fiscal update makes clear that the government will continue to run persistent deficits and rack up more debt, which signals potentially higher taxes in the future (since debt is simply deferred taxation), creating yet more uncertainty today among investors and entrepreneurs.
… 64 per cent of CEOs said Canada’s investment climate had worsened in the last five years, noting growth in the tax and regulatory burden.
Does Justin Trudeau Live in an Alternate Reality?
That is the economic reality to which the Prime Minister seems oblivious. Private business investment is limited by government spending and regulations, but Trudeau’s government thinks everything is fine. From their 2018 budget, we read this:
… Canadians are feeling more optimistic about the future. Everyday dreams — whether it’s paying down debt, saving for a first home or going back to school to train for a new job — are closer to reality.
I’m not sure what reality Justin is living in, but here is the reality on Earth:
One third of Canadians have stretched themselves so thin that they can no longer cover monthly bills and debt payments, according to a survey …
Thirty-three per cent of respondents … admitted to being stretched beyond their means on a monthly basis, marking an eight-point increase since MNP's last survey in September …
… almost four in 10 respondents … admitted they regret the amount of debt they've taken out in their lifetime.
… Forty-two per cent of respondents … said they'll be in financial trouble if rates rise much higher. Moreover, nearly one-third said they could be forced into bankruptcy because of rising interest rates.
Trudeau’s government is either out of touch with reality or they simply don’t care about economic growth and the financial plight of Canadians. Either way, the lack of personal accountability among politicians is a concern.
If I break my neighbour’s window, accident or not, I pay for the replacement. The compensation comes out of my own pocket. I am accountable for my actions.
If the Liberals lose the federal election next year, there are many who will say they have been held accountable for various mistakes. In fact, this is what we are always told, “If you don’t like the government, then don’t forget to vote, because this is your opportunity to hold them accountable.”
Really? That’s how we define accountability in politics? Does our anger disappear simply because we kicked the bums out of office? Is it enough to see teary-eyed politicians deliver concession speeches on election night?
If I walk around the neighbourhood and break all the windows in all the houses, then lose my job, do my neighbours forgive and forget? I think not.
What about the financial hardship that government spending inflicts on Canadians? The private investments not made. The wealth and jobs not created. The products not manufactured. The debt incurred. These are real financial consequences which individual Canadians are forced to absorb. Who will compensate them?
If politicians knew they would be held personally accountable for the damage they inflict — they would inflict far less damage.
Many ‘experts’ have encouraged the government to balance the budget, but the size of the budget is the real problem. Government spending, and taxes, must be slashed. How much? The sky is the limit. There is nothing the government does that the private sector can’t do better, at far less cost.
A drastic reduction in the size and scope of government would trigger massive private investment and economic growth. But until voters learn some basic economic principles, they will continue to get the government they deserve, whether it be the Trudeau regime, or a different party of con artists.