Taking on tens of billions more in debt even without a global economic crisis, and amid rising interest rates is a serious danger to our economy.
With the burden of payments on Canada’s debt set to rise, the Trudeau government plans to continue deficit spending – even as fiscal room deteriorates even further.
As noted by Bloomberg, “After hitting what’s likely an all-time low last year, the cost of covering public debt as a share of gross domestic product will probably tick up in 2018 — something that hasn’t happened since 1995. Governments relied heavily over the past 15 years on falling public debt charges to finance budget initiatives, meaning the end of the trend will leave Trudeau with fewer options as he eyes an election next year.”
As rock bottom interest rates start creeping back up, the cost of servicing the debt is projected to increase from 1.1% of GDP now, to 1.3% of GDP in 2022.
This is a direct result of Trudeau’s decision to go “willingly into the red” and run budget deficits:
“Since defeating former Prime Minister Stephen Harper in 2015, Trudeau has taken what was a structural balance under the Conservatives to a small structural deficit. A federal budget operating surplus of about 1 percent of GDP has been brought to a level just above zero. Which means revenues right now just about match expenses, and Canada’s deficit essentially represents borrowing to pay interest on its debt.”
Interestingly, the article notes that – even if the budget projections by the Trudeau government of winding down their “temporary” spending – prove true (a very doubtful thing), the government would simply end up with a budget situation similar to the budget Harper left them.
Except, there would be tens of billions more in debt.
Just as his campaign promises were lies, Trudeau’s budget plans have been based on a fiction that ‘down the road’ he would move towards fiscal responsibility. This has already been proven false, due to his decision to run massive deficits, which is made all the worse by the fact that he was handed a balanced budget by the Harper government – and proceeded to purposely mess it up.
That means that Trudeau’s economic legacy – especially as the economy slows down – is way more debt, structural deficits, and increased economic vulnerability.
That’s why we need to look past the rhetoric in the upcoming budget. It can’t distract from the fact that Canada’s fiscal room is decreasing as the debt burden increases.
Photos – YouTube