Posts Tagged ‘overspending

Deal with government debt now

- November 28th, 2011

France's President Nicolas Sarkozy, left, welcomes Germany's Chancellor Angela Merkel at a meeting in the eastern French city of Strasbourg November 24, 2011

I don’t spend a whole lot of time looking at the international financial markets, I simply don’t have that much money to care.

Maybe that should change.

Earlier this week Germany, the strongest economy in Europe, tried to raise money by issuing debt in the form of bonds. Despite being a good credit risk, they couldn’t do it.

Europe’s debt problems are well known by now, but the fact that they are hitting Germany should worry Canadians.

In September of 2010, the last time I wrote a column about Canada’s federal debt, the tally stood at $543,022,147,241.02. Now that debt is more than $571,400,000,000.

Add in provincial debt and Canada stands at more than $1.1 trillion in government debt.

Think about that for a minute and ask yourself if you can even comprehend what a trillion dollars is. I can’t but I do understand that we owe more than $32,000 for every man, woman and child in this country.

Of course that’s not counting the debt increases we can expect over the next several years.

Federal Finance Minister Jim Flaherty has announced it will take longer for him to balance the books and stop spending more than he is taking in.

On Wednesday, it was Ontario’s turn.

Finance Minister Dwight Duncan announced that his province will have a deficit of $16 billion this year, $2 billion higher than expected. Ontario’s public debt is

$251.9 billion plus another $15 billion in unfunded pension payments that taxpayers are on the hook for.

How does all this relate to Germany’s inability to sell bonds?

Just to finance itself Ontario will have to sell $35 billion worth of bonds this year. The province’s credit rating is only AA rather than the higher AAA ranking of the federal government, indicating that Ontario is considered a higher risk.

While no one expects Ontario to default on its debt obligations any time soon, just like with personal credit ratings, a lower score means a higher interest rate.

If Ontario, with a worse debt situation and poorer credit rating than Germany has trouble selling its bonds, then the province’s books will be in even worse shape, meaning tax hikes or service cuts in the near future.

A hike in interest rates would do the same thing.

Quebec is in even worse shape. With a smaller population and economy, Quebecers are on the hook for $163 billion in government debt, a figure that represents 54% of the province’s GDP. Like Ontario, Quebec is run by a government that promises more than it can pay for.

Governments have spent the last few decades trying to tell citizens that they can have it all and not worry abut the bill, but that bill is coming due.

If the federal and provincial governments don’t clean up their budgets and control their spending in the next couple of years, they will only be able to pay for pension promises they’ve made to civil servants.

While billions upon billions in pension promises have been made to civil servants, those billions of dollars have not all been set aside.

As baby boomers retire in greater numbers, Canadian taxpayers will be forced to pay for their neighbour to enjoy the retirement they themselves will never have.

If government books aren’t put in order soon, the pain people worry about now will be nothing compared to the pain we’ll all experience in the future.