2 weeks Ago By Lorne Gunter
Article content Taxpayers can’t hope that any of the major parties in Monday’s election will balance the budget soon, not even the Conservatives. Indeed, in most Western democracies politicians of all stripes have given up on the idea of making expenditures equal revenues. The best that can be hoped for is reducing the debt-to-GDP ratio.
Reducing the percentage of a country’s GDP consumed by government debt is important. If the national debt equals 30 per cent of GDP versus 40 per cent, the government will have to borrow less to pay the interest on that debt, leaving more money for banks and investment houses to lend at better rates to individuals and businesses. A lower debt-to-GDP, for instance, should lower the cost of a mortgage, enabling more young people to buy houses.
You would think a man who has been the central banker in two countries would understand this concept. But Liberal Leader Mark Carney — who never tires of reminding us that he was governor of both the Bank of Canada and the Bank of England — seems to have missed the lesson on the dulling effect large government debt has on a country’s economy. Recently, Carney has been using the campaign line “spend less, invest more” to describe his Liberals’ plan to revive Canada’s economy after 10 bleak years under his party’s government.
Carney actually plans to spend more (not less) than the free-spending Trudeau government did. Over the past 10 years, the Liberals have increased the cost of government by 92 per cent to just over $550 billion a year. Carney proposes to raise that by just about $33 billion more per year, each year for the next four and to do so by running deficits in the $60-billion-a-year range.
And because he also intends to give middle-class Canadians a tax cut, his plan will add $225 billion to the overall national debt. Now, remember the effect the debt-to-GDP ratio has on ordinary Canadians and Canadian businesses’ ability to buy things, like houses and cars and to expand and add new employees. Without offering anything more than wishful thinking, Carney says this additional $225 billion in debt will generate $500 billion in additional GDP.
Where? How? If the Libs’ plan did add $500 billion in GDP, Carney’s $225 billion investment might do some good. But the Liberals’ new economic growth seems to come mostly from investing in “green” technology and transitioning from oil and gas to “clean energy.” Ontario tried that in the 2010s with its Green Energy Act.
It achieved no appreciable emissions reductions nor any new jobs to speak of, but it did double Ontarians’ electricity costs. The Trudeau Liberals tried that same formula in Ottawa from 2015 onward, with a similar lack of results. And now many of the same people who devised the Ontario and federal “green” schemes work for Carney and have convinced themselves the third time’s the charm.
So how can Carney be promising to “spend less, invest more?” That’s where the debt-to-GDP ratio comes in handy. Carney wants to separate Ottawa’s operating and capital budgets. Then he intends to put the bulk of his “investments” into green technology — like the $33 billion Ottawa is spending building battery plants for electric cars no one is buying — and lump them into the capital budget.
He hopes you (and the federal government’s bankers) won’t look at the capital budget, so he can wow you by balancing the feds’ operating budget. But whether a government borrows money for operations or capital, the borrowed money still gets added to the debt-to-GDP ratio. So whereas Trudeau planned to lower the all-important ratio to 39 per cent of GDP by 2028, Carney plans to raise it to nearly 43 per cent — and along with it, interest rates, inflation, unemployment and housing prices.
“Spend less, invest more?” The Liberal slogan should be “Borrow more, afford less.”.
