Dec. 05, 2012 - Issue #894-Upgrades in Motion: Convergence
Your share of debt
How Canada's $600-billion debt eats away at your wallet
Canada's debt reached an all-time high last month, with a number so large your eyes might glaze over when you read it: $600 billion.
That's right, you just read billion, not million. And that's not even the worst of it. You see, Canada's debt is still growing. Nearly two weeks after reaching that record breaking milestone, at publication time, the number was over $600 729 000 000. According to the Canadian Taxpayers Federation (CTF), Canada's national debt will continue to rise at a rate of $74.6 million a day, $3.1 million an hour, $52 000 a minute and $863.27 a second. What this means is that right now each man, woman and child in our country owes more than $17 220.
"You will have to pay for that," says Derek Fildebrandt, Alberta director of the CTF. "That is above and beyond your line of credit, that is just what you owe because politicians don't have the courage to balance the budget."
But, unlike your line of credit or a student loan, you can't just pay that debt off with a lump sum or with a larger payment after your Christmas bonus. It's debt that you pay through your taxes. So that means the government decides how much you give and when you give.
And the government also decides whether Canada finds itself with a surplus or a deficit budget. That means federal politicians decide whether Canada's debt continues to grow, stays stagnant, or dwindles.
Despite a few hiccups along the way, in part due to the global economy, the Conservative government says there's still a possibility it will reach its goal of balancing the budget by 2015 – 2016. But even if it does, Canada is still at the whim of fluctuating interest rates. This year alone, we will pay $31 billion in interest.
"There is certainly a cost to debt," says Joseph Doucet, interim dean of the Alberta School of Business. "If interest rates go up by one percent … well, that's $6 billion a year. That [would] mean that all of a sudden it costs $6 billion more a year just to stay at a steady state."
To put that number into perspective, Doucet notes that $6 billion is more than the City of Edmonton's budget and it's six times the University of Alberta's operating budget.
"All that to say that things going up by one percent, that's quite costly if you think about what that means in terms of the opportunity cost or what those dollars could do," Doucet says. "It could be building more roads, or it could be transferred to the provinces for healthcare."
And, we're just talking about the $6 billion that Canada would incur if interest rates went up by one percent. Overall, $6 billion is a measly slice of the debt pie.
Think of what could be built or bought with $600 billion. Think of the services that could be expanded, the low-income housing that could be built, the doctors that could be hired. Previously, Canada's debt peaked at $563 billion in 1997. Following that milestone, between 1997 and 2008, that number slowly declined to $458 billion. Things changed for the worse, with our federal debt now growing larger each year since 2008
"We've now more than wiped out, by far, every single dollar that was paid down on debt in all of those years," Fildebrandt says with noticeable frustration. "So all of that hard work has been completely wiped out by the government. People should be angry about it." He adds, "We had to cut spending quite significantly to get everything under control and then the government ramped up spending ... and now we're going to have to do it again some day."
What can we as Canadians do to stand up against ever increasing debt? If you ask Doucet, he'll tell you we can't do much.
"The government in power has a responsibility to manage a budget process and they have deficits or surpluses in their budgets, that's their job. Individual electors don't have a direct say in the course of any given term in terms of what governments do in terms of deficit or surplus spending," he says.
If you ask Fildebrandt, though, he'll tell you there is something you can do. He'll tell you to ring your MP with a message that goes something like this: 'You won't get my vote unless you vote to cut spending.'
"That's really what it comes down to," Fildebrandt says. "Politicians run up debt because it's the easy thing to do. So, nothing is going to change until politicians understand that they will be punished for debt, they will be punished for running up unnecessary deficit. So people need to call up their MP and say, 'You will not get my vote so long as you're doing this.'"
As much as Canadians don't like seeing our country in debt, we also don't like cuts or raised taxes. So, if and when the government chooses to tighten its belt, there will be push-back. But Fildebrandt says there are ways to make cuts that are fair, referencing the approach of a former Alberta premier.
"Ralph Klein sat down with the province, looked everybody in the eye and said, 'Listen. There are going to be cuts. It's going to hurt. But, everyone is going to feel the pain equally. We're going to get our spending under control. We're going to stop adding to the debt and we're going to pay it off and once we're done that, we can start to restore some of the programs that we need. But everybody's going to take a hit together. We're not going to target anyone individually.'"
Fildebrandt says that's the key: treating everyone equally, so no one feels singled out. That way, no one will riot in the streets or start an uprising.
"If everyone is going to do it together, the public is much more likely to follow, even if they don't like it," he says.
To see Canada's debt increasing in realtime or to learn more about Canada's debt, visit the CTF's debtclock.ca.
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