The new Liberal government has issued their first budget. Despite their promise to spend us back to growth by indulging in a modest $10 billion deficit, the budget includes a $30 billion deficit.1 The prime minister has stated that this is the time to spend because of the ridiculously low interest rates. Unfortunately, the budget is missing any reference or plan about when or how federal government spending will come back into balance.

What bothers me about this, beyond how the promised deficit has tripled between the election and the budget, is how there’s no reference anywhere to debt. If a low interest rate allows the government to spend more than it has, they have to pay the money back before the rate goes up to avoid fiscal damage. To stop spending more than they have isn’t enough!

Imagine they’re going to incur a $30 billion deficit this year and balance the budget next year and stay balanced until doomsday. In this situation, that $30 billion debt is never paid back and we pay interest in it every year. When the interest rate goes back up, the interest we pay every year also increases and our tax money buys less.

The problem is that our federal debt will not be $30 billion. It’s currently in the neighbourhood is $616 billion.2 I have no idea what interest rate the government pays on its debt, but the current prime rate is 2.70%. If this is the rate the government pays, they owe nearly $17 billion dollars just for servicing the debt. Before the government spends a penny, $17 billion comes off the top simply because they’re carrying more than half a trillion dollars of debt. While $17 billion is a tidy sum, most people will claim it’s not a huge amount, but like the warnings the government has been making to Canadian borrowers, what happens when interest rates finally go up?

Every government for decades has pretending that a balanced budget brings things back to equilibrium. The Liberals want you to think that when they get spending back into balance, everything is wonderful. Clearly, this is not the case. They want you to forget about the $616 billion. Even worse is that by the next election, the continuing deficit spending will add another $113 billion to the federal debt.3

I can’t ignore it so easily, and their failure to even once say the word makes me increasingly uncomfortable.

  1. CBC News, “Federal budget 2016: Highlights of Bill Morneau’s first budget,” CBC News, March 23 2016
  2. DebtClock, debtclock.ca
  3. CBC News, “Federal budget 2016: Highlights of Bill Morneau’s first budget,” CBC News, March 23 2016