Maureen Bader: B.C. must change course to avoid debt iceberg

The first Olympic Games were held in Greece. Now they are in British Columbia. Out-of-control government spending, fuelled by debt, has sent Greece to the brink of bankruptcy. The government of British Columbia has also been on a debt-fuelled spending spree. Greece, as part of the European Union, is being forced into an economic austerity plan. British Columbia’s taxpayers should take note because what is happening in Greece gives us a glimpse of the threats posed by debt here in B.C.

The B.C. government likes to claim it had to run a deficit because the recession drove tax revenue down. However, a closer look at the books shows the real reason the government is running a deficit—skyrocketing spending.

B.C.’s Liberal government was elected on a platform of fiscal responsibility and started off well. Between 2001 and 2004, government spending hovered around $30 billion per year. The government commendably reduced the debt from almost $38 billion in 2003 to $33.4 billion in 2006. However in 2005, spending restraint started to fly out the window—a result of that dreaded second-term spending disease that seems to infect governments at re-election time. Spending rose steadily to $40 billion in 2009 and is expected to hit $42 billion in 2011. This could send the debt to almost $60 billion by 2013, practically double its 2006 level.

No problem, some say—the government needs to spend more now to stimulate the economy and protect healthcare and education. But the legacy of debt created by out-of-control spending threatens healthcare and education.

In fact, Greece provides a good example of what happens when government spending flies out-of-control.

When Greece joined the European Monetary Union (eurozone), its interest rates fell. That’s because investors assumed strong countries in the eurozone, like Germany, would help weaker countries if they got into trouble. Greece then went on a debt-fuelled spending binge, and its economy and voting public adapted to high government spending subsidized by low interest rates. The binge in Greece ended with the economic downturn in 2008. Suddenly, the low interest rates Greece paid on its debt started to rise as investors worried it would default on its payments. Greece practically stimulated itself into bankruptcy.

The binge left Greece with a very bad hangover. The Greek government has now laid out an austerity budget, cutting $3 billion in public spending in part by freezing public sector wages, cutting public sector employment, and increasing taxes on gas, tobacco, and alcohol. Spending addictions aren’t cured by squeezing even more money out of the pockets of taxpayers, but the spending cut is a move in the right direction.

The Greeks know they are in serious trouble. The Greek finance minister, George Papaconstantinou, recently said: “We’re trying to change the course of the Titanic, it cannot be done in a day.”

Is B.C. also taking a ride on the Titanic? Taxpayers now spend $7 million per day to fund the debt, and that will go up to $8 million per day in 2011. This is money that could otherwise be spent on healthcare, education, or, better yet, tax cuts. But no, it goes to bondholders to pay the interest on the debt. Interest rates in Canada are expected to rise later in 2010, which will send debt servicing costs even higher, meaning more money for bondholders and less money for health care and education.

Left unchecked it will invariably mean higher taxes, as the Greeks are discovering.

Fortunately, we haven’t hit the iceberg yet. There is still time to change course. The B.C. government must cut spending and start on a real program of deficit and debt elimination. Otherwise we’ll be sharing more with the Greeks than just the Olympic Games.

Maureen Bader is the B.C. director of the Canadian Taxpayers Federation.

Comments

17 Comments

Rah Rah Gold Medals!

Feb 22, 2010 at 11:18am

You're missing the point. Driving us headfirst into debt is exactly what needs to be done so that Gordon Campbell can dismantle the last of our social programs with a "legitimate" albeit manufactured excuse. Wait for it.

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Maureen Bader

Feb 22, 2010 at 12:26pm

Liberal or NDP, it wouldn't matter as far as debt goes. They are both in a sorry state, trying to get us to believe they are like Mother Teresa, and will solve every problem under the sun. Each responds to the special interest groups that support it. We are all victims of the Mother of all fallacies - that government can solve problems by spending money.

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iceberg = TransLink

Feb 22, 2010 at 12:41pm

Greece barely got its facilities built on time and was in trouble financially before the Olympics. We're in for a rough ride after the Owe-limp-ics and it will be mainly due to the $2 billion spent on the RAV Line. TransLink is a bottomless pit which we cannot afford and the sooner we dismantle it the better!

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Where'd the money go?

Feb 22, 2010 at 12:58pm

"According to a Canadian Centre of Policy Alternatives study by Lars Osberg: "Between 1992 and 2004, the average taxable income of the top 0.1 percent of families rose from $1,270,000 to $2,650,000 (in 2007 dollars)." By 2008, the average income of the top 0.1 percent had risen a further $710,000 -- reaching a total of $3,360,000.

In terms of accumulated wealth, the picture is even more stark. The median net worth of the wealthiest ten percent of Canadian families increased 35 percent between 1984-1999. They gained a further 65 percent from 1999-2005, while the wealth of the bottom 50 percent of Canadians saw no gains since 1984.

Much of this staggering wealth comes as a result of a tax system that has been getting less progressive since the 1970s -- particularly since 2000. In the days of nation-building, Canada had a tax system that was amongst the most progressive anywhere. According to a 1995 article by Roger Smith, "In 1949, PIT [personal income tax] rates ranged from 15 to 84 percent and there were 17 brackets. In 1994, the range was 26.35 to 46.4 percent and there were 3 brackets." In 2009, there were four federal brackets: 15 percent, 22 percent, 26 percent, and 29 percent on an income over $126,264.

Throughout the ten year period of huge tax cuts, both personal and corporate ($100 billion over five years by Paul Martin -- and a further $100 billion, including GST, by the Harper government) there has been an aggressive rejection of any criticism of this gutting of the federal purse. Anyone talking about tax increases would expect to be immediately attacked and ridiculed."

http://thetyee.ca/Opinion/2010/02/21/DobbinRichTaxes/

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rain

Feb 22, 2010 at 1:12pm

Can't pay your debt off... no problem, we have a program set up so you can work it off.
Get ready for one world government - party hard these Olympics because it's the last party we will ever see.
Slavery through taxation and debt coming soon to a world near you...

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The Rich and the Rest of Us

Feb 22, 2010 at 1:24pm

"The Rich and the Rest of Us, released last week by the Canadian Centre for Policy Alternatives, confirms what many low- and middle-income Canadians have felt for years as they work harder and longer than ever just to get by.

The feeling is – and facts bear it out – that wealthy Canadians are getting richer at a rate much faster than those in the middle or at the bottom.

Indeed, as the study discovered, the gap between the rich and the poor has grown considerably over the last 10 years, even though the poorest Canadians have seen their family incomes rise, but nowhere near as fast as those in the top 10 per cent of income earners. And those in the middle have also seen the gap widen between themselves and the rich."

http://www.thestar.com/comment/article/187764

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Birdy

Feb 22, 2010 at 3:24pm

According to the Bank of Canada Act, provinces have the right to borrow at 0% from the Bank of Canada.

We could borrow enough from the BoC to pay off our high interest debts to private banks and hedge funds, so we could stop paying interest. Yes, I hear the naysayers already; "But that would create inflation!"

Indeed it would, and to offset it we just increase the reserve requirements of private banks.

"But I trade bonds in the international debt market, that's how I make my living!" What a shame, you might have to learn how to do something useful instead of shuffling around debt money.

Federal and all provincial debt combined, we Canadians pay $160 million in interest every day. That's $2000 PER SECOND. As you can see the solution is relatively simple, but most people aren't aware of the history of the Bank of Canada. Prime Minister William Lyon Mackenzie King changed the Bank of Canada from a private company to a crown corporation in the 1930's.

We own it, let's use it!

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seth

Feb 22, 2010 at 6:26pm

Currently BC's total debt is $32B or so. Because of slick Neocon accounting processes the additional $75B in BCHydro's Pirate Power purchases is kept off the books. Another $10B in other 3P's like the Abbotsford hospital is also off the books.

BCHydro is buying this low value, intermittent undependable power at the premium price of 12 cents a kwh, selling it for two to four cents during the day and it appears has to actually pay California to take the power at night because of US windpower loads.

Both Areva and AECL recently made a bid to supply Ontario with high value baseload power for sixty years at 1.5 cents a kwh 12% of what the Gordo is paying his stockbroker friends in the Pirate Power industry. With nuclear plants already on the go in Alberta, BC could have contracted for this power if we are too stupid to build it here.

The compliant and uneducated media both mainstream and alternative refuses to report on this financial disaster, more than doubling our power rates in the next few years, effectively privatizing then bankrupting BCHydro.
seth

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Thank you may I have another?

Feb 22, 2010 at 11:08pm

Feel like your working more for less? You are.

Young earn less than parents did: Census

"Young people entering the job market today earn less money than their parents did a generation ago, according to new census data released Thursday by Statistics Canada.

In fact, it's a trend that began a quarter century ago and doesn't appear to be slowing down – especially for young men entering the workforce.

Across all age groups, median salaries for full-time workers have changed little in 25 years. Workers today make, on average, a mere $53 more than they did in 1980, when adjusted for inflation, according to the census.

That stagnation mainly afflicted the middle class. The top earners in Canada saw their wages increase 16.4 per cent since 1980, while the bottom rung saw a 20-per-cent decrease.

For the 25- to 29-year-old group, it's also a story of decreasing fortunes.

In 1980, median earnings for full-time male workers in that age group – the time when people are generally starting their careers – were the equivalent of $43,767 in 2005 wages. By the year 2000, they dipped to $38,110 and in 2005 they stood at $37,680."

http://www.thestar.com/News/Canada/Census/article/420331

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Listen Up, Maureen Bader

Mar 1, 2010 at 11:57am

Had your organization been more forthright in criticising the BC Liberals when they deficit financed tax cuts, I might be more than willing to accept your "Liberal and NDP are just as bad arguments".

Except the CTF couldnt have kept their mouths shut tighter.

When the CTF learns to criticise fiscal policy independent of whether or not they agree with it, you will find many fiscal centrists like myself a little more willing to see you as credible and independent.

If you truly believe that "we are all victims of the Mother of all fallacies - that government can solve problems by spending money" then deficit financed tax cuts should be just as poisonous to you, because at the end of the day, its the government borrowing (spending) to solve economic problems (providing domestic liquidity, which never was, or has been, BC's problem).

I note that the CTF never refers to a deficit produced by tax cuts in excess of spending commitments as being a "bill for future generations".

Why is that Maureen ?

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