There is little concrete information on what tax measures we can look forward to in the next budget in the fiscal update that the Tories tabled in Parliament today. The finance minister updated the estimate for the 2006-07 federal surplus to $4.2 billion, compared to the previous estimate of $3.6 billion.
Mr. Jim Flaherty also said the government is aiming to eliminate the total “net-debt” by 2021: “We believe it’s time to mobilize Canadians to make a national commitment to pay off Canada’s national mortgage”. It sounds very ambitious but “net-debt” free is not the same as debt free.
Winners of the Giveaway: Thanks to everyone for participating in the two-year anniversary giveaway and generating a record number of comments. The winners are Anjo and Alex and I will be sending the books to them soon.
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18 responses so far ↓
1 0xcc // Nov 24, 2006 at 9:32 am
Yes, net debt free isn’t the same as debt free. As I understand it the government being net-debt free is the same as us having a mortgage with an outstanding balance equal to the market value of our house. So if you think about it, not being net-debt free is like the government carrying a balance on their credit card (although they get a pretty good interest rate
).
Having a government that is totally debt-free probably isn’t a great idea. There wouldn’t be any Canada Savings Bonds available if that were the case. It would probably have the potential to drive the Canadian dollar way up (not having government bonds would make the Canadian dollar more scarce than it is with government bonds since bonds can be bought and sold by foreigners).
2 Canadian Capitalist // Nov 24, 2006 at 9:51 am
I agree. And we are a very long way from being debt free. The total debt is $450 billion+, so it is going to take a long time to pay it off!
3 Steve Heath // Nov 24, 2006 at 10:20 am
I don’t see the value in CSB’s, so I’m not sure not having them available would be a problem, but if the government is not borrowing money that would mean less competition for borrowers, which should result in a lower interest rate for everyone without increasing inflation, which, as you mentioned, would make Canada more attractive, driving up the dollar.
That said, I’m a proponent of being fully debt free eventually (not just debt free), because right now about 18% of the budget goes to interest. Can you imagine how much better we would all be if our federal taxes were 18% lower with absolutely no change to services?
Going net debt free is a step in that direction, so I support it, although it really didn’t strike me as any particular announcement. They’re still making the same debt payments they were, and still putting surpluses on the debt as they were, they’ve just calculated this “net debt free date”… or am I missing something?
4 James // Nov 24, 2006 at 11:12 am
The government needs to do what most homeowners in this country do. Live within their means and set out on a 25 year mortgage payment to pay off the total debt by 2031. Sounds fairly reasonable to me. Debt free would certainly be a nice place for all Canadians.
5 growth in value // Nov 24, 2006 at 12:10 pm
I noticed the same thing myself regarding that “debt-free vs. net-debt-free” distinction. Pledging to be net-debt free seemed like an odd thing to do — as the commenter above pointed out, it’s a bit like having a 250K mortgage on your 250K home, and who really aspires to have that, long-term. You’re certainly not going to get rich doing that.
I suspect there was a fair amount of slight-of-hand — or should I say slight-of-ear — going on. I think the Tories were banking on John Q. Public not really knowing what some of these finance terms mean. I’ve already overheard a few people on the subway this morning, gleefully recounting how impressed they are that Stephen Harper is going to make the country debt free within 20 years…
A propos of nothing, are there any counties that are truly debt free? If I had to, I would guess one of those small Asian nations maybe, like Singapore for example. Somewhere with realtively small infrastructural fees compared to the heft of their economy. Does anybody know? Apologies for the threadjack.
6 Canadian Capitalist // Nov 24, 2006 at 2:09 pm
Steve: It seems to me that the plan is the same as before. Paul Martin also had a target of debt at 25% of GDP and being no economist, it looks like the Tories would cut taxes and pay down debt if they have extra money. The big difference is that the Tories are saying that they are not planning on spending the surpluses.
7 James // Nov 24, 2006 at 3:57 pm
The libs never spent the surpluses either…directly to debt repayment. That was the big conservative stink when they were fighting to get elected. Yelling that the libs were underestimating surpluses and then banking massive amounts of cash at year end(as though thats a bad thing). Now we have a case of the pot calling the kettle black as the conservatives underestimate surpluses and bank the money at year end. Don’t get me wrong its exactly what I think they should be doing. I don’t think they should lower personal taxes one bit until the debt is cut at least in half from the current $481B to somewhere around $200B. Lower corporate taxes to encourage businesses to come and create jobs…which in turn causes salaries to rise and gives canadians more money to spend followed by tax reductions when our debt is under control and generations of Canadians can prosper because of it.
8 Stephen Boyd // Nov 24, 2006 at 7:16 pm
Anjo gets the book?
Mr Wow the comments increase when there is free stuff?
Pretty lame.
9 Canadian Capitalist // Nov 24, 2006 at 8:21 pm
Stephen: I always pick names at random using the random number generator from random.org. Thank you for your detailed comment but I pick randomly (and I mentioned this in the rules too) so that I am not biased. I hope you think it is a fair method as well.
10 Phil S // Nov 25, 2006 at 8:45 pm
On a personal level, I’m extremely aware of my debt and always assume as little of it as possible and pay it off as soon as possible. However, on a governmental level, all of this debt and crazy spending was done in the past by previous generations of Canadians. Why does the government feel that it is MY generation’s responsibility to pay it off? I say pass it on to the next generation!!! Screw future generations, I want to live my life today! Give me HUGE personal tax cuts!
11 Phil S // Nov 25, 2006 at 8:50 pm
Oh by the way, Canada Savings Bonds are useless. It’s the government ripping off its “financially uneducated” citizens. I don’t think there could be a worse investment out there than Canada Savings Bonds, but my parents first put me into some when I was younger and didn’t understand financial markets. This year it’s 3% I see. Less than a GIC, less than a T-Bill and the interest is fully taxable every year that you hold it. Gosh, I can really retire on that! NOT!
12 Chris // Nov 25, 2006 at 8:50 pm
I’m just glad the feds are putting our excess funds to work thru reduced taxes and lower interest payments on debt. Hope they follow through.
13 anjo // Nov 25, 2006 at 9:05 pm
Phil: Arguably, if we maintain the current debt level and only make the interest payments, in a few generations the real value of this debt will be negligible due to inflation. However, my preferred solution would be to force the politicians and senior public servants of that time to have their pension payments redirected to debt repayment.
I post the above in jest because as a young person it is overwhelming at times to consider that our national debt may not be repaid in my lifetime. I’m thankful however that we don’t have a similar level of debt to our neigbours to the south.
14 James // Nov 26, 2006 at 11:07 am
Sadly, in comparison to annual revenue the US debt is not significantly worse than ours. Remember that their revenues are many multiple’s of ours and their debt is approximately 2.5X annual revenue where ours is about 2X annual revenue. That is a much better yardstick of indebtedness than total debt numbers which are not really comparable due to the differences in scale of our economies.
15 Steve Heath // Nov 26, 2006 at 6:23 pm
One thing to remember is that while we inherit debt, we are also inheriting assets. Land, buildings, currency holdings, crown corporations… you don’t mind inheriting a $200,000 debt so much when it’s a mortgage on a $300,000 house you also get… it’s when you inherit credit card debt with nothing to show for it that it stinks. Just not sure which situation we’re in at the moment
16 Monty Loree // Nov 26, 2006 at 7:02 pm
OFF TOPIC:
Where as I don’t like to mix money with politics ever, I would like to talk about Stephen Harpers plan to separate Canada and Quebec.
The U.S. politicians take notice of blogs and blog talk. I believe that Canadians should talk about this as well.
(I’m sure they do on Canadian Political Blogs.)
Instability in a nation is the worst thing for its economy and money.!
17 anjo // Nov 26, 2006 at 10:52 pm
James: Interesting, I wasn’t aware that the Canadian and US indebtedness is so similar on a revenue basis. Assuming an equivalent revenue growth percentage, I’m guessing there will be a larger gap as the US runs large deficits and we continue to have balanced budgets (at least I hope they continue to be balanced).
Steve: Good point, I guess we don’t think much about the government assets. However isn’t the current debt greater than assets based on Mr. Flaherty’s goal of having a reducing the net debt to zero, which I understand to be assets equal to liabilities?
18 Canadian Capitalist // Nov 27, 2006 at 12:09 am
James: Regarding comment #7, it is true that any unexpected surplus was directed towards debt repayment. But, this year’s unexpected surplus became next year’s expected one and the Liberal government did spend a big chunk of it.
I do agree with your comment #14. The Financial Post once had a graphic on debt levels as % of GDP at OECD economies and the U.S. was middle of the pack.
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