I think I am economically crazy.
All my adult life, I have abhorred borrowing.
My wife and I paid off the house mortgage as quickly as possible. We buy used cars, paying cash. Our kids, with our help, graduated from post-secondary schools debt-free. The credit card balance is paid in full each month.
I don’t care how low or how high interest rates are. I just hate being in debt.
So, am I the only person in Alberta freaking out over our provincial government’s plunge back into debt?
Here we are, $6 billion in debt at present.
To compensate for the shortfall in energy royalties caused by the drop in oil prices (from $100 a barrel to below $50 in just over a year ) at least another $6 billion will be borrowed by the new government by the end of the 2015/16 fiscal year.
By the spring of 2016, Alberta will be at a minimum $12 billion in debt - $3,000 owing for every one of us!
Didn’t anybody in past governments say – hmmm, $100 oil isn’t going to last forever, maybe we should build up some serious cash reserves to get us through the lean years?
Oh yes, Premier Ralph Klein! From 1993/94 to 2004-2005, thinking like me, he brought a horrific $23 billion provincial debt he had inherited from ex-premier Don Getty down to ZERO.
Everybody hated the austerity – roadworks were deferred, health-care horror stories abounded, classrooms were overflowing. But it was a small price to pay. Ralph put this province back in the black. He’d be rolling in his grave to see what’s happening now.
Oh yes, premier Ed Stelmach! When it was raining money in Alberta 10 years ago thanks to high natural gas prices, Ed thought ahead and put $17 billion into a provincial rainy day fund … which was exhausted by 2013 … despite $100 a barrel oil for most of those years.
I do understand.
In the grand scheme of Canadian government mega-borrowing, $12 billion is chump change.
Ontario, with twice our population, is in Greek-style debt. The province owes $287 billion, or $21,000 per person! Quebec’s at $206 billion, or $22,000 per person! The federal government owes $651 billion, or $18,000 per Canadian.
Despite those numbers, global lenders still happily lend to Canadian governments. They figure our economy is strong enough that they’ll always be repaid. ATB Financial economist Todd Hirsch suggests they’d lend up to $100 billion to Alberta – at today’s extremely low interest – without batting an eye.
So, once again, we slip down the steep borrowing slope.
Unwilling to rein in spending, unwilling to acknowledge that oil prices may stay in the ditch for the next decade, our New Democrat government borrows another $6 billion this fiscal year, could likely borrow another $7 billion in 2016/17, $8 billion in 2017/18. In three years Alberta’s provincial debt could shoot up to $21 billion. Who knows where it ends?
NOT JUST NDP
It’s not about Conservatives or New Democrats -- Original provincial Conservative premier Peter Lougheed (1971-85) started running up debt at the end of his watch. His successor Don Getty (1985-92) accelerated that debt. Ralph Klein (1996-2006) paid it off. Premier Ed Stelmach (2006-11) built up a surplus, Premier Alison Redford (2011-14) burned off that surplus and started borrowing again.
In theory, I like the argument that government should spend in hard times, save in good times. But it rarely works. Most just keep spending in good times and bad.
Everybody has forgotten that, up until about 35 years ago, Canadian governments rarely borrowed.
Government debt was seen as stealing from future generations – that’s the way debt should be viewed.
From 1980 to 2000 the federal debt catapulted up to $600 billion. It was wrestled down under the Chretien Liberal government to about $500 billion. It has now jumped back to a record $650 billion.
When does it stop? When we hit Spanish, Greek and Portuguese levels? When will we carry so much government debt that the money lenders will get scared and stop lending?
What happens when inflation returns and interest rates jump, as they inevitably will?
The endless borrowing will stop when old-fashioned notions of fiscal conservatism finally come back into favour, when we elect governments with leaders absolutely determined not to spend more than they bring in.
At the moment, the only Alberta political party at least talking that way is Brian Jean and the Wildrose Party.
Examples of countries with the least government debt, as expressed through the “debt to GDP – Gross Domestic Product – ratio” economic measurement. (Source, CIA World Fact Book, 2012).
Saudi Arabia 3.6
South Korea 33.7
Countries with very high government debt, using the debt – GDP ratio
United Kingdom 90
Using the 2012 Debt-to-GDP ratio, as listed in the CIA 2012 World Fact Book, Canada is the 21st most indebted country in the world.