Heeding the Times from Harry Antonides' Desk

Our National Debt is Immoral

March 1, 1993 -

You're talking about a country which was run like a Polish shipyard. It was bizarre; it was a whole series of pork barrel politics. It was using overseas debt to build up domestic expectation far ahead of any common sense view of what economic development should be.

—David Lange, New Zealand Prime Minister, 1984-1990, explaining the currency crisis that forced his country to make drastic expenditure cuts overnight (from an interview on CTV's W5, February 28, 1993). 

There is plenty of evidence that Canada's spending habits are reaching the flashpoint. But the big question is whether we can muster the political will to take the painful measures needed.

Politicians and economists on the right have warned that continued deficit spending can no longer be sustained. Those on the left have insisted that our rising national debt is no problem. For example, Ted Roscoe, international vice-president of the Service Employees International Union, recently advised readers of canadaworks! (February/March 1993) that "complaints about the deficit, however, are nothing more than a smokescreen for right-wing economic policies.... Until the Tories and their big business cronies get their own houses in order, the rest of us should ignore their dreary belt-tightening sermons. Just as people ignored Chicken Little's shouts about the sky falling."

But even politicians on the left, especially those now saddled with the responsibility of government in three Canadian provinces, are acknowledging that drastic measures must be taken to avert disaster. Ontario Premier Bob Rae has recently called for cost-cutting measures to reduce the province's projected 1992-93 deficit of $16.7 billion. (During their first two years in office, the Ontario NDP government has accumulated a deficit of $23 billion, compared to $3 billion accumulated during the last two years of Peterson's Liberal government.) Rae has called for savings on Ontario's huge wage bill of $43 billion (out of a total budget of $55 billion) but spokespersons for the unionized civil servants have warned that if the government plans to impose any cutbacks in jobs or wages, the unions "will shut down the province." Ironically, these are the same unions that backed the NDP's successful election campaign in 1991.

Facing reality

While philosophical consensus concerning the deficit and what to do about it may be impossible, the seriousness of our predicament demands a minimal level of agreement. Without such agreement, we had better brace ourselves for severe political and social disorder. Constructive redirection of the management of our nation's finances begins with facing the truth about our attempts to live on borrowed money.

When the Mulroney government took office in 1984, the national debt had risen to some $200 billion. The annual federal deficit in that year was $38 billion. The new government promised to reduce the deficit and bring the debt problem under control. But the annual deficits of the federal government have stubbornly clung to around $30 billion. In the fiscal year just ended, the deficit climbed to $35.5 billion, $8 billion more than originally forecast. Or to put this in more understandable terms, our federal government's debt grows by nearly $100 million every day!

Admittedly, as a percentage of the Gross Domestic Product (GDP), the federal deficit has declined. However, in absolute terms, the total public debt of the federal, provincial, and municipal governments, now creeping up to $700 billion or nearly 100 per cent of GDP, makes us the second highest indebted industrialized nation in the world (after Italy). More than one quarter of federal expenditures must be devoted to interest payments, amounting to some $43 billion out of a budget of $160 billion during the fiscal year ended March 31, 1993. We are borrowing money to pay the interest on our debt.

Such large and continuous debt servicing charges are an immense and unsustainable drain on our economy. The problem is aggravated by the fact that a growing share of our debt (about $300 billion) is owed to foreign sources. For example, Statistics Canada reports that Japanese holdings of Canada bonds have increased from $10 billion in 1984 to $50.4 billion at the end of 1992.

But Japanese bond holders are becoming wary of their Canadian investments. As one top economist at the Japan Center for International Finance recently pointed out: "If provincial deficits become so large, the appreciation of Canada as a whole by Japanese investors may be affected. Prudent fiscal and monetary policy is a prerequisite to attracting Japanese money." ("Japan Frets Over Canada's Debt," The Globe and Mail, February 11, 1993)

Fiscal illusions

Warnings have come thick and fast lately. For example, a recent report by the C.D. Howe Institute concluded: "Canada's growing foreign liabilities might lead to a sudden refusal by investors to buy more Canadian debt." This is exactly what happened to New Zealand in 1984, and we would be fooling ourselves if we thought that it could not happen here. Several provinces have already had their credit ratings downgraded. A recent joint federal-provincial report concluded the obvious, that there is a link between high levels of taxation and government spending. It pointed out that despite the slow-down in economic growth, governments have been pressured to provide more and more services. The report attributes this to "a certain degree of fiscal illusion" with the reality of increased spending. "Experience has now shown that large and growing fiscal imbalances have tangible impact on debt burdens and taxation."Fiscal illusion? How about using some straightforward language and call it social engineering compounded by an abdication of responsibility. Whether the problem is described in such guarded "bureaucratese" or in the blunt words of Financial Post editor Diane Francis ("We're junkies living off outsiders. Canada is a blue-eyed basket case."), the undeniable fact is that our current policies are ruinous.

The accumulated debt of all three levels of government does not even tell the complete story. The total public debt also includes deficits run up by crown corporations (such as Ontario Hydro's $30 billion of debt), government loan guarantees (think of the Hibernia project), and a variety of agencies (including the Unemployment Insurance Commission, Canada Pension Plan, and Workers' Compensation Boards). Some have estimated that the total of all public debt and unfunded liabilities is well over $1 trillion. What will farther strain our nation's economic resources is the fact that we are an ageing society with rapidly increasing health care costs for the elderly while our workforce is declining as a proportion of total population.

The common good

The current trend is unsustainable, but making the necessary changes will not be easy. The problem is that many have come to view the state as the great provider, a notion derived from Rousseau's idea that the state is the source of fulfilment and meaning of human existence. This perception has helped transform politics into a branch of social engineering, simultaneously raising unfulfillable expectations and undermining the very foundation of parliamentary government.

Since the 1960s, the public's sense of the common good has severely eroded. Consequently, Canadian politics has deteriorated into a contest between competing interest groups preoccupied with maximizing entitlements. But the public purse is not inexhaustible, nor is the government's capacity to perform an ever-growing list of tasks. We are now faced with the burden of allocating costs and sacrifices instead of entitlements.

Neglected in the current discussion, but central to the crisis of our national debt, is the issue of justice. We are ringing up an unconscionable tab and expecting our children and grandchildren to pay for our extravagance and mismanagement. If we did this as individuals, clearly our behaviour would be immoral, if not criminal. Why do we think we can get away with it as a nation?

What we desperately need is a renewed awareness that we are responsible to God and our neighbours, including following generations. In light of the recent (re)discovery by Maclean's that nearly 80 per cent of Canadians consider themselves Christians, it should yet be possible to persuade people that making the next generation pay for the sins of our mismanagement is immoral. This awareness would help us arrive at a general consensus about the hard decisions that we must make.

One thing is certain, any politician promising painless remedies is not to be trusted. The country is on the verge of bankruptcy, and major surgery will be imposed upon us either from the outside (as was the case in New Zealand) or by ourselves. Only time will tell whether we can still summon the required wisdom and courage. But time is fast running out.

This article originally appeared in Comment magazine, a journal founded by Harry Antonides. Find all of Harry’s pieces, and thousands more, at http://www.cardus.ca/comment