It is no secret that governments have been utilizing deficit-spending for decades in order to carry out their agendas and provide services for their citizens. Before World War 2, government debt was rare; as they adhered to orthodox fiscal policy by keeping spending and taxation to a minimum- and not spending money they were unable to take in.
The Post-World War 2 boom saw a paradigm shift as governments broke away from old-school orthodox economics and adapted Keynesianism as the prevailing economic ideology (which was essentially more government intervention in the economy and borrowing money- especially during recessions- in order to provide for its citizens, coinciding with the expansion of the welfare state and costly social programs.)
Nowadays, many economists and political observers are concerned with what they deem out of control government borrowing- running up levels of debt so high that it will have adverse effects on the economy, individuals, and businesses- for years to come.
Small businesses and citizens pay for their share of government debt through increased taxes and user fees; plus decreased quality of public services. When you add up the taxes and other charges imposed by all three levels of government (federal, provincial, and municipal)- this puts an almost unsustainable financial burden on businesses- who in turn are forced to raise their prices and cut the quality of their programs or services- and ultimately pass along the loss to consumers.
To give you an idea of how much debt the Canadian government is currently running up- largely in part due to the economic disruptions caused by Covid-19- the federal deficit for this year alone will likely surpass $252 Billion. Added on to Canada’s total debt level, It’s possible that Canada’s debt obligations will hit $1 TRILLION (Yikes!) This amounts to a debt burden of roughly $25,000 for every Canadian citizen when spread out over our population of 38 million.
The majority of the deficit comes from federal spending on programs aimed at stimulating the economy and curbing losses incurred from Covid-19; with the $2,000/month CERB credit- which over 8 million Canadians received- costing over $40 Billion; plus over $5 Billion for the government’s wage subsidy program. Since Prime Minister Trudeau announced last week the government will be extending the CERB for another two months- the deficit will no doubt be pushed higher.
Currently- interest payments on Canada’s debt are the fourth largest line item in the federal budget. Think about it for a second- this is only the INTEREST owed on the debt- and not the actual principal! Canada spends tens of billions of dollars servicing its debt- and in the event it were to miss a payment or default on its debt- Canada’s credit rating would be downgraded- and the cost of borrowing would substantially increase- as Canadian treasuries, bonds, and other debt instruments would be deemed more risky of an investment. This is why staying on top of its debt obligations is crucial not only for Canada’s government- but also for its businesses and citizens- as ultimately- the state of our economy and standard of living we all enjoy would erode.
Canada’s economy is so intertwined between its public and private sectors- right down to taxpayers at the individual level- that every extra dollar borrowed will have an impact in one way or another- whether it be through higher taxes and prices, service cuts, or even the supply and demand of Canada’s labour market.
As we head into a future that will no doubt see both public and private institutions drowning in debt- it is important to be aware of the consequences of out-of-control spending; and what it will mean to our children and grandchildren down the road.
All financial figures in this article are courtesy of https://www.cbc.ca/news/politics/federal-deficit-higher-than-252-billion-1.5566768