Thursday, November 23, 2006
Flaherty Makes Some Cents, But...
At first glance the Finance Minister's thought processes may have stabilized with today's announcement that the Conservative government intends to continue the tradition of previous Liberal governments by focusing on paying down the national debt. However, there is a catch. Mr. Flaherty refers to 'net' debt, not national or total debt. But, I'll get back to that later.
When you consider that the cost of servicing the national debt is about 17 - 18 cents of every tax dollar sent to Ottawa, Mr. Flaherty's decision (this time) might make more sense for every Canadian than any impact from income splitting. Paying down the national debt is fair to everyone; old, young, single, married, homosexual, or heterosexual. The best part of the plan will be realized when future generations continue to reap the benefits of low or no debt.
How did we get in this predicament? Our debt soared like a kite under Trudeau from $11.3 billion when he entered office to $128 billion and no deficits to deficits of $25 billion annually by the time he left office. Then, the Mulrooney Conservative government launched the debt into orbit to nearly $500 billion. Not until 1995 under Prime Minister Chrétien's watch and later Paul Martin's, did the debt begin to fall, and fall significantly until Martin was defeated. Now, Flaherty appears to be on the same track as his predessors.
But, Mr. Flaherty's proposal does not target national debt. Instead, he's going after 'net' debt, which is the total debt minus government's financial assets such as cash in the bank, short term investments, pension funds, and loans.
Whether it's net debt or total debt, it matters not. Focusing on paying down either is a good thing. Mr. Flaherty intends to pay down net debt at the rate of $3 billion per year. At that pace, he says the net debt will be paid off in 15 years or 2021. Assuming a 5.5% interest rate, the net debt must be slightly in excess of $30 billion. In contrast, the national debt is about $480 billion. Assuming the same interest rate and payment schedule, the national debt would be paid off sometime in the 22nd century.
In any event, we the taxpayer, will save hundreds of millions of dollars in interest savings on the net debt if the Finance Minister can maintain the same rate of success as his Liberal predecessors.
Not withstanding Mr. Flaherty's apparent good intentions, the Michael Ignatieff link stays.
When you consider that the cost of servicing the national debt is about 17 - 18 cents of every tax dollar sent to Ottawa, Mr. Flaherty's decision (this time) might make more sense for every Canadian than any impact from income splitting. Paying down the national debt is fair to everyone; old, young, single, married, homosexual, or heterosexual. The best part of the plan will be realized when future generations continue to reap the benefits of low or no debt.
How did we get in this predicament? Our debt soared like a kite under Trudeau from $11.3 billion when he entered office to $128 billion and no deficits to deficits of $25 billion annually by the time he left office. Then, the Mulrooney Conservative government launched the debt into orbit to nearly $500 billion. Not until 1995 under Prime Minister Chrétien's watch and later Paul Martin's, did the debt begin to fall, and fall significantly until Martin was defeated. Now, Flaherty appears to be on the same track as his predessors.
But, Mr. Flaherty's proposal does not target national debt. Instead, he's going after 'net' debt, which is the total debt minus government's financial assets such as cash in the bank, short term investments, pension funds, and loans.
Whether it's net debt or total debt, it matters not. Focusing on paying down either is a good thing. Mr. Flaherty intends to pay down net debt at the rate of $3 billion per year. At that pace, he says the net debt will be paid off in 15 years or 2021. Assuming a 5.5% interest rate, the net debt must be slightly in excess of $30 billion. In contrast, the national debt is about $480 billion. Assuming the same interest rate and payment schedule, the national debt would be paid off sometime in the 22nd century.
In any event, we the taxpayer, will save hundreds of millions of dollars in interest savings on the net debt if the Finance Minister can maintain the same rate of success as his Liberal predecessors.
Not withstanding Mr. Flaherty's apparent good intentions, the Michael Ignatieff link stays.
