Juno News - July 09, 2024


What happens if Canada never balances the budget？


Episode Stats

Length

18 minutes

Words per Minute

175.74791

Word Count

3,233

Sentence Count

141

Hate Speech Sentences

2


Summary


Transcript

00:00:00.000 Canada might balance its budget in 19 years if the economic stars align and the left is losing
00:00:05.920 no sleep about it. My name is Jasmine Moulton and it's time for a reality check.
00:00:17.240 On today's show we're going to be answering the question what would happen if Canada just
00:00:22.000 never balanced its budget again and this question is really relevant right now because
00:00:27.060 that actually seems like it's within the realm of possibility that Canada might just not balance
00:00:32.860 its budget ever again. So why we're discussing this topic is because the Canadian Taxpayers Federation
00:00:39.900 just put out a report based on data released by the Parliamentary Budget Officer and the CTF's
00:00:46.040 analysis shows that very likely the government won't balance its budget for at least 19 more
00:00:52.960 years. This is historic but it gets even worse. The government could balance its budget in 19 years
00:00:58.480 if as I mentioned earlier the economic stars align meaning that basically we have 19 years of straight
00:01:05.940 up economic growth we don't have any interest rate hikes and third yet least likely to happen is that
00:01:12.640 Prime Minister Justin Trudeau control his spending and not introduce any new spending. So if all three
00:01:19.060 of those very unlikely things all happen consistently over the next 19 years then maybe Canada could
00:01:25.020 balance its budget. Not looking good. Balancing the budget isn't even that high a bar. It should be
00:01:29.840 obvious that when you have debt the goal is to pay down the principal not to just make the minimum
00:01:34.780 interest payments in perpetuity. Now while this seems like common sense to most apparently this
00:01:39.880 principle is lost on the left. In her book The Deficit Myth Stephanie Kelton lays out the basic
00:01:45.420 tenet for modern monetary theory that deficits don't really matter. Countries that can print
00:01:50.640 their own money can spend what they want without having to worry how to pay for it. And while Finance
00:01:55.700 Minister Chrystia Freeland insists she's quote not amongst those who think Canada should have a fling
00:02:01.880 with modern monetary theory. If it looks like a duck and quacks like a duck and swims like a duck
00:02:07.960 it's probably a duck. In fact take a listen to this clip of our Finance Minister Chrystia Freeland
00:02:12.700 conceding that the government really has no fiscal anchor and there is no limit to what they're going
00:02:17.040 to spend. So I asked the Minister what is Canada's new fiscal anchor? The Honourable Deputy Prime Minister.
00:02:25.620 Mr. Speaker let me tell you what our government's economic policy is right now. Our economic policy
00:02:33.220 is to do what is necessary to fight COVID and to support Canadian workers while we're doing it.
00:02:40.420 And let me just say Mr. Speaker our policy is working. And if that isn't bad enough now the
00:02:45.760 Canadian government's trying to convince Canadians that running 12-digit deficits is responsible and
00:02:50.660 doubling the debt no problem. Take a listen. So as a federal government given the historically low
00:02:56.480 interest rates and the low debt servicing costs that we have and given our extremely strong fiscal
00:03:02.220 position going in. We decided to take on that debt to prevent Canadians from having to do it.
00:03:09.500 Mr. Speaker, as usual the Conservatives aren't bothering to even acquaint themselves with the facts.
00:03:16.060 Had they bothered to read the latest fiscal monitor they would know that so far this fiscal year
00:03:22.240 the federal government is actually running a surplus of $6.3 billion. The IMF forecast that Canada will
00:03:31.820 have the lowest deficit in the G7 this year. We have the lowest debt to GDP ratio in the G7 this year
00:03:40.040 and our AAA credit rating was reaffirmed earlier this year. We believe in fiscal responsibility and
00:03:46.360 that's what we're doing. So on today's show we're going to do what Reality Check does best
00:03:50.580 which is to go through the clips you just heard argument by argument and debunk them.
00:03:55.040 Next we've got a really special guest coming on the show, Franco Tarazano from the Canadian Taxpayers
00:03:59.580 Federation and he's got some pretty jaw-dropping facts that I think every taxpayer in Canada needs
00:04:05.780 to hear. Then stick around because you won't want to miss our answer to this question.
00:04:09.760 What will happen if Canada never balances its budget again? All right so let's get started.
00:04:14.260 Let's start off with the first argument that you can take from the clips we just heard from those
00:04:19.060 leftists. Essentially what it is is gaslighting. They're trying to convince Canadians that Canada's
00:04:24.980 fine. Canada was in a really good fiscal position so all of the spending that we're doing now is
00:04:30.380 fine. We're fine. We're all good. So unless you've been living under a rock for the last I don't know
00:04:34.640 couple of years you should know that Canada's not really doing that great financially speaking.
00:04:40.060 Of course if you consider the statements coming from the finance minister that we just listened to
00:04:44.420 you'd think everything was fine. For example the finance minister even cites look Canada has a
00:04:49.600 triple-a credit rating. Sounds legit. The only problem is that there's more than one credit
00:04:54.660 rating agency and Fitch for example actually downgraded Canada from its triple-a to a double-a
00:05:01.240 back in July of 2021. And as their reason they cited quote the deterioration of Canada's public
00:05:07.300 finances in 2020 resulting from the coronavirus pandemic. So no actually Canada's credit rating
00:05:13.360 faltered. Moving on. They also cite in those clips that Canada's debt to GDP ratio is the strongest in
00:05:20.400 the G7. But as a Fraser Institute research bulletin points out a lot of caution is required when you're
00:05:26.280 comparing Canada's debt to GDP ratio to other countries. And here's why. Take a look at this chart
00:05:32.560 that the government included in its 2021 fiscal update which is hilariously titled quote a responsible
00:05:39.240 fiscal plan. In this chart which looks really responsible they're actually comparing net debt.
00:05:46.140 Now I don't want to go too far into the weeds here but Canada accounts for its pension assets
00:05:50.380 differently than these other countries which makes our net debt figure appear much smaller. So if you look
00:05:56.860 instead of net debt if you look at gross debt which accounts for pension liabilities that actually
00:06:02.620 knocks Canada back into fourth place in the G7. And even worse it knocks Canada into 25th place out of
00:06:09.540 29 countries total when gross debt is measured. But again that's pretty far into the weeds. The main
00:06:15.200 point here is that the debt to GDP ratio is not just some prescription to spend money. In fact the prime
00:06:22.180 minister always manages to draw the same conclusion regardless whatever the debt to GDP ratio is
00:06:27.300 signaling. In cases where it might be low he says wow this is a really great time to spend. So he spends
00:06:33.280 money. But in cases where a recession might throw it all out of whack and it goes really high he says well
00:06:39.880 we're in a recession we need to spend money. So his conclusion is always the same regardless of what the
00:06:44.720 debt to GDP ratio is. He always just concludes Canada needs to spend money. Saving is never his
00:06:50.560 answer and it should be. And this of course brings us nicely into the second argument the leftists often
00:06:56.580 make which is that we have historically low interest rates. So now is a great time to invest which of
00:07:02.520 course means spend your money. Right off the bat this is pretty dumb logic because if it's true that
00:07:07.300 interest rates are at historic lows then they only have one place to go which is up. Predictably this is
00:07:13.080 what's happening right now. And parliamentary budget officer Yves Giroux recently testified before the
00:07:18.540 senate because his office predicts that debt charges will double in the next four years. Take a listen.
00:07:25.160 Yes that's something that will have a major impact on public finances at the federal level but also at
00:07:31.140 the provincial level. We've looked at the impact of increasing interest rates as well as the increase
00:07:37.400 in the stock of debt and we estimate that in the next four years interest payments will probably
00:07:44.180 double compared to their level in 2021-22. They'll probably go from 23 billion if my memory serves
00:07:51.840 me well to 46 billion dollars. But we'll be providing an updated number when we release our economic and
00:07:59.960 fiscal outlook probably mid-october. So while that all sounds terrifying and it should because now we're
00:08:08.440 going to spend more on interest which by the way goes to many wealthy foreign investors. We're going to be
00:08:13.580 spending more on our interest payments than our military. Yes it's scary but it was pretty predictable
00:08:18.260 that this was going to happen. When the left uses this argument that historically low interest rates
00:08:23.320 mean it's a good time to spend that's essentially like saying I got great financing on a Porsche I
00:08:29.060 should buy it. The question should be do I need this? Not a statement. Ah a sale's on I should buy now.
00:08:35.740 And this brings us nicely to our guest for the show today Franco Terrizano. Franco is the federal
00:08:41.760 director of the Canadian Taxpayers Federation and so far on today's show we've discussed this leftist
00:08:46.440 idea that the government can run deficits all the time in perpetuity without negative consequences.
00:08:52.700 And inherent in that statement is an assumption that all of the spending that they're doing is
00:08:58.660 productive or that they have to do it that it's necessary. And Franco we heard a lot of this through
00:09:04.320 the pandemic that all of the spending they were doing was necessary that the government quote unquote
00:09:09.120 had our backs. Is it true that they had to spend what they did through the pandemic?
00:09:14.840 What the Fed should have done is prioritize spending to address the problem not spend buckets of cash
00:09:20.540 on everything. So since the beginning of COVID-19 nearly 200 billion dollars in new spending that has
00:09:27.960 been announced isn't for the pandemic or isn't dealing with the pandemic. Now when you have a leaky roof
00:09:34.680 you fix a leaky roof. I think Canadians understand that but you don't go rack up credit card bills
00:09:40.260 buying a new flat screen a couple ATVs and maybe a brand new BMW. Remember I mean the feds were spending
00:09:46.980 all-time highs even before the pandemic so the government's politicians should have been able to
00:09:52.720 find savings in other areas of the budget but the government didn't do that. It spent money like crazy
00:09:59.500 and now we're dealing with inflation that is nearly four decades high. But now governments are kind of
00:10:04.960 pivoting their arguments saying well we have to fight off a pending recession. We have to spend money
00:10:10.660 and frankly turning off the tap so to speak before a recession would be bad economic policy. So Franco
00:10:16.600 how would you respond to that statement and what would you suggest as an alternative to stimulate the
00:10:22.920 economy. It's crazy spending for years the massive debt and using the money printer to finance the
00:10:30.580 government's deficits that's really making these tough times harder that's creating the inflation and
00:10:37.040 that it's making it more expensive for so many Canadians to afford gasoline or ground beef. Now remember
00:10:43.020 the government doesn't create wealth. At best the government redistributes money away from taxpayers and
00:10:49.900 this government is taking way too much for tax from taxpayers. We've we saw during the pandemic the
00:10:55.160 carbon tax go up three times. Payroll taxes have been hiked three times and if all that drives you to
00:11:01.780 drink just remember that every time you go pick up that 2-4 of Keith's or try to enjoy the bottle of
00:11:08.480 Pino with your better half well the federal government has raised taxes there too. So what should Ottawa do?
00:11:14.660 Well Ottawa should follow the lead of 51 other countries and cut taxes.
00:11:19.920 So my last question for the moment is Franco, when do you think the government could reasonably balance the budget
00:11:26.600 and how could they do that? What would they have to cut?
00:11:30.060 Well we found that the federal government could balance the budget within two years just by bringing in spending back to
00:11:36.700 pre-pandemic highs which were already all-time highs. So that means that before the pandemic in 2018
00:11:42.820 the Trudeau government was spending more money than the feds did during any single year
00:11:47.200 of World War II. So with overspending like that finding savings in every area of the federal budget should be like
00:11:53.760 finding water in the ocean. But unfortunately this government seems like it just wants to spend more money on
00:12:00.180 everything forever. The parliamentary budget officer's own data shows that under the current trajectory of the
00:12:07.820 government we won't see a balanced budget until 2041. Now two decades of deficits are bad enough
00:12:15.500 but it gets worse because the feds won't balance the budget if interest rates don't stay relatively low,
00:12:23.020 if the economy doesn't experience steady growth every single year until 2041, and if politicians
00:12:29.820 don't say no to new spending. And even if the feds eventually balance the budget in 2041 taxpayers will
00:12:39.500 still have to pay about 800 billion dollars by then just to cover interest charges on the government
00:12:47.500 credit card. So 800 billion dollars in interest charges in total will be the cost once the budget is
00:12:53.260 finally balanced in 2041 under the status quo. Now that's a cost of $18,000 for every Canadian
00:13:00.780 and that's hundreds of billions of dollars that can't be used to improve health care or to lower taxes
00:13:06.860 because that money would have to go to the bond fund managers on Bay Street just to cover interest
00:13:12.140 on the government's credit card. Now for our audience I have one more question that I'm going to ask Franco
00:13:16.940 essentially what is the most egregious craziest waste story coming out of government that you've
00:13:23.180 ever heard of in terms of politicians spending taxpayer dollars on something really crazy? And
00:13:29.340 his answer shocked me. I think that your jaws will drop too. In fact here's a bit of a teaser,
00:13:36.300 here's a quick picture for our YouTube watchers of what you can expect but you're going to have to
00:13:41.900 stick around to the end of the show to get the scoop on that. So don't go away, that's coming up soon.
00:13:46.460 And now let's finally answer the question what would happen if Canada never balanced his budget?
00:13:52.300 Fortunately a lot of the guesswork here is taken out of the equation because Canada did have a debt
00:13:57.740 crisis in its pretty recent history. Back in the mid-90s the Wall Street Journal actually referred
00:14:03.260 to Canada as quote an honorary member of the third world and this is because Canada's debts had soared,
00:14:10.780 our debt interest cost that we had to pay was really high at the time mostly because
00:14:16.460 not only did we have a lot of debt but also interest rates were really high. So the proportion
00:14:21.820 of your taxes that went into just paying off the debt interest got to be pretty well unmanageable.
00:14:28.300 So the first thing that would happen if Canada's debt spiraled out of control because we refused to
00:14:33.340 balance the budget would be a credit downgrade like we saw in the 1990s. Now as I pointed out earlier on
00:14:40.060 the show Canada's already experienced one under Prime Minister Justin Trudeau but why should Canadians
00:14:45.500 care about this? Canadians should care about potential credit downgrades for Canada because
00:14:50.700 it's going to make the debt that we have a lot more expensive. Because Canada will be seen as riskier,
00:14:57.260 the cost of our interest will go up. Meaning that of every dollar you pay in taxes, an increasingly large
00:15:03.500 portion will go into paying off interest instead of paying for programs that you care about. So as an
00:15:09.420 example last year if you look at the most recent federal budget you can see that last year about
00:15:15.900 five cents of every dollar you paid in federal taxes went toward interest payments. So this did
00:15:22.460 not go toward health care, this didn't go to any of your other federal government expenses except interest
00:15:28.460 payments. This year while it was five cents last year, this year it's six point three cents so that's
00:15:33.980 a pretty big leap. Six point three cents of every dollar you pay in federal taxes now will go toward
00:15:40.460 interest on our debt and as you heard from the parliamentary budget officer earlier in the show
00:15:45.420 the cost of our debt meaning the interest we pay on it is expected to double in four years. And thirdly
00:15:51.660 what would happen if Canada never balanced the budget and if it just kept growing its debt
00:15:56.060 what essentially and this happened in the 90s programs got slashed and taxes went up. So here's
00:16:01.180 a reality check recent Canadian history has showed us that living beyond our means is going to be
00:16:06.700 painful when it eventually catches up to us and it will. And even though the government tells us that
00:16:11.260 they're making investments in reality a lot of what they're spending is incredibly wasteful and it must
00:16:16.860 be stopped now not in 19 years in order to avoid this painful reckoning. But speaking of wasteful spending
00:16:23.180 I did promise some bonus content so let's get back to this question that I posed to Franco our guest on
00:16:28.140 the show today. Franco what is the most egregious form of waste that you've seen from any politician in
00:16:34.940 Canada? The craziest story of spending that I've covered in my time with the CTF is that the
00:16:40.700 government spent eight thousand dollars on a sex toy show in Germany. Now Jasmine maybe I'm a little old
00:16:48.060 fashion but if the Germans want to fund a sex toy show well maybe they can spend their own money doing
00:16:54.700 it and not rely on money coming from Canadian taxpayers. So these were the winners for the best
00:17:00.940 of the worst in government waste. I think it's pretty clear who the losers are in these scenarios and that
00:17:06.540 of course is the taxpayer. Now you know this can be pretty funny stuff to make fun of but remember
00:17:13.340 Canadians are paying way too much tax because the government's politicians are wasting way too much
00:17:19.500 money. So this is so ridiculous I couldn't help but do a little bit of quick math and what I found out
00:17:26.940 is that if you earned about seventy two thousand dollars a year your entire federal tax bill that
00:17:33.820 you paid on your income taxes would have gone to cover this sex toy exhibit in Germany. Or if you don't
00:17:40.700 earn seventy two thousand a year, if you take ten people in Canada who earn twenty three thousand a
00:17:45.980 year and you take all the federal tax that they would have paid on their income tax, all of that
00:17:50.460 money would have been used to pay for this sex toy exhibit in Germany. This is insanity and it makes
00:17:56.700 you question why do I pay such high taxes if this is what the government's spending it on. I digress, aren't
00:18:03.900 you glad you stuck around? Thanks so much for tuning into the show this week. My name is Jasmine Moulton,
00:18:08.380 this has been Reality Check and tune in now every Monday to catch the next episode.