Federal budget looked more like Christmas giving
March 31, 2016
Apparently we had a federal budget last week. It seemed more like Christmas.
Our new Minister of Finance, Bill Morneau, dressed as Santa Clause landed on our roof top and slid down the chimney bearing gifts for all. Throw financial caution to the wind, this is the season for giving.
To help celebrate Christmas in March, nicely wrapped gifts were placed under the tree for family, friends, and even strangers. If you live north of the 49th parallel you received something special.
Don’t get me wrong, I enjoy the season of giving as much as any of us. My problem is that little nagging question about who’s going to pay for all this?
Our new government’s initial plan was to invest in Canada with significant infrastructure projects. Things like new highways, subways, and other public transit. Tangible benefits that would add to the Canadian economy in the years to come.
Very little of the spending was directed at investing on infrastructure. Money was spent on programs, a little here a little there.
The second part of the initial plan was there would be a deficit of $10 billion. The logic appears that if $10 billion of overspending is good then $30 billion of over-spending is even better.
Lots of gifts and lots of deficit
Under that formula the budget gets a perfect 10 out of 10. Lots of gifts and lots of deficit.
Regardless of how hard I try to understand this I keep coming up short. One of my thought processes has been: if I handed in this type of a budget back in my school days how would an economics professor have graded my paper?
If I was lucky I could hope for an F for Failure. On the extreme side this type of economic logic might have been cause to expel me from the course.
This is not a political statement. I think the country was due for a political change and democracy works better when one party does not retain power for too long a period.
I have great respect for our new finance minister and the new government’s fresh strategy of giving a diverse cabinet more say in governing our country. Most of the handouts in our recent budget could be classified as admirable.
You could make a strong argument that some of these causes should have received even greater government support. The issue is not the worthiness of these government initiatives.
It is simply a matter of finance. The world we live in is based on cash flow. That applies to individual investors who save in order to have cash flow to spend and as they see fit.
Cash flow the guiding force
Cash flow is the guiding force to how companies manage their own resources. It also applies to all levels of government.
The government has been warning over indulgent consumers about overspending because of the financial carnage that can occur when debt gets out of hand. Some Canadians will go bankrupt and that inevitable tragic result will happen sooner if interest rates start to rise.
If I was a member of the federal cabinet I would seek out some of the best economic minds in our country and asked them to form a committee to examine at what point Canada has to declare bankruptcy. That is not a doomsday prediction, it is simply arithmetic.
Debt comes with interest and interest has to be paid. The consequences of having too much debt with unmanageable interest payments is bankruptcy.
We know this to be true because we have seen it in other jurisdictions we refer to as third world countries.
The laws of economic gravity mean that if Canada does not start acting more fiscally responsible we have the potential of bankruptcy.