Canada's red ink will not vanish anytime soon
Posted By GREG WESTON
Posted 3 months ago
As Stephen Harper leads the country toward a historic $55-billion deficit and beyond in the name of economic stimulus, recent polls show ordinary Canadians are starting to fret about leaving their kids drowning in a sea of red ink.
But not to worry. In the world according to federal Finance Minister Jim Flaherty, the national deficit will disappear when the Conservatives stop printing those big cardboard cheques for roads, sewers and new door knobs.
The finance minister's recent economic report went so far as to promise the country would "return to budgetary balance" without raising taxes, or cutting support to seniors or families.
Canada will be back in the black, Flaherty promised, without reducing employment insurance benefits or funding to the provinces for health care, social services or regional equalization.
Instead, the author of federal budgets lucky to get the page numbering right would have us believe that when the recession ends, the deficit will too.
Or not.
A closer look at what is actually driving the government $55 billion into the red this year shows much of the shortfall is the result of permanent Conservative tax measures and other factors that won't simply vanish in an economic recovery. Consider:
* The first $6 billion of this year's red-ink extravaganza actually came from the Harper government's cutting taxes and over-spending last year even before the economic crash. It will still be there next year.
* Revenue from personal income taxes, the government's largest source of cash, is expected to drop by almost $9 billion this year. A large part of that lost loot is the result of personal tax cuts the Conservatives have promised not to touch, no matter what happens to the economy.
* Corporate taxes are also on track to nosedive $6 billion this year, much of it from various business incentives that don't depend on the economy.
* The increased costs of Employment Insurance program payouts are expected to reach $6 billion this year. Part of that is due to the soaring numbers of Canadians out of work since the recession hit, but $2.7 billion is from enhanced benefits and other enrichments to the program that will be politically difficult to cancel even in a recovery.
* The government estimates federal payments to other levels of government will rise more than $4 billion this year for health care, social programs, regional equalization and support for cities, all of which the Conservatives have promised not to cut in future.
* Despite the recession, the public service grew by 4.1 per cent last year, and even more the year before. It helps to explain part of why government operating expenses are up a whopping $3.3 billion this year. Good luck cutting the bureaucracy down the road, no matter what happens to the economy.
* The cost of Old Age Security will rise by about $2 billion this year -and each year for many more years to come -as Boomers turn seniors.
Record deficits
All of which adds up to record-setting deficits that are likely to be anything but temporary, and a soaring debt that will cost Canadians billions more in annual interest charges.
The finance department estimates the accumulation of annual deficits will drive last year's debt of $463 billion to $628 billion by 2014, an increase of about 35 per cent.
At the end of that same period, the government predicts annual interest charges will have increased from about $31 billion to $42 billion, another $11 billion the treasury will have to borrow or find in budget cuts.
Unfortunately for taxpayers, even those dismal projections don't take into account a likely return to more traditional interest rates that would dramatically drive up the costs of servicing a mushrooming national debt -over $5 billion more for every percentage point rise in interest rates.
Our kids will be thrilled.
