Deep in the bowels of the Finance Department in Ottawa, there are probably some shut-ins who already have the date marked off on their calendars.
But most of us aren’t that eagerly anticipating the year 2012. That’s when, if Ottawa stays the fiscal course, our debt-to-GDP ratio (the size of our debt compared with the size of our economy) will drop as low as 25 per cent. Oh baby.
As a guiding national goal, I find this uninspiring. Compared with other national goals — wiping out child poverty, creating our own airplane or ridding the world of land mines — achieving a 25 per cent debt-to-GDP ratio is, well, hardly the sort of thing that sends shivers up the spine.
But get used to it because this is the kind of national goal that sends shivers up the spines of those involved in the new Paul Martin government, poised to start running the country later this week.
In fact, while Martin’s talk of the “politics of achievement” conjures up a thrilling sense of national purpose, in practice the kinds of achievements that are really on Martin’s mind — and on the minds of those who financed his recent leadership campaign — are balanced budgets and falling debt-to-GDP ratios.
So hold onto your seats. We’re heading fast-forward into what promises to be the golden age of accounting. All this may sound harmless, if a little dull. But don’t let the dullness fool you. It’s both dull and dangerous.
In fact, what’s really at stake is whether we’ll rebuild the social programs and public infrastructure that have been effectively gutted through two decades of underfunding.
Let’s first state one thing clearly: As a country, we definitely have the resources to do this rebuilding, although you’d never know it from the public debate.
Ottawa has been running surpluses for the past six years, and those surpluses are projected to get bigger and bigger over time. A study by the Conference Board of Canada last year estimated that, if the present course were maintained, the annual federal surpluses would rise by the year 2020 to an amazing $85 billion a year. “There’s no reason to believe that’s far off the mark,— David Perry, senior researcher at the Canadian Tax Foundation, said in an interview last month.
So, hold the sackcloth and hair shirts. Good-bye, austerity.
Actually, not so fast. The problem is that the business leaders who back Martin have other plans for the money — tax cuts and debt reduction — and are dead set against restoring the level of public programs we enjoyed in the past. So the Martin team has been trying to dampen expectations, suggesting the cupboard is bare, even though the cupboard promises to be so well stocked that the real problem will be getting the cupboard door shut.
Martin is trying to get us to focus on the goal of reducing the debt-to-GDP ratio to 25 per cent.
But there’s little reason to do so. Our debt-to-GDP ratio is already the second lowest among G-7 countries. And it will keep declining on its own, as long as our economy keeps growing and we don’t add any new debt.
This is what happened when we were left with a huge debt after World War II. We focused on economic growth. The economy grew. The debt stayed the same. Eventually, the debt became a tiny burden compared with the huge new economy. (In other words, we had a low debt-to-GDP ratio.)
But Martin and his backers aren’t content to let today’s debt-to-GDP ratio shrink like that over time through economic growth. They want to speed up the process by also making actual payments — a minimum of $3 billion a year — to reduce the debt.
This is a bit like making extra payments to pay off your mortgage faster, even though you need the money to repair the leaking roof and make sure everyone in the family has a winter coat.
In a study for the Canadian Centre for Policy Alternatives, economist Jim Stanford notes that economic growth accounted almost entirely for the drop in our debt-to-GDP from 70 to 44 per cent in recent years. Yet Ottawa, with Martin as finance minister, insisted on putting at least $3 billion a year toward debt reduction.
Stanford notes that if we put that $3 billion each year instead toward social programs, we’d still reach the 25 per cent debt-to-GDP level. We’d just have to wait a year longer — to 2013. That’s right. We’d have to put off our national dream of 25 per cent debt-to-GDP ratio a whole extra year.
Hands up those willing to wait.