Government spending spree will hurt our pockets for years to come

spendingThe politicians running the country and one of our nation’s biggest economies (Ontario, in particular) have spending tendencies that echo the name of their party: Liberal.

Let’s start by looking at the provincial Liberals. Keep in mind that according to recent numbers, the province’s net debt load is expected to be at an astronomical $308 billion this year. (To be fair, the Ontario Liberals claim the deficit will be eliminated by 2017-18, which, theoretically, means it will stop accumulating more debt.) It doesn’t take a financial genius to figure out that means paying a lot of interest; namely $11.8 billion annually, according to some approximations.

Sure, the party has rolled out some promising ideas in its most recent budget, such as paying for student tuition for households that earn $50,000 or less. That doesn’t include grants for a number of other students (mostly those who live on their own).

According to an article in the National Post, the government claims this move won’t cost more than the $1.3 billion it already spends annually on post-secondary students. This defies the basic rules of mathematics.

But let’s look at some other spending binges: namely, in the realm of transit. The government insisted on having a new major GO station in Hamilton ready for operation by the time the Pan Am Games rolled into the GTA last year. Reports say the station cost $50 million to construct, although it still offers only two trains to Toronto and back each morning and evening. On the subject of transit, the Libs have also promised Hamilton $1 billion for light rail transit. Wow, if you spend $50 Mio to facilitate two GO trains to Toronto from Hamilton, I wonder what the miracle numbers of users are to justify the light rail transit.

Now on to the federal Liberals, who have swung open the treasury vault doors — an almost directly opposite approach to the previous government. PM Trudeau and company are dreaming big with your tax dollars — investing billions in transit and roads (yes, needed, but please put it where it is required), social housing, aboriginal communities and more. The government has boldly said it plans to run a multi-billion-dollar deficit for its first mandate (to the tune of $30 billion this year alone). This is a blatant betrayal of the electorate since the Liberals promised a deficit of no more than $10 billion annually – which is already a financial crime of the century.

The hope behind the spending is to kickstart the economy and create growth. However, as you probably know from your own personal experience, it’s hard to climb out of debt once you dig yourself into it. The feds are going on a spending spree, which is more about creating good optics (to earn a second mandate) than sound policy.

What happens if the government spends way more than it can generate in taxes and other sources of revenue? (By the way, the feds also plan to cut taxes for the middle class.) Well, you run into situations like the Greek debt crisis, sparked by a number of global factors — one of them being that Greece was understating its deficits. Perhaps Canada is not understating its deficits, but even so, with a huge overall debt load, the government will have to turn to the taxpayer for a bigger payout. It also means federal services may have to be cut to allocate more tax funds towards reducing money owed — and the cost of borrowing for the average person could spike.

Investopedia explains all the possible pitfalls of having a high national debt. Although it focuses on the States, the same principles apply here.

In a time when government should still be spending conservatively to survive another crisis, should one arise, this government has opened its wallets and is doing something akin to throwing money from a limo at a crowd. People will love it (for now), but it’s a bad move in the bigger picture.

We can’t put all the spending blame on the Liberals; let’s not forget that Alberta is no longer once the money machine that helped the country’s overall economy. Despite this, its NDP government is spending like crazy. The debt of Alberta is expected to hit almost $19 billion following its first budget announced last year. Instead of carefully spending, the province actually increased its deficit while borrowing for items like infrastructure and even operations (which is almost unheard of, at least in the past 20 years).

Alberta’s government is trying to offset its own spending by jacking up taxes on alcohol and cigarettes, while also taxing the wealthy more heavily. But that won’t fill the rather large hole that’s being created.

While he looks popular now, Trudeau could be creating one of the worst legacies the country has seen. Your children or grandchildren will likely be paying for the current party’s plan to buy itself a good public image. After his election I was trying to keep an open mind, but in my thirty years in this great country, he may well be the first prime minister whose politics will set the country back.