Friday 30 December 2011

Borrow $ to pay the debt !

To the Editor ( July 23, 2011 )

What do you really know about our debt ?

We all know that our province and our country are in debt, but how many of us know the real details? We often read that our public debt is a problem that needs to be solved. The advice is always “tightening our belts” accepting various combinations of cut backs and tax increases, so the government can spend less on services and have more money to pay down the debt.

That is about as much as most people Iv talked with know about the situation. They do not know exactly how the debt was created or who it is owed to. The assumption is that our government has been spending more than it earns. A look at the Statistics Canada web site can confirm this view. In 2009, NB had a total revenue of $8,978 million and expenses of $9,373 million, thus a deficit of $-395 million. Simple enough, right?

But take a closer look; debt charges amount to $945 million, the third biggest expense for the province. In other words we took in $8,978M and spent $8,428M on actual services for our citizens. The hidden truth, no one seems to notice, is that we are not spending too much on our services and infrastructure. Our regular revenue does cover our regular expenses. Its true for NB and its true for Canada as a whole.

I have looked back a number of years and the pattern is the same. When you negate the debt payments we are actually doing just fine. But in reality most years show a bottom line deficit, this is money that makes the debt grow and thus makes next year’s required debt service charge bigger.

This is a problem because conventional wisdom (not law) requires that we pay the full debt service charge each year, even if we must borrow money to do it. Unlike healthcare we can not cut back on payments to our bankers, unless we want to risk economic suicide.

So can you start to see the picture? A sizable slice of provincial income goes right to debt payments (the yearly interest not the principle) then we must scavenge to cover the actual public services. $8,978M income -$945M debt charge = $8,033M. Unfortunately said services amount to $8,428M, which is more than we have left, so we have to borrow.

This finance dance is done to avoid people realizing that truth I mentioned earlier. Because it would look unreasonable for the government to just borrow money each year to give to the banks, to cover the interest we owe to the banks. The illusion must be created that our government is spending more than it should.

I encourage everyone to look into the situation.

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