A $700 million debt is a 30 year promise
There were exactly 12 babies born in Regina on March 18 – the day the Saskatchewan government released its 2015 budget. We’ve made an implicit promise to this darling dozen. In the 2015 budget the provincial government borrowed $700 million. Those 12 kids will have to help pay for that $700 million debt as young adults, but in the year 2045, on their 30th birthdays, that debt will be completely repaid. If we keep our promise.
The Saskatchewan government unveiled a new budgeting plan this year. The operational budget, primarily made up of government employee salaries, has enough tax dollars allocated to it to pay for expenses and therefore it’s balanced. However, the government added a second budget, a capital budget, which it’s using to build infrastructure such as roads, bridges, schools and hospitals. Their spending plan on capital nearly doubled from last year, which unsurprisingly left them with a shortfall. So the government filled the gap in its capital budget by racking up a $700 million debt.
The Saskatchewan government points out that borrowing to build isn’t unusual. Businesses take out loans to increase production. Crown corporations borrow to expand services. Families sign mortgages to buy homes. But there are key differences between those types of borrowing and Saskatchewan’s $700 million dive into debt.
When businesses and Crowns borrow, there’s virtually always a plan to use that capital to increase revenues. Some of that revenue will be available to pay off the loan. Infrastructure is important, but it doesn’t directly generate revenue. There is only one way to pay the debt for government projects: taxes.
When families take out mortgages, the banks are rather rigid about repayment. If a homeowner misses payments, the bank forecloses on the house. With government projects, it’s different. Bond fund managers don’t repossess hospitals or highways. Fortunately (for them), they don’t have to. When governments run into repayment problems, the bond market increases borrowing rates and forces irresponsible governments to start making payments and/or pour more and more money into servicing the growing debt. The reality is that government debt isn’t secured by assets, it’s secured by the ability of taxpayers to pay (and pay more if necessary).
The Saskatchewan government does have a repayment plan for its new $700 million in debt. In the 2015 budget, it commits to save 2 per cent of the debt each year so that, with interest, the whole $700 million debt can be paid off when the loans come due in 30 years. Now, that depends on governments diligently making those 2 per cent payments annually and resisting the temptation to raid the piggy bank for 30 years.
Early on the Saskatchewan Party government paid down significant amounts of the province’s debt, but since 2012 the Saskatchewan government hasn’t reduced the billions it still owes.
Four years is a long time in politics, let alone 30. It will be up to voters in the next seven or eight elections to keep our promise to those 12 babies born on budget day and make sure this $700 million debt is paid by their 30th birthday.