EN FR

Cutting to the Chase on Debt and Deficit

Author: Colin Craig 2012/10/16

If the words “government deficit” and “debt” are confusing, here is what they mean in plain English and why Manitoba taxpayers should be concerned.

First, “deficit” refers to a situation where a government spends more than it raised in revenues in a single year.

For example, from April 1, 2011 to March 31, 2012 (the province’s fiscal year), Manitoba’s government took in$13.855 billion in revenue and spent $14.854 billion; thus, it had a $999 million deficit. In other words, the government spent 7.2 per cent more than it brought in revenues. Thus, it had to go out and borrow extra money to pay for its high spending.

That would be like you and your spouse earning a total of $100,000 this year, but spending $107,200. Just imagine racking up $7,200 on your credit card this year alone.

Obviously most responsible people can see how such financing isn’t sustainable or responsible.

Part of the problem here in Manitoba is the NDP struggles with managing budgets. Over the past 12 years, they have spent more than budgeted 11 times. The government has blamed the latest deficit on the flood, but in reality spending was higher than expected in a number of other areas too.

Now let’s look at the debt. There are multiple ways of looking at debt, but each refers to an accumulation of borrowed money and obligations over a long period of time, not just a single year.

For starters the total amount of borrowed money and funds the provincial government has promised to pay has increased from $18 billion in 2007-08 to an estimated $28 billion by the end of March 2013. That’s a 52.8 per cent increase over six budgets. Great news…if you’re a banker looking to loan money.

Another common way of looking at the province’s debt is to focus on “net debt.” The main difference with the previous figure is that net debt subtracts Manitoba Hydro’s debt and any pockets of savings the government has stored up. Thus, this figure is free from anyone who tries to excuse Manitoba’s rising debt due to the construction of new hydro dams.

Unfortunately, net debt has increased from $10.6 billion in 2007-08 to $16.3 billion in 2012-13; a 53.8 per cent increase.

What does all this mean? Well, few would suggest the provincial government is going to go bankrupt tomorrow, but things have to change.

Take a look at the U.S. and you’ll see some states and cities have had to cut education, health care and arereverting some asphalt roads back to gravel roads as they’re cheaper to maintain.

In political terms, those cuts are being made to ‘sacred cow’ programs. Politicians aren’t making those decisions because they want to, they’re making those changes because they have to. Spending erratically simply can’t go on forever, at some point banks stop loaning governments money if they can’t pay their bills.

Here in Manitoba the government needs to control spending by cutting back on

luxury spending – things like new football stadiums and convention centre expansions. The government needs to control salaries and benefits, and cut wasteful and ineffective government programs all together.

If it doesn’t, we don’t have to look hard to find examples of what will happen if the government doesn’t change course financially.

 


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