Some debt is essential
Whenever I see news articles by or about the Canadian Taxpayers Federation, I am reminded of the old Monty Python sketch, wherein a customer walks into an office, wishing to purchase an argument.
The scene degenerates into comic absurdity as the hapless customer vainly attempts to satisfy his desire for a rational debate.
Here, too, with the CTF.
Their travelling road show on Alberta’s debt, which stopped in Red Deer on Saturday, contains a litany of misdirection, false arguments and missed connections — all mixed with well-researched facts taken out of context.
Plus my favourite bugbear: missing the obvious entirely.
It is often quoted during religious arguments: “A text, taken out of context, is a pretext.” Let’s put some context on the CTF argument concerning Alberta’s debt.
We can accept that Alberta’s debt stands at $10.1 billion now, rising by about $100 per second and reaching $21 billion by the end of the 2016-17 fiscal year. (That’s assuming CTF — or anyone — can predict the price of energy, interest rates and the value of the Canadian dollar that far into the future. Which they can’t.)
By then, according to the CTF, we will be paying $1.4 billion a year in service payments.
By my calculations, that’s working out to 6.7 per cent interest, which I find pretty hard to swallow. Alberta’s bond rate is 3.3 per cent.
Whatever. On to the context.
Derek Fildebrandt, Alberta director of the CTF, is quite correct in saying the $1.4 billion a year we should be paying in three years is money that can’t be spent on roads, bridges, schools and hospitals.
The trouble is, were it not for the debt, there would be precious little spent at all on roads, bridges, schools and hospitals.
Alberta’s debt is not operating debt — services, teachers, doctors — it is capital debt. We need those capital expenditures now, for precisely the reason that Fildebrandt says we should not have them at all.
Alberta’s growth has been bringing us record revenues, but it has also placed huge demands on capital infrastructure: we are short on schools and hospitals.
If we don’t want to see schools with 40 kids crammed into classrooms designed for 28, we have to build. Now.
If we don’t like seeing emergency waiting rooms clogged with the sick and suffering, while treatment beds are held by seniors waiting for long-term care, we have to build. Now.
Given Alberta’s favourable credit rating and our low-interest environment generally, it makes perfect sense to borrow now.
The cost of the CTF zero-debt budget policy — adopted (probably to be abandoned the minute they take power) by far too many Wildrose MLAs — would crush and kill Alberta’s growth. We’ve seen this exact result in a host of U.S. cities and states: a gutting of infrastructure and services that drives out business and people, leading to a downward spiral of rising capital costs but a shrinking tax base.
What’s the economic cost of not having enough school spaces? CTF does not calculate that but over time it is likely well above $1.4 billion a year. What’s the cost to a whole province of not having timely health treatment? The $1.4 billion would barely be a down payment on that.
Roads and bridges? Without taking on debt, forget them.
And that would be the end of Alberta’s economic growth.
When interest rates are low, and investment opportunities are high (as has been the case for a few years now), a no-debt government policy is not just foolish, it’s destructive. It’s contrary to the well-being of this province.
Capital spending is on assets. Assets pay for themselves over time. We may be borrowing tax payments from the next generation, as the CTF alleges, but if we ask that generation in 15 or 20 years, they’ll likely say they’re glad we did it.
What do you think they would say if we refused to invest now and the capital costs doubled, plus what might be the interest rates on debt that would be desperately needed then? They would condemn us as penny wise and pound foolish.
This leads to the final point, the bugbear.
I only wish the CTF would rally for savings the way they rally against debt. I wish they had been doing this for the last 20 years, so that our savings might be double and triple what they are now.
We have record revenues, our program budget is balanced, our capital investments are within our control. Why are we not significantly saving?
That, far more than debt, is the question the future will ask of us. That is the argument I wish I could purchase.
Greg Neiman is a retired Advocate editor. Follow his blog at readersadvocate.blogspot.ca or email firstname.lastname@example.org.