Re: Some debt is essential, by Greg Neiman, July 23, in the Advocate:
You’ve got to hand it to Greg Neiman, who managed to argue (presumably) with a straight face that Alberta’s plunge back into debt was not only necessary, but also “essential.”
His commentary made some incredible leaps of economic and fiscal faith that require a thorough debunking.
Neiman’s first factual foul-up was in casting doubt on numbers showing that Alberta’s debt will reach $21 billion by 2016-17 because the CTF can’t predict these things. Those are not the Canadian Taxpayers Federation’s (CTF) numbers. They are in fact the governments’ own numbers.
He also states that the CTF’s numbers that show that Albertans will soon be paying $1.4 billion a year in annual interest payments are “hard to swallow,” because his back of the napkin math doesn’t match. They are again the government’s numbers from their own budget documents.
One of the most extraordinary claims by Neiman’s was that “were it not for the debt, there would be precious little spent at all on roads, bridges, schools and hospitals,” and that “Fildebrandt says we should not have them at all.”
The facts just doesn’t support this claim.
Neiman forgets that the Alberta government has a $47-billion budget and while the government has changed their budget reporting to show that the borrowing is only for capital projects, they could have just as easily shown that it was to pay for the education system.
Although had they done that, surely even Neiman wouldn’t have as easily swallowed that claim.
Yet, taking Neiman and the government’s argument that more debt equals more capital at face value, let’s check that claim with data from Statistics Canada.
If we rank all of the provinces based on the proportion of their budgets devoted to debt interest payments and rank them again based the proportion of their budgets devoted to capital spending, you might be surprised by the results.
Provinces that spend between 1.2 per cent and 5.5 per cent of their budgets on interest payments, devote on average 10.9 per cent of their budgets to capital projects. This group includes Alberta, British Columbia and Saskatchewan.
Provinces that spend between 5.7 per cent and eight per cent on debt interest costs, spend on average 10.8 per cent of their budgets on capital spending. This group includes Manitoba, New Brunswick and P.E.I.
Provinces that spend between 8.4 per cent and 11.1 per cent on interest, spend an average of 10.9 per cent of their budgets on capital. This group includes Ontario, Quebec, Nova Scotia and Newfoundland and Labrador.
In summary, lower debt provinces: 10.9 per cent. Middle of the pack provinces: 10.8 per cent. Higher debt provinces: 10.9 per cent.
There is variation within each grouping, but the overall trend is clear: more debt does not equal more capital spending.
A short-term infusion of debt financing may give a slight bump to capital spending in the short term, but it makes little difference long term, as growing interest payments will require governments to scale back their plans.
This may be a viable option if Alberta was experiencing a Klondike-style gold rush that was only expected to continue for the next few years. But it’s not. Alberta will continue to grow for the foreseeable future and must continue to build infrastructure the whole time.
The Alberta government’s plan however is not to borrow for just a few years and then let off the gas. It’s a permanent funding mechanism built into its fiscal framework.
As for the CTF apparently wanting nothing spent on capital, Neiman clearly didn’t read our 68-page budget submission, nor talk to anyone associated with the CTF.
The CTF’s proposal is to control spending, primarily on the non-capital side of budget.
That means eliminating corporate welfare subsidies, no more untendered contracts for politically connected businesses, and reducing government employee costs.
And lastly for Neiman’s wish the CTF had been calling for increased savings over the years, a Google search would have cleared that up for him.
The CTF has been pushing for a long-term savings plan in Alberta for close to 14 years.
Had the government adopted our plan even five years ago, the Alberta Debt Clock would still be in retirement.
Canadian Taxpayers Federation