Chapter 4 Economics Blog

Link:http://www.theglobeandmail.com/servlet/story/RTGAM.20090121.wPOLbudget0121/BNStory/politics/home
Summary
With almost a week before the Conservative government announces their federal budget, a Canadian parliamentary watchdog, Kevin Page, released projections that the federal government is at risk in wiping out almost all the debt the country has paid off since 1998. According to Page, Canada has paid down $105 billion in debt over the 11 year period and the ruling Conservative government could eliminate that debt reduction within the next five years in their next federal budget. The parliamentary budget officer also warns that his findings did not include the stimulus package that the government promised in the next budget, which can be a $20-30 billion stimulus plan. Page’s report projects the government will run a budget deficit of $14 million next fiscal year and if you include the huge stimulus package it could amount to around $40 billion just next year alone, wiping nearly all the debt reduction Canada has paid off since 1998.

Government Borrowing
Chapter 4 mainly discusses the different sources of government revenue. Currently in Canada, borrowing is considered to be one of the major sources of revenue for the government as an alternative to taxation. In the next fiscal budget, the Canadian government seems it will be running a huge deficit, meaning it will have to borrow money from either its citizens or other countries to pay for its expenditures. The government could ask the bank corporations and its citizens to buy government bonds as a form of borrowing. With Page’s findings projecting that the government could run deficits in the next five years, Canadians should also expect Canada’s net debt to increase. With the Canadian government facing enormous pressure from several of ailing industries, thousands of jobless people, and even the opposing political parties to spend money to stimulate the economy, Canadians need to realize is it really worth it in the long term. If we continue to keep borrowing money from foreign countries, especially at a time where our currency is falling, our debt will never be paid off, furthermore, there is no guarrantee if the stimulus package can really make a difference to our economy as our reliance on foreign trade is huge. For example if no one in the world is buying our wood to build houses, our logging industry would suffer regardless of the stimulus plan. Canadians ultimately need to think is it worth going billions of dollars into debt, wiping out nearly all of the debt reduction in the past decade.

Personal Reflection
I would oppose the next federal budget if the government decides to go into a $40 billion deficit in the next federal budget. Despite that many Canadian industries are suffering because of the economic downturn, the government should not wipe out nearly the entire debt reduction Canada has achieved in the past decade. If the government borrows the money to pay for the stimulus package, Canadians overall will be suffering in the long term. Debt charges such as interest payments already make up over 15 percent of the federal expenditures and are ranked the second largest component of government spending. If Canada borrows the money now, interest charges will need to be paid later on in the years to come, that means there will be less money being spent on the actual social services for Canadians; the expenditure of interest and debt charges will never go down. This is why during the economic downturn I feel we should minimize the stimulus plan and just focuses on a couple of suffering industries. I believe we should focus on the trade industry to improve our infrastructures and get more people working. We should also focus on the auto industry as one in seven jobs are somewhat related to the auto sector. Since our country in the past 11 years have been making progress in paying down the debts, I feel the efforts should not be wasted and we should still try to continue that trend and not eliminate nearly all the debt reduction we have achieved despite the unprecedented economic hardships.