Sunday, October 5, 2008

It's still about the debt we have to pay off

A commenter on my last post came up with one of the common lines used by the neo-conservative movement: Government surpluses are excessive revenues and should be returned to the people.

That's fine if you don't have any debt that needs to be paid off. But what if you do have debt? Do you just leave it stranded and just make the interest payments? Or do you actually attack the principal? Common sense is you do the latter. After all, you don't want future generations to carry the debt needlessly.

Fault the Liberals many will, but during their time in office they not only went after the debt, but also sought to reduce the debt relative to the size of the national economy as well as interest payments. This may mean taxes at a level somewhat more than break-even but it's better to go after those unpaid bills to lower the interest charges and therefore create conditions where lower taxes become affordable.

In my opinion, the GST should not have been lowered from 7% until the debt-to-GDP ratio was down to 25%, a level at which it could be financed exclusively from Canadian sources and not reliant on the foreign bond market. Perhaps Steve Harper doesn't realize it, but credit rating agencies pay attention when a country has been paying down debt then suddenly stops.

Besides, the first wave of the baby boom will start collecting Old Age Security in just three years time; and it is by far our largest social program financed exclusively by federal sources. Guess what was paying for it? The GST! For many seniors, the OAS and the supplement (if they qualify) is their only source of income. Yet who gets the tax breaks from Steve? Seniors who get a private pension and don't qualify for the supplement. The rich get richer and the poor get poorer.

Guess what program will get clawed back first when tough times really hit? The OAS, probably. Current recipients will continue to get their benefits but new people may be left out all together, and the burden shifted to the provinces and territories which already have welfare rolls bursting at the seams.

Is that a way to run a country?

I'd rather have those surpluses to ensure that when we have a rainy day we can plug the leaks and still take care of our own. And when the rainy day ends, that we continue to pay down debt so we can still have social programs for the short and long terms. It may mean tax cuts are slower in coming in the long term, but it's still the more prudent approach.

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1 comment:

wilson said...

''And when the rainy day ends, that we continue to pay down debt ''

Is continued debt paydown in the Liberal platform?
I know the $3B contingency fund is, but I didn't hear anything from Dippers or Libs about paying down the debt with surpluses.