Canada’s governments brace for looming debt crunch. Immigration is the answer.
Canadian governments are bracing for rising debt-servicing costs, attempting to lock in low interest rates before the inevitable rise forces unpopular decisions on spending and taxes.
After years of deficit spending, Ottawa and some provinces are just starting to climb back into annual surpluses. Now, the country must grapple with hundreds of billions in accumulated government debt.
This year’s budget season revealed governments are taking steps to lock in current low interest rates. The question is whether they are doing enough.
Since the recession hit in 2008, Ottawa has added more than $150-billion to the national debt. Provinces piled on a further $217-billion.
The federal government is currently weighing whether to issue another round of 50-year bonds. It started that practice last year, raising $3.5-billion with yields below 3 per cent. Meanwhile Canada’s two most indebted provinces – Quebec and Ontario – are stretching out the average length of maturity of their debt. The average maturity of Ontario’s debt is now 14 years, up from eight years prior to the recession.
Nova Scotia now has more than half of its debt maturing in 15 years or more.
In dollar terms, the size of all of that post-recession debt is staggering. Some fear that when interest rates return to normal, governments will face crippling debt-servicing costs. But the scope of the problem is a matter of significant debate in policy circles.
Experts do agree that whether or not government debt is a serious problem depends on where you live. Government books in Western Canada are relatively healthy. East of Manitoba however, debt is already forcing hard choices.
The debt picture
Political debate over government finances is typically focused on the annual bottom line, which shows whether there is a annual surplus or a deficit. Economists say the often overlooked – but far more important figure – is the size of government debt in relation to the size of the economy.
As a percentage of gross domestic product, the net debt of all provinces and territories has grown to 28.6 per cent in 2013-14 from 20.5 per cent in 2007-08.
The federal debt grew to a peak of 33.3 per cent in 2012-13 from 29.2 per cent in 2007-08. That’s nowhere near the 67.1 per cent debt levels reached by Ottawa in 1995-96, when The Wall Street Journal warned that Canada was at risk of hitting the “debt wall.”
The size of the federal debt has already started to decline, reaching 32.3 per cent in 2013-14. The 2015 budget forecast that the federal debt-to-GDP ratio will reach prerecession levels by 2017 and decline further to 25 per cent by 2021.
The debt picture among the provinces varies dramatically. Alberta and Saskatchewan are currently facing hard times owing to low oil prices, but they are the darlings of Confederation when it comes to low debt. Alberta had no debt at all as of last year.
The real debt troubles can be found in Central and Atlantic Canada. Quebec’s net debt is the largest, at 50 per cent of GDP, followed by Ontario, at 38.4 per cent, and Nova Scotia at 37.7 per cent, using figures for 2013-14.
While Quebec announced a balanced budget this year, Ontario’s deficit was up slightly to $10.9-billion last year. Ontario insists the deficit will be erased by 2017-18.
Provincial governments are responsible for programs such as education and health care that can affect people more directly than federal programs. Spending restraint is easier said than done. The 2015 budget season has coincided with student protests in Quebec, New Brunswick and Nova Scotia, while Ontario is dealing with labour unrest from teachers’ unions.
Many provinces have also been negatively affected by a recent change to the federal health-transfers formula. The move to per-capita funding won out over arguments that the average age of provincial populations should be factored into the equation. Some of the most indebted provinces also face the most challenging demographics, with a shrinking ratio of younger workers to cover the costs of growing numbers of older citizens.
The Parliamentary Budget Officer has said that while federal finances are sustainable over the long term, the provinces are facing structural shortfalls that will demand spending cuts, higher taxes or both.
University of New Brunswick economics professor David Murrell said the return to surpluses in Ottawa will likely rekindle pressure from the provinces for more generous transfers.
Shrinking deficits, growing debt
Provincial finance ministers are quick to pat themselves on the back over shrinking deficits and balanced budgets, but economists urge Canadians to view these claims with a bit of skepticism. Accounting methods vary across the country, making comparisons difficult.
Unlike the federal government, provinces generally present two sets of books: an operational budget and a capital budget. Boasts of balanced budgets are in reference to operational spending. A province’s overall debt could still be rising on the capital side even though the government is in an operational surplus.
Supporters of this accounting method – including Calgary Mayor Naheed Nenshi – argue that it separates good debt from bad debt: Using debt to build public assets such as roads and bridges is better than slipping into the red to pay for public service salaries and other operational costs.
Critics such as tax-policy expert Jack Mintz have warned this approach allows provinces to play “hide the deficit.” Charles Lammam, director of fiscal studies with the Fraser Institute, a conservative think tank that regularly warns about the dangers of mounting government debt, agrees that claims of improving budget balances can be misleading.
“This is a real problem in places like British Columbia and Ontario,” he said. “It doesn’t seem like the growth in government debt will let up.”
Mr. Lammam’s research found that Canadian governments – including municipalities – spend more than $60-billion a year servicing debt, which is about the same as the entire cost of providing primary and secondary education across the country. Ontario’s recent budget said a one-point increase in interest rates would cost the government $400-million.
“There’s a real risk that provinces like Ontario, provinces like Quebec, can be subject to this very negative situation where they’re paying even more to service their outstanding debt,” he said.
The new debt debate
Rising urbanization is leading to increasing pressure on governments to spend big on infrastructure, especially during a federal election year. While borrowing to build transit and highways is generally considered good debt, it’s still debt.
The 2015 budget could have major implications for the debt debate. Ottawa announced a new public transit fund that will eventually be worth $1-billion a year, but it would be structured around helping municipalities fund debt-financed projects over a 20-to-30-year period.
But that raises questions as to which level of government is best positioned to take on the billions in debt required to address the country’s infrastructure deficit.
Ottawa Mayor Jim Watson noted that municipalities pay higher interest rates than the federal government.
“Ideally, it would be the federal government’s responsibility to provide the funding as opposed to the city going to the markets,” he said.
Former Bank of Canada governor David Dodge is among those who say the country’s more pressing deficit is on infrastructure and that it would be better to spend more now as long as current debt loads can remain stable as a share of the economy.
“I don’t think there’s a government debt problem in this country at all,” he said, suggesting Ottawa is better placed than provinces or municipalities to secure long-term financing at cheaper rates. “We maybe have built the debt in the wrong place.… This is a long-standing problem in this country. We delegate the borrowing for government capital to the least credit-worthy government, and we can solve that.”
By James Kwak, Baseline Scenario
Why do some people oppose immigration reform? One conservative objection is that we should follow rules and punish lawbreakers (not to mention all the other arguments that have to do with protecting a white, Protestant, English-speaking nation). That fits nicely with the Strict Father worldview identified by George Lakoff. Another common conservative objection is that we can’t afford more immigration because it would increase deficits and the national debt; that also fits with the tough-minded, austerity-loving ethos of modern conservatism. The little problem is that more immigrants, and more legal immigrants, are unambiguously good for the economy and for the federal budget deficit.
This is the conclusion of two reports put out by the Congressional Budget Office this week: one a cost estimate of the bill currently in the Senate, the other an expanded estimate incorporating additional economic impacts of the bill. The bottom line is that the bill would make the economy 5.4 percent bigger in 2033 than it would be otherwise; per capita GNP would be 0.2 percent higher and wages would be 0.5 percent higher in 2033. Finally, immigration reform would reduce aggregate deficits by about $200 billion* over the first decade and about $1 trillion in the second decade.
A lot of this is simply obvious. More immigrants mean more workers mean more economic output. Legalizing undocumented immigrants means higher tax revenues from existing output. Some is slightly less obvious. Relaxing caps on immigration means more skilled workers, leading to technological innovation and higher productivity (hence higher average wages).
But what about the costs? Conservative Republicans have been painting the picture of people who come to the United States simply to live off of government programs without contributing tax revenues to fund those programs. In fact,the CBO went ahead and did a cost estimate for the second decade specifically because Republicans were arguing that the true costs wouldn’t show up until then, once immigrants qualified for benefits.
But that’s not how our current social insurance programs work. The two major programs, Social Security and Medicare, require ten years of qualifying work, with accompanying payroll tax contributions.** So for the most part, you can’t qualify for benefits without paying into the system for some period of time.
More importantly, most people immigrating to the United States are working age (or their children: they come here looking for jobs. (And if they are already retired, they won’t qualify for Social Security or Medicare.) From the standpoint of our social insurance programs, this is what we want. For example, I am paying into Social Security, but my father is benefiting from it; that’s how it works in a pay-as-you-go system. But new immigrants represent a one-time bonus: they pay in for decades before anyone in their family benefits. For the more than forty years that my immigrant father worked, he paid payroll taxes, while his parents were not collecting benefits.
Once the immigrants retire and start collecting benefits, their families become nor better and nor worse, from a fiscal standpoint, than all the families that were here already. But social insurance programs never have to pay back the net benefit they gain from that first immigrant generation. It’s free money.
More immigration is not just what our society and our economy need. It’s what the federal government’s balance sheet needs. If people want to oppose immigration reform because they don’t want to sanction past rule-breaking, that’s up to them. But they can’t oppose it on fiscal grounds.
* This amount could be reduced by $22 billion in discretionary spending required by the bill. However, under current law that discretionary spending would have to be offset someplace else because of the spending caps set by the Budget Control Act of 2011 (the debt ceiling compromise).
** The number is less for disability insurance,but in any case is not zero.
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.
National Debt Will Hit $20 Trillion After Next President Is Sworn In.
The next president will face a nation debt of $20 trillion, nearly double what it was when President Barack Obama took office.
The national debt likely will reach the staggering $20 trillion figure in 2017, according to the Bipartisan Policy Center, a Washington think tank.
On March 16, the new president and Congress will have to reach an agreement on the debt limit—which will likely be $20.1 trillion, according to the center’s projection. That will last until mid-summer, before another negotiation will ensue on borrowing more to pay the government’s bills.
“There are a number of uncertainties between now and then and we don’t know exactly what the revenues and outlays will be, but we project the total gross debt will hit $20 trillion sometime in February,” Shai Akabas, director of fiscal policy for the Bipartisan Policy Center, told The Daily Signal in a phone interview.
“February is typically a bad month for the national debt because a lot of tax refunds go out then.”
The national debt currently stands at $19.8 trillion. When Obama came into office in January 2009, the national debt was $10.6 trillion. The spending agreement Obama reached with Congress in late 2015 allowed the Treasury Department to borrow another $1.5 trillion before he leaves office in January 2017.
To put the $20 trillion figure in perspective, MarketWatch reported in September the combined valued of all 500 major corporations in the S&P 500 were valued at $19.1 trillion as of the summer of 2016. These companies include Apple Inc., Exxon Mobil Corp., Facebook, and other giants.
Further, the U.S. national debt is more than all of the world’s physical currency, gold, silver, and bitcoin, according to MarketWatch. The combined value of every dollar, euro, yen, pound, and other physical currency is $5 trillion. The world’s physical gold is worth $7.7 trillion and the world’s physical silver is valued at $20 billion.
The Congressional Budget Office projects that gross debt in 2017 will reach $20.16 trillion, but did not have a month-by-month breakdown as of deadline. The budget office’s 10-year debt projection estimates the national debt will reach $28.19 trillion in 2026. The amount of debt held by the public will be 77.2 percent of the gross domestic product in 2017.
By 2026 the publicly held debt will be 85.5 percent of the economy, according to the budget office.
Treasury Department spokesman Rob Runyan told The Daily Signal that the department does not have a projection to share.
For the next president and Congress, the challenge will be to slow the rate of debt’s growth. This is because a cut in the national debt won’t come unless there is a budget surplus, which no one projects, Akabas said.
Akabas thinks a deal for bipartisan entitlement and tax reform is possible over the next two or four years, while both parties will have areas where they want to spend more.
“Health care is the biggest driver of government spending with Medicare and Medicaid,” Akabas said. “But, Republicans are concerned about defense and Democrats are worried about domestic [spending]. There will be some dialogue about giving back in those areas.”
While divided government can lead to gridlock, Akabas also has some optimism.
Congress and the new president could reach a bipartisan plan to tackle the debt in a way that wouldn’t cause one party to be blamed. Further, he said he anticipates such a debt plan—that would require some unpopular actions—could be offset with popular items such as more infrastructure spending.
There are actions that Congress and the next president can take to rein in the debt, but the problem might be what realistically will be done, said Romina Boccia, deputy director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
“A lot can be done in the next administration’s budget proposal and with Congress’s follow up,” Boccia told The Daily Signal. “Neither candidate for president has a strong plan for addressing the debt.”
She said there is still potential to control the debt.
“The House Budget Committee has presented a plan that can make a real difference,” Boccia said. “Any plan will have to include entitlement reforms, health care spending reforms, and Social Security reform.”
By Dave Leach
I asked economist Alex Nowrasteh a followup question: “And do you see that the only hope of repairing our ratio of 1.7 taxpayers to 1.0 entitlement recipients, which keeps our debt beyond our control, is a massive infusion of new taxpayers through immigration?”
The National Debt Solution, Part 2: Step 5, Importing Taxpayers.
There is a solution. But does anybody really want a solution? A solution requires changing course from what led to the problem. America’s only solution requires turning away from several self destructive but very familiar, comfortable traditions.
And not just The Other Guy’s self destructive but familiar, comfortable traditions.
In the home where rent and debt interest exceeds income, maybe the two children would be old enough to help with the rent, had mom and dad not aborted them. Now, one solution remains: bring in a couple of roommates to share the rent.
But that requires getting along with strangers. Mom and dad couldn’t even get along with their own children. How are they going to get along with strangers?
40 million more full time taxpayers is how many more we would need right now to wipe out that deficit, provided we also eliminate four controversial federal departments. (Otherwise we will need 50 million. See graph in Part 1.)
40 million more full time taxpayers (and 10 million part time teens) is suspiciously close to how many more we would have right now of the 60 million we have slain by abortion, who would now be old enough to work. (There are so many variables that a precise calculation is humanly impossible, but it would be far more than that if we count those slain by contraception.)
40 million more taxpayers is probably the limit of how many we could process in the next year or two if we repealed Numerical Limitations and offered unlimited work visas, with a path from there to Legal Permanent Status and from there to citizenship.
The 40th anniversary of the decision that robbed the U.S. Treasury of the 40 million young taxpayers we need today to balance our budget – Roe v. Wade – falls in the very middle of our six week deadline period: January 23rd.
Are “God’s fingerprints” on the fact that (1) 40 is the exact number of millions of new full time workers we need to cover our deficit, (2) 40 is the number of millions more of full time workers we would have (so far as anyone can calculate) had we not murdered them in defiance of Leviticus 20:1-5 and Proverbs 24:10-12, (3) 40 is about the number of millions of tax-paying immigrants we might be able to process if we didn’t exclude them in defiance of Matthew 25:39-45 and Luke 6:38, (4) the very middle of our six week deadline period, January 23, is the 40th anniversary of Roe v. Wade, and (5) 40, in the Bible, is powerfully associated with history-making periods of judgment and destruction, peace, dedication, decision, and God’s provision?
Apparently, unless we count part time workers, which brings the number needed to 50 million, as the chart in part one indicates. Other charts I’ve seen don’t count them, presumably on the theory that if they aren’t earning enough to have to pay income tax, they are not a significant net contribution to our federal balance sheet. Especially since they probably qualify for food stamps, etc. But they do pay 15.3% Social Security and Medicare taxes.
Would massive new immigration save us or destroy us? Of course, this need for 40 million income tax paying immigrants assumes they would do as much for our economy as our own children would have had we not murdered them. This is the subject of vigorous debate. (That is, over whether more legal immigration will benefit or destroy America. The murdered babies are almost never connected with this debate.)
Talk show hosts and Congressmen who want less legal immigration rely on researchers like Steven Camarota for their statistics. Camarota is Director of Research for the Center for Immigration Studies.
Camarota’s Masters and Doctorate were in Political Science and Public Policy Analysis.
Camarota recently published “Who got jobs during the Obama Administration?” He concluded that two thirds of job growth over the past four years has been grabbed up by immigrants.
One might suppose his point to be that immigrants take jobs from citizens. After all, if there is no evidence that citizens lose jobs to immigrants, what’s it to any citizen how many jobs immigrants take? But Camarota frankly said that has not yet been proved. But the possibility should be discussed, he wrote, both in his article, and in emails to me.
Camarota’s article was discussed, in print, by economists with strong evidence that numerically unrestricted immigration (that is, immigration restricted only by requirements such as background checks) would create an economic boom.
(See Alex Nowrasteh’s “Immigrants did not take your job.” . See also Patrick Oakford’s “Nativist Group Releases Hopelessly Flawed Report on Immigrants and Job Creation”.)
America needs to pay attention to this debate, if indeed it holds the key to the only solution that can save America from disaster.
Which is certainly how it looks, when the leading researcher in support of the theory that immigration takes jobs from citizens, who is not an economist, says that is not proved but is only a possibility, while several economists say all the evidence points to an economic boom as the result of massive immigration. (I am working on getting my thorough analysis of this debate published.)
As compelling as this evidence is, it isn’t resolving the debate, because people who dislike immigrants listen to the politicians and talk show hosts, while people who love immigrants listen to the economists. Neither side listens much to each other, or learns from each other, or tests their prejudices by the scrutiny of each other. The two sides do not even face each other in the same arena.
This will change when average Americans become interested in the truth. That is, unless they wait until America has already completely collapsed, after which immigrants won’t want to come here anyway.
The headline of this Part 2 says that the only national debt solution is also the only immigration solution. For details of how a smart immigration policy would work, beyond just the repeal of Numerical Limitations, see a win-win immigration solution..
As we weigh whether we should believe the politicians or the economists, about the impact of more legal immigration on our economy, we might want to consider what God says. God didn’t just earn a Ph.D. in economics at a human university. God invented economics.
God says Luke 6:38 is actually good economic advice: the key to being economically blessed is to be an economic blessing. This is such a basic principle of the Bible, that people who doubt it might want to reconsider calling themselves “Christians”.
Applied today, this means that if we don’t like how many citizens can’t get jobs, we need to stop obstructing “strangers” (God’s word for “immigrants”) from finding work. Dare we look at the number of Americans who are looking for work, and compare that with the number of immigrants whom we have kept from working legally? Because this passage predicts that the number will be the same, because God’s judgments, as well as His blessings, are proportionate.
10,734,000 citizens were looking for work in 2012. How many “strangers” were denied work? Shall we count only those living here? Shall we count those denied the right to work by our laws even if they in fact found work? Shall we count those living abroad, waiting for years in our senseless “lines” for the chance to work here?
So let me assume, for argument’s sake, that we agree the only solution for America’s debt problem is massive new legal immigration. What then? Is that all we have to change?
That one change will save America for now, but changing that will require changing a few other things that are a lot more difficult – even harder than educating a Democrat.