Tag Archives: federal spending

Ready to Start Paying Back $300 Billion Or So?

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Our Federal deficit will be between $280 and $300 billion this year! The deficit is just what we’re short in spending versus income. No, it’s not like a credit card. That’s a cute political shot that’s just not close to being true but sounds nice and simple. But think of it as you spending more than your income. If it was $500 a month that’s a problem – but that can be solved. Then, overnight, it turns to being short $15,000 a month! When it’s 30x you’re no longer going to find some savings or being able to count on a cost of living raise. You’re starting to wonder if your 14-year old can hold a full-time job or whether you could live in your car…

And this isn’t an abstract problem that’s happening to a neighbour or friend. This is happening to you and me – we’re not just cosigners of this shortfall (and the debt that’ll hit a trillion dollars by the end of the years.) There’s only one group that owes it: You and me.

As a result, the government (this one or the next one) will need some huge extra income. Cutting a bit here and there will help but won’t get one-one hundredth of the money.

It’s a pretty safe bet that the GST will go up. That’s a big pot of money, but won’t make much of a dent. Tax increases? Maybe – but forget the political like that “we can just tax the rich.” It’s bullcrap. There are only 270,000 Canadians earning over a quarter million a year and their marginal tax rate is already over 50%.

Could it be that they’ll start taxing the sale of your home? Your principal residence sale profits aren’t taxed. But it’s a good bet the government will look at it and maybe float that as a “trial idea” within the next few years. Whether it may come to pass or not, start keeping all your receipts for home improvements. If you made $300,000 selling your home it’ll be a big help to have $60,000 in receipts to deduct from that profit before it’s taxed. If it doesn’t come to pass, you can throw the envelope out – but you can’t recreate the receipts a few years from now.

If you have any other ideas of where the government can find a huge untapped pot of funds, I’m sure the finance minister would love to hear from you. Every level of government has their hands so deeply in our pockets already, there just aren’t many places left…

I doubt there are many people who question the wisdom or necessity of the Federal Government help because of the Corona virus. However, a rainy day fund of savings when the economy was humming along would have been great. But just breaking even hasn’t been a priority for years. The next five years will be a huge rude awakening for taxpayers that didn’t care much over the past decade…

The Government Financial Resolutions You Didn’t Get

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Prime Minister Trudeau just gave his New Year’s message that us Canadians should focus on “key values” for the New Year. OK, that’s nice and vanilla, but there was nothing on maybe some government resolutions on financial issues. Since it was missing, here’s what I’d want the PM, and probably all governments, to commit to:

If you’re one of the many people who are waiting for the government to fix your life – sorry – we can’t and we won’t. You need to get off the sofa and start fixing your own economy – the government makes a lot of feel-good promises, but we can’t fix it for you.

We’re going to commit to using the rule of doctors: First, do no harm. That means we’re going to fix the punishing new mortgage rules that will make it really hard for the average Canadian to sell their home or to buy one – even with 20% or more down-payments.

From now on, the government will become better stewards of your tax money. You send us a lot of it. Not just off your pay, but in GST, gas taxes, EI, CPP, and places you don’t even know about. We’re going to start treating it as if it were our personal money. No more throwing cheques at small but vocal special interest groups that yell a lot, or who we want to bribe to get their votes again.

We’re also not going to just hand out money as if it were candy anymore. Sorry about giving $10.5 million to a terrorist – tax free. If we need to settle claims, we’ll do it after a court orders us to.

Lastly, we’re going to stop lying or fudging the numbers. Sure we promised we’d “only” be overspending $10 billion and it became $40 billion.

Yes, I promised we’d have a balanced budget before the next election in 2019. Yes, two days before Christmas when nobody noticed, my finance department released a report showing we would be in deficit spending until at least 2055. Yes, the damage we’ve done will last an extra 36 years just to not overspend each year. We’ve seen the light, and our New Year’s resolution is to tell you the truth, and to actually start making the hard choices – just like each and every family has to make, and to live within a budget.

When pigs fly…..

It’s Never Good When Politicians Handle Our Money

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I have a theory that politics generally trumps doing the right thing. It shouldn’t, but it does. It’s not about excellence in education, the national debt, meaningful steps to solve financial problems, or solving health care problems without another study or throwing more money at the issue.

Last week’s federal budget trumpeted a radical decrease in the size of the government and the money it spends. But when is a $27 billion spending increase over the next four years actually called a spending decrease?

Although I have to give the government credit in slowly inching up the retirement age. We live seven times longer in retirement now and nothing has changed on paying for that. If your mortgage or rent went up seven-fold wouldn’t you take steps NOW to deal with that BEFORE you go broke?

In Greece and other countries in Europe people are rioting week after week. Sorry, but the hard choices to get their government spending under control are not optional. They’re not popular – but there isn’t a choice. Just like you and me, at some point when we’re broke we can’t borrow any more money. That’s the case for a lot of European countries – they’ve hit the wall.

Until they hit the wall, most governments just want to stay popular and worry about the next election. In the US, all the hard decisions have been put off to this year end – after the election, and all of them were made for a year or so, in order to avoid having to deal with reality during this election year: The alternative minimum tax, the next debt ceiling increase., one year payroll tax cuts, 100% capital purchases depreciation, and all those massive Bush tax cuts that were only extended for one year.

The insanity is even worse in California. The state has been discussing a high-speed rail system forever. This past week the California legislature concluded that the state should not issue a $2.7 billion bond borrowing to go ahead with it. Why? In part, because the cost would be insane. In 2008 voters approved a high speed rail line from San Diego to Sacramento, based on a cost of $33 billion. Today, that price has tripled to $98 billion. Case closed, right? Well, Governor Jerry Brown wants to go ahead with it anyway and commit to the $2.7 billion in debt or they’d lose out on $3.3 billion of federal funding. OK let me understand this: We should spend $2.7 billion so we can get $3.3 billion so we can then spend $98 billion in a state that’s on the verge of bankruptcy and has some of the highest taxes?

That kind of insanity, for every province or country is going to end badly. Not this week, or even in the next few years. But there will be a point of reckoning, a point where the country hits the wall, and changes won’t be optional. There will be violence and massive structural changes imposed by necessity. Those violent protests in Greece and other parts of Europe will happen in North America – later rather than sooner, because politicians keep putting off doing the right and necessary things.

It’s only about politics and confrontation. Creating a fight is great political ammo to score points, but it has nothing to do with problem solving. And the media only covers the conflict because it’s easy. Digging into the hard stories, structural problems, or holding politicians accountable takes a lot of work, research, knowledge and depth, and almost none of them will commit to that. And we voters really would rather hear what we want to hear than the truth and the hard facts and painful choices.

This Is Not About Politics – Sort Of…

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Unfortunately, a fair bit of media coverage on the economy, as well as opinions or commentary, revolves around politics. Now, don’t read my politics into these comments, because it’s not there. But here are a couple of observations from the last month:

Before the last Federal Budget, two opposition parties announced they would be voting against it. Fair enough. But they did so a week BEFORE the budget! How is that any different from going to see your boss and he or she tells you: The answer is no, now what’s the question? How long would you enjoy that type of relationship?

If you’re not part of the solution, you’re part of the problem: Many politicians had a lot of criticism about the Federal Budget, but no alternatives or better solutions. That’s just sad. If your boss sits in on a client meeting and afterwards tells you the dozens of things you did wrong, how helpful is that? Where was he or she when you needed help? Where is the value in telling you after the meeting that it had no chance of success? Where was their feedback or suggestions when you needed them? Are there some politicians just wanting the government to fail, or the recession to get worse for political value? How sad, if that were true…

We should do more – way more in bailouts and stimulus money. OK, maybe that’s true. But would you spend $30,000 fixing your roof when you can get it done for $5,000? If it were “free” money, we would all love to get some of it. But can we please remember that the only spending the government does is with our money? There isn’t free money around, sorry. When we remember that, we appreciate it a lot more when politicians are careful with it. Plus, there is not enough money in the world, or enough printing presses, to print more to make up for an entire economic slowdown. It might seem like it, listening to some people, but it just isn’t true.

When Prime Minister Harper (who is actually an economist!) talked about value in the market, he was hammered by large parts of the media. Yet, two weeks ago, when U.S. President Obama talked about virtually the same thing, the general feedback was that his optimism was great. Excuse me? Same types of comments interpreted so differently? Only a political bias can reconcile those extremes.

Federal deficits are bad or good: Again, that depends on who you ask, and their political view. But do remember that we really don’t allow our governments to have much of a surplus before we generally demand the money be spent on this or that project, or that our taxes be lowered. While we all need to have an emergency savings account, we likely don’t allow our government to have that for bad economic times! So what choice do they have but to go into a temporary deficit?