One of the many things we’ve learned from the pandemic crisis is the importance of saving for a rainy day. Canada has failed for many years to do so. Now it’s pouring outside, and both governments and individuals will struggle to cope.
For a decade and more, Canadians with means have been spending as if there were no tomorrow. They spent on expensive houses, taking out giant mortgages. They spent on nice cars, using long-term loans and leases to make the payments feel painless. They spent on vacations and renovations and big-screen TVs.
Banks egged them on, offering giant lines of credit to anyone lucky enough to own a house. With interest rates at historic lows, consumers binged on borrowed money. Household debt as a percentage of disposable income climbed and climbed. What happens now to all the people who have been thrown out of work and have bills to pay and interest payments to make?
Governments have been even more profligate. The biggest provincial government, Ontario’s, managed the remarkable feat of doubling its debt in the course of a decade. Alberta spent its oil money on highways and hospitals and hockey rinks instead of putting it aside, Norway style, for the future. With oil prices crashing, it finds itself in deep trouble. So does Newfoundland and Labrador, its plight worsened by the Muskrat Falls white elephant.
The federal government went on a spree of its own. Elected on a solemn pledge to balance the budget by the time the next election rolled around, Justin Trudeau’s Liberals instead kept ramping up spending, taking advantage of a booming economy to “invest in the future” rather than tackle the deficit or pay down the debt, much less put aside money for an emergency. They even gave Canadians a nice tax cut last year, slicing $6-billion from Ottawa’s annual revenue.
Their apologists patted them on the back for their wisdom and foresight. If Mr. Trudeau had broken a little promise, what of it? Everyone did that. And the size of the debt didn’t really matter anyway; it was its size compared to GDP, you see.
As long as that didn’t soar, well, not to worry. No rain was in sight. The sun was shining. While interest rates were low, why not take advantage of the good weather and just borrow and spend? Which is exactly what the government did, putting off the unpopular task of balancing the books to the indefinite future. So the debt mountain kept growing. The combined federal and provincial net debt has reached $1.5-trillion, says a recent Fraser Institute report.
Now we face an awful reckoning. The tomorrow that would never come is here. For years, governments were accused of putting the future of our children and grandchildren in jeopardy by piling up debt. It turns out the danger was much closer. It is we, the current generation, who are at risk.
It will cost many billions to get us through this unprecedented crisis. The $82-billion federal package approved on Wednesday is only the beginning. With no rainy-day fund to speak of, Ottawa and the provinces will need to borrow the money, recording deficits that are bound to dwarf those of the last recession.
They have no other option. Spending big is the right thing – no, the only thing – to do. To avoid economic catastrophe and ease the pain of this moment, governments need to help Canadians – especially low-income Canadians – who are under the gun; buoy up businesses threatened with bankruptcy; cover a flood of employment insurance claims from suddenly jobless people; and pump money into the economy.
Now is not the time to complain about big government. Moments like this are what governments are for, which is why we want them to have deep pockets and small debts. The Finance Minister, Bill Morneau, insists we have the “fiscal firepower” for the job. Canada is still a wealthy country, after all.
But once this necessary binge is over, let’s promise ourselves not to go on another one when things get back to normal. Let’s instead dedicate ourselves to living within our means, wiping out our deficits, reducing our debts and saving for the next rainy day.