Debt is a dirty word. It enslaves the people, many whom can’t get off the treadmill of debt when Ottawa allows banks to charge gouging rates of interest, like 19% and higher on credit cards when the Bank of Canada rate is at a record low of 0.5%. Sure, you can get a much cheaper loan rate when borrowing against equity in your home or securing a mortgage. But face it. While house prices continue to soar with a record bull market where incomes have not kept pace with the rising cost of living, we’ve been using our homes as ATMs. Canadians are up to their eyeballs in debt, owing a staggering $1.7 trillion in total household debt or 164% of disposable income. Put another way, for every $1 in after-tax income, we owe $1.64. We are now in worst shape than our American cousins, when the subprime meltdown hit after corrupt Wall Street players bundled up this bad mortgage debt, called it asset-backed commercial paper (sounds like an acid trip from the 60s), slapped on triple A credit ratings and floated it to the world, sinking economies like Iceland and Greece. What a price to pay for our love affair with debt.
But we haven’t learned. It was easy for overly-indebted Canadians from coast to coast to buy into our new Prime Minister Justin Trudeau’s gospel that debt is not a dirty word. That we can run deficits, spend our way to prosperity and somehow boost the fortunes of the middle class.
What is he smoking? Maybe it’s the same pot that his father Pierre Elliott Trudeau shared with John Lennon, Yoko Ono and my good friend Rompin’ Ronnie Hawkins when they rode the rails to Ottawa to spread the Give Peace A Chance love. For the record, I have no problem with legalization of marijuana. This modern-day Prohibition of a substance that has medicinal qualities must end. Why do you think so many former politicians are now investing in grow-ops.
But back to economics, and why you may be smoking dope after reading this:
Not only are Canadians enslaved by debt, but by high taxes. This year, the average Canadian family with two or more people will pay $44,980 in total taxes. That’s 43.7% of the family’s annual income, with Tax Freedom Day falling on June 10, meaning the income we earn in the first half of the year all goes to paying taxes at the federal, provincial and municipal levels. Fact is the average family’s tax bill increased by 3.1% this year, while average income growth was 2.1%, according to the Fraser Institute, who calculates Tax Freedom Day. No wonder we’re using our homes as ATMs.
Warning: Today’s debt are tomorrow’s taxes. And no matter how Justin Trudeau wants us to believe he’ll make the idle rich pay more while he runs his deficits, the burden always falls on hard-working, middle class families.
So, let’s take a walk down memory lane:
Want to know why you did not trust Stephen Harper? Because he can’t be trusted, and I am not talking the Senate spending scandal, misleading seniors over income-splitting, and all the other lies and deceit. Harper wanted us to believe he was the fiscally responsible Prime Minister who would put an end of decades of over-spending in Ottawa. But reality is the opposite. He boosted government spending by 31% of $229 billion during his reign, while Canada’s net debt (accumulated annual deficits) increased by 12.6% to $542 billion.
Brian Mulroney, who hit Canadians with the GST, also had a dismal record. He boosted Canada’s net debt by 67.7% to $487.5 billion from 1984 to 1994. Joe Clark is guilty too, hiking our debt by 18.3% to $77.4 billion from 1979 to 1980.
But worst offender of all is Pierre Elliott Trudeau. During his reign from 1968 to 1979 and from 1980 to 1984, Canada’s net debt jumped a whopping 738.7% to $157.2 billion.
Yes, we as Canadians know there is a cost for living in such a great country, where we have universal health care and other coveted programs. And, for the record, I love that Trudeaumania has swept the country, with voter turn-out at record levels and young Canadians so engaged. But the question remains. Should we be worried about hitting the Debt Wall?
It was a question we asked back in the 1990s, as Canada suffered a steep economic deflationary cycle, our debt was spiraling out of control, and layoffs were hitting fast and furious. At the King Edward Hotel in downtown Toronto, we gathered economic heavyweights around a table, including Sir Roger Douglas, a Labour finance minister whose country New Zealand did hit the Debt Wall, and came up with our Seven Survival Summit Solutions, which I published in my column in the Toronto Sun. This included getting rid of deficits and tax relief for middle-class Canadians. Feisty Mississauga Mayor Hazel McCallion was at the table with us.
In the end, it was a Liberal finance minister who listened. Paul Martin not only offered modest tax relief while balancing the books, but under his reign as Prime Minister from 2004 and 2006 Canada’s net debt fell 4.7% to $481.5 billion.
Critics argue all Martin did was download costs to the provinces, while hiking the gas tax. But bottom line it was a Liberal who balanced the books. Now Justin Trudeau wants to take us down the dark road again of running deficits.
In her attention-getting advertisement endorsing Justin Trudeau which aired while we were all glued to the TV watching our beloved Blue Jays, the pit bull Hazel stared into the camera to scold the Conservatives: “Stephen Harper, do I look scared.”
Well Hazel, I am scared. As I said, debt is a dirty word and today’s debt are tomorrow’s taxes.