Issues may be scary but they are solvable

Having examined the possible emergence of housing and debt bubbles in Canada, it’s now time to examine the third potential threat to our economic well-being: the massive fiscal deficits being posted by our governments (and our Conservative federal government, in particular).
The current Canadian government debt story probably is well-known to most regular readers by now, but is worth briefly recapping.
Almost all of the governments in Canada presently are running record deficits. However, the federal Tories, thanks to large corporate tax cuts and a 20 percent increase in program spending since 2006, will have added about $150 billion of new debt to our public accounts by 2015.
This, of course, is if their predictions are accurate, which is a very big “if” with the Harper government.
If you listen to the talking points of this government, you would think that $150 billion in additional debt was hardly a problem. Conservatives like to trumpet the fact that our deficits our smaller than other countries, the United States, in particular, and that they are “manageable.”
But the problem, as I see it, is that we should be striving to have the best fiscal record possible—not simply the best record of a bad group. Being better than your neighbours may give you some bragging rights at international meetings, but I’m far more concerned about families being able to put food on the table and having access to quality medical care, as well as secure public and private pension systems.
To realize these goals, the federal government will have to balance budgets more regularly by not over-spending and not cutting taxes to the bone at the expense of fiscal prudency.
Reckless spending and tax cuts over the last decade have put our federal government in a vulnerable position and have made matters worse, not better.
When the Conservatives say their $60 billion in corporate tax cuts helped to ensure the crisis was not worse, they are wrong. Ireland had the lowest corporate tax rate in the world yet it defaulted on its debt because there was no money in the bank.
When the Conservatives say we need $9 billion worth of new prisons because crime is sky rocketing, they are wrong. Statistics Canada has said that the crime rate is decreasing across Canada and now is at a 40-year low nationally.
?These massive expenditures, and many others (like the $1-billion G8 meeting last year), are unnecessarily adding tens of billions of dollars to our national debt—and this new debt is severely restricting the action of governments for years, if not decades, to come.
So what happens if a national housing bubble or debt/credit bubble bursts in Canada while our government is running another $25- to $35-billion deficit this year or next? Well, I can tell you it won’t be pretty.
Firstly, the government will lose more revenue as economic activity slows. With less money, the government will have less options to address the situation (less money in the bank means less stimulus and higher interest payments).
Such a scenario also will mean larger deficits due to slower growth and tax revenue, and so program cuts to health care, pensions, or other big-ticket services will have to be introduced—at just when we need them the most.
Economic activity then would slow further, leading to further job losses, less revenue, etc.
I think if this scenario was ever to come about, those Conservative talking points wouldn’t hold water—even if we were somehow better off than our neighbours.
Despite these risks, it is not too late to turn things around. Our federal government and households could choose to gradually deflate our housing bubble with sound decision-making.
We also can deflate the consumer debt/credit bubble by gradually paying down our credit card balances and living more modestly over the medium- to long-term.
Finally, our federal government must stop blowing money, too. The wasteful meetings, unnecessary jails and jets, and general disrespect for the treasury must end—and sooner than later.
It can be scary facing these issues as a nation and as a government, but strength and good decision-making can ensure we once again become a prosperous, moderate, and happy society.

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