Governments continue to shy away from hard choices

February 14, 2010

By Mark Milke
Research Director
Frontier Centre for Public Policy

Mark Milke
Mark Milke

CALGARY, AB, Feb. 14, 2010/ — Former NBC anchor Tom Brokaw wrote in his book The Greatest Generation of that cohort which survived the Great Depression and beat fascism. It was a laudable tribute to their sacrifices.

The generations which followed, especially the baby boomers, have shown less of an interest in sacrifice. While it is true that they brought about some useful social change, the civil rights revolution and increased women’s rights being two examples, there has also been unwelcome baggage. I’m thinking about polyester, disco and, especially, a preference to demand plenty of government services but without an equal willingness to pay, which led to an increase in government deficits.

$10.4 billion deficit

We should view Alberta’s current four- deficit binge within that deficit spending context. With Tuesday’s budget, it is estimated that the four-year overspending total (from beginning to projected end) will be almost $10.4 billion.

Alberta is lucky because it won’t have tot borrow for such overspending: it will simply draw down the sustainability fund from $16.8 billion last year to just $2.8 billion by 2013. But if the province is wrong in its projected prices for oil and natural gas, or on its ability to contain spending, then borrowing might well revert à la 1980s.

But spending without paying the bills through current receipts isn’t new. Baby boomers have been doing this for quite some time.

Consider how debt was built up federally over the past half-century. Since 1961 — a half-century ago — the federal government produced just 13 surplus budgets. It’s why the federal debt hit half-a-trillion dollars (again) last November.

It would be nice if that were the only delayed bill for future generations. But glance at the Canada Pension Plan. It is supposedly fully-funded now after tripled CPP increases from the mid-1980s until 2003. But as pension plans go, the needed increase in payments occurred only after decades of charging less than eventual pension promises required. And that came at the expense of later contributors.

Someone born in 1950 has a real rate of return on CPP contributions of four per cent annually. That’s not great, but it is double the return someone born in 2000 will receive for their contributions. That Ponzi scheme math results entirely from demographics. Governments charged less on CPP premiums for decades and must now overcharge later generations to fund the difference.

The oft-heard response, “I paid for your education in taxes; you can pay for my retirement,” is irrelevant. Every generation must pay for the education of their young. The difference is that the current generation must not only pay for its own pensions but also that of previous generations which didn’t pay enough in premiums.

In addition, they also have to pay for other baby-boomer debts and unfunded liabilities, including public sector pensions, health care liabilities and the infrastructure maintenance deficit, bills which have yet to come due. Not all baby boomers are to blame, of course. Plenty opposed such policies, though apparently not enough to convince governments to act more prudently.

True, it could be worse. Canadians could have debt-to-GDP levels that exist in Greece, Portugal, Spain, the United Kingdom, Dubai, Japan, and south of the border. But we shouldn’t get too cocky. A few over-optimistic projections on revenues and recovery — which both Ottawa and the province may be making — and structural deficits are here to stay absent difficult choices.

High taxes not the answer

The remedy to this has never been sky-high taxes. That has its own dampening effect on economic growth and thus on businesses, jobs and eventually tax revenues. The remedy is to always tax modestly and in the least economically damaging way, to spend smartly, and to live within our means. That way, future generations won’t have to pay for not only their own pensions and health care, but also for a cohort dating back to the postwar years.

The Alberta government’s tack on Tuesday was to once more put off thorny choices. As usual for most of the last 50 years, baby boomers (and those who agree with such actions) again passed at least some bills onto future generations. It’s been the baby boomers’ greatest legacy. It’s enough to make one prefer disco.

Channels: The Calgary Herald, February 14, the Calgary Beacon, February 16, the New Brunswick Telegraph-Journal, February 18, the Flin Flon Reminder, February 19, Prince Rupert Daily News, February 22, the Yorkton News Review, March 4, the Grande Cache Mountaineer, March 8, 2010

Please follow and like us: