Running Deficits

[Tonington]

But this should be part of your budget in the first place. I know I will receive X amount of income in a month and Y amount in expenses, from there a prudent person plans what to do with the rest which might include savings and debt repayment, which should not result in a massive surplus or deficit every month...if that happens than this person clearly does not know how to budget.

Of course. But a government doesn't make X amount every month now do they? Budgeting based on that one month could very well put them well out by the end of the year, depending on how that one month goes. Do you want a National Budget every month to evaluate the fiscal fundamentals of our economy? That's not a huge waste of time or anything...

Occasionally, some unexpected extra cash comes in, other times an unexpected expense pops up, both might cause an unexpected surplus or deficit in your budget, but these are one time things, and not consistently happening.

A deficit is not acceptable at all. I don't know where you get that idea. Having even a small deficit means we're really further in the hole because we're now paying interest on money we didn't have to begin with. Having a huge surplus is infinitely better than even a small deficit. That money gets spent on things we need, or returned through rebates, or any number of worthwhile projects. In short it adds value. Interest payments do not.

The reason for this is because governments did not properly fund things in the first place and ran large surpluses which they used for one time spending on projects which were popular at the time.

And some times a a period of fiscal hardship must be endured to come out with better fundamentals. It's unfortunate, but a necessary evil when one gets used to living beyond their means, ie deficit.

Our military is a perfect example, while the government ran huge multi-billion dollar surpluses, our soldiers were stuck using old, outdated and sometimes dangerous equipment.

There are many examples. But that fits the uses of a surplus as well. Only the Government at the time didn't think it a high priority, obviously.

As mentioned, debt repayment should be part of a good budget to begin with and it is generally considered better to pay off debt rather than set up savings accounts as you are likely to save more money on interest by focusing on the debt than you would get investing.

There's a middle ground you're missing. There's no reason you can't do both. I don't know any financial advisors that would advise against having a rainy day account. I'm pretty sure they all will say that's a good idea.

Well of course it is a winning formula because debt repayment is already part of the budget. If you pay off $15 billion in debt and then have to borrow $500 million to fund a small deficit, but have managed to put $10 billion in tax cuts back into the economy, everybody wins even if partisans at year end decry the $500 million deficit while ignoring the fact we are $14.5 billion better off than we were last year and more money was kept in the economy.

Paying off the debt is already the single largest expense the Canadian Government has. It's due to years of successive Government's being able to live with things like a $500 million deficit at year's end, instead of giving themselves a larger cushion within which they could operate, and obviously spending what we didn't have to begin with.

As debt payment is already part of the budget, there's nothing wrong with accounting for how much you're going to pay off, and then using up what's left at the end of the year. It's like topping up an RRSP when there is spare cash.

My family doesn't get income from taxes, we work for it...how did you get your deal

I was talking about spending to the point of break even, and that not being a winning formula. Maybe next time if you don't break a paragraph into separate quotes you won't miss the point. Just a thought.

 

[dj03]

But a government doesn't make X amount every month now do they?

Which is precisely why I said not to compare government and family budgets. I tried to speak to you in that language anyways and this is the result.

A deficit is not acceptable at all. I don't know where you get that idea. Having even a small deficit means we're really further in the hole because we're now paying interest on money we didn't have to begin with.

In the budget a government puts $10 billion against the debt instead of $5 billion against the debt and $5 billion in a "rainy day fund".

During the year an unexpected emergency expense pops up that costs $500 million to address and the government has to borrow to cover it. At the end of the year, we owe $9.5 billion less than we did but ran a $500 million dollar deficit. Entirely acceptable and we are much better off than we were.

Flip that around where the government paid off $5 billion in debt and put $5 billion in a "rainy day fund". During the year an unexpected event happens and costs the government $500 million dollars, they take it out of the "rainy day fund" and do not run a deficit. At the end of the year we have paid off $5 billion in debt and have $4.5 billion in a "rainy day fund".

The only problem is that we are paying say 6% interest on the debt and only getting 3% on the "rainy day fund" in the end, we lose, but thank God we didn't run a deficit. :roll:

Having a huge surplus is infinitely better than even a small deficit. That money gets spent on things we need, or returned through rebates, or any number of worthwhile projects.

But they weren't being spent "worthwhile projects", projects were cherry-picked and given one time funding promises instead of long term stable funding. Why is our health care system overburdened, why was our military underfunded, why couldn't we set up a national daycare program...because all of these things require long term stable funding in order to succeed and the government was using most of the surplus on one time spending on regional programs to boost their profile in specific regions and calling elections every 3 years.

You might think big surpluses are better than a budget which might see small deficits (which still result in massive debt repayments) and small surpluses, but they don't.

I live in Alberta and our provincial government constantly pulls this stunt. This year they based their budget on $75 bbl oil when it was north of $125 bbl. This means they aren't properly funding programs and my son ends up going to a elementary school packed to the rafters with 500 kids and a principal who won't guarantee any student-to-teacher ratio, my mom went to a private MRI clinic last week because the public system couldn't see her until next January, our roads are inadequate and so is our public transport system. Because these incompetent boobs refuse to put together a proper budget, the whole country looks at this massive surplus we are running and starts to think of ways to spread that around the country while we suffer with massive infrastructure problems because of a lack of funding.

Next spring the government will announce one-time spending promises that will make a big splash but won't help the chronic problems this province has faced for the last 10 years.

I'd rather see a government put together a proper budget and incur the occasional (and let me stress that, I am not saying consistent) deficit than put up with this nonsense.

I didn't feel overtaxed at the federal level before the Conservatives cut these taxes, but I am glad someone finally did something to address this insane situation. I honestly don't know how it will ever change in this province.

And some times a a period of fiscal hardship must be endured to come out with better fundamentals. It's unfortunate, but a necessary evil when one gets used to living beyond their means, ie deficit.

You aren't getting it, these surpluses weren't used to put us in a better financial position, that was handled by debt repayment in the budget to begin with, these were used for targeted spending in specific regions to improve the government image.

Debt repayment was part of the budget in the first place, not something that occurred because of the surplus. While it is true they put some of the surplus against the debt, that should have been budget in the first place...but it made for great optics which impressed people who don't know what they are talking about.

There's a middle ground you're missing. There's no reason you can't do both. I don't know any financial advisors that would advise against having a rainy day account. I'm pretty sure they all will say that's a good idea.

If you owe a lot of money it is better to pay off as much debt as possible and then borrow a small amount back if you run out of cash, unless for some reason your credit has been cut off. You will save more on interest payments than you will likely make on investments.

Lots of economists and financial advisors were screaming at the Alberta government back when we had a debt and the Heritage Savings Trust fund which would have cleared it off years ahead of time.

 

[scratch]

Which is precisely why I said not to compare government and family budgets. I tried to speak to you in that language anyways and this is the result.

In the budget a government puts $10 billion against the debt instead of $5 billion against the debt and $5 billion in a "rainy day fund".

During the year an unexpected emergency expense pops up that costs $500 million to address and the government has to borrow to cover it. At the end of the year, we owe $9.5 billion less than we did but ran a $500 million dollar deficit. Entirely acceptable and we are much better off than we were.

Flip that around where the government paid off $5 billion in debt and put $5 billion in a "rainy day fund". During the year an unexpected event happens and costs the government $500 million dollars, they take it out of the "rainy day fund" and do not run a deficit. At the end of the year we have paid off $5 billion in debt and have $4.5 billion in a "rainy day fund".

The only problem is that we are paying say 6% interest on the debt and only getting 3% on the "rainy day fund" in the end, we lose, but thank God we didn't run a deficit. :roll:

But they weren't being spent "worthwhile projects", projects were cherry-picked and given one time funding promises instead of long term stable funding. Why is our health care system overburdened, why was our military underfunded, why couldn't we set up a national daycare program...because all of these things require long term stable funding in order to succeed and the government was using most of the surplus on one time spending on regional programs to boost their profile in specific regions and calling elections every 3 years.

You might think big surpluses are better than a budget which might see small deficits (which still result in massive debt repayments) and small surpluses, but they don't.

I live in Alberta and our provincial government constantly pulls this stunt. This year they based their budget on $75 bbl oil when it was north of $125 bbl. This means they aren't properly funding programs and my son ends up going to a elementary school packed to the rafters with 500 kids and a principal who won't guarantee any student-to-teacher ratio, my mom went to a private MRI clinic last week because the public system couldn't see her until next January, our roads are inadequate and so is our public transport system. Because these incompetent boobs refuse to put together a proper budget, the whole country looks at this massive surplus we are running and starts to think of ways to spread that around the country while we suffer with massive infrastructure problems because of a lack of funding.

Next spring the government will announce one-time spending promises that will make a big splash but won't help the chronic problems this province has faced for the last 10 years.

I'd rather see a government put together a proper budget and incur the occasional (and let me stress that, I am not saying consistent) deficit than put up with this nonsense.

I didn't feel overtaxed at the federal level before the Conservatives cut these taxes, but I am glad someone finally did something to address this insane situation. I honestly don't know how it will ever change in this province.

You aren't getting it, these surpluses weren't used to put us in a better financial position, that was handled by debt repayment in the budget to begin with, these were used for targeted spending in specific regions to improve the government image.

Debt repayment was part of the budget in the first place, not something that occurred because of the surplus. While it is true they put some of the surplus against the debt, that should have been budget in the first place...but it made for great optics which impressed people who don't know what they are talking about.

If you owe a lot of money it is better to pay off as much debt as possible and then borrow a small amount back if you run out of cash, unless for some reason your credit has been cut off. You will save more on interest payments than you will likely make on investments.

Lots of economists and financial advisors were screaming at the Alberta government back when we had a debt and the Heritage Savings Trust fund which would have cleared it off years ahead of time.

I will go out on a limb (unnatural for me) and say pay down the debt for at some point we will become what the U.S. already is: a third world country. 13 trillion and counting in debt. Hopefully for them the Chinese/Japanese don't call in their T-Bills.

 

[dj03]

I will go out on a limb (unnatural for me) and say pay down the debt for at some point we will become what the U.S. already is: a third world country. 13 trillion and counting in debt. Hopefully for them the Chinese/Japanese don't call in their T-Bills.

I think the bigger problem facing the US is their unfunded Medicare, Medicaid and Social Security promises (which technically puts their debt in the $60 trillion dollar range). The law as it is currently written in the US will see these three services consume more than all of the revenue the US collects in a given tax year meaning a portion of these services and all other services the government provides (ie. military, education, law enforcement, etc...) will have to be funded by debt.

When this happens (about 20 years from now) they are either going to have to slash payouts, raise taxes or both.

And they better hope the world doesn't drop the dollar in favour of the Euro when it comes to trading oil, because if that happened about $2 trillion worth of US currency would be dumped on the market, no one would want it and that would spell the end of the value of their currency.

 

[Lester]

Lots of economists and financial advisors were screaming at the Alberta government back when we had a debt and the Heritage Savings Trust fund which would have cleared it off years ahead of time.

I think we have this attachment to the Heritage Trust Fund, something like an old codger who stuffs his money in a mattress and is almost terrified to spend it. In hindsight we probably should have liquidated it, and paid off the debt sooner. But who's to say the politicians wouldn't have frittered away the surpluses than replenish the fund, so we'd be debt free but have no money in the bank.

 

[dj03]

I suppose the really ridiculous thing was that we had a rainy day fund but still ran deficits and accumulated debt rather than use it in the first place.

 

[Tonington]

Which is precisely why I said not to compare government and family budgets. I tried to speak to you in that language anyways and this is the result.

I said that a family should have a buffer, as should a government. That's a valid comparison. Comparing the method of income is not. Spending money and cutting taxes to the point where there is no buffer is imprudent, which is what happened this past budget.

In the budget a government puts $10 billion against the debt instead of $5 billion against the debt and $5 billion in a "rainy day fund".

It's a hell of a lot higher than that. The debt repayments are already part of a schedule. Extra money at the end of the year just reduces our debt that much more. Having money left over means they can put money away, pay off debt, and have a buffer for the unexpected during the course of the year. The debt payments are already being made during this time anyways.

But they weren't being spent "worthwhile projects", projects were cherry-picked and given one time funding promises instead of long term stable funding. Why is our health care system overburdened, why was our military underfunded, why couldn't we set up a national daycare program...because all of these things require long term stable funding in order to succeed and the government was using most of the surplus on one time spending on regional programs to boost their profile in specific regions and calling elections every 3 years.

You think these things add up? The shortfalls in military spending to maintain our equipment and procure replacements, to bring our health care system up to an acceptable level (whatever that is), and national daycare programs. You think that this money was available and spent on pet projects?

References please.

I live in Alberta and our provincial government constantly pulls this stunt. This year they based their budget on $75 bbl oil when it was north of $125 bbl. This means they aren't properly funding programs and my son ends up going to a elementary school packed to the rafters with 500 kids and a principal who won't guarantee any student-to-teacher ratio, my mom went to a private MRI clinic last week because the public system couldn't see her until next January, our roads are inadequate and so is our public transport system. Because these incompetent boobs refuse to put together a proper budget, the whole country looks at this massive surplus we are running and starts to think of ways to spread that around the country while we suffer with massive infrastructure problems because of a lack of funding.

So, would you prefer more aggressive accounting? Instead of conservative estimates of expected surpluses, you would rather see what exactly?

Next spring the government will announce one-time spending promises that will make a big splash but won't help the chronic problems this province has faced for the last 10 years.

They just dropped $1.4 Billion this week for Anthony Henday Drive NW in Edmonton, without much hoopla. From what I understand, there's a lot of money being spent on transit infrastructure from the surplus. That's good, isn't it?

I imagine if you were making the priorities for 3.5 million people, there's be some who complain as well. C'est la vie...

I'd rather see a government put together a proper budget and incur the occasional (and let me stress that, I am not saying consistent) deficit than put up with this nonsense.

Putting us up against the envelope could very well mean it's more than just occoasional. How would you like to see the accounting done? How far from a conservative estimate would you stray?

You aren't getting it, these surpluses weren't used to put us in a better financial position, that was handled by debt repayment in the budget to begin with, these were used for targeted spending in specific regions to improve the government image.

And if the Government continued it's trend of 34 deficits out of 36 years, how would that have helped us with our debt repayment?

Do you work for a credit card company or something?

Debt repayment was part of the budget in the first place, not something that occurred because of the surplus.

Yes, I know that. That's why I said:

Paying off the debt is already the single largest expense the Canadian Government has.

And

As debt payment is already part of the budget, there's nothing wrong with accounting for how much you're going to pay off, and then using up what's left at the end of the year.

Paying off more debt than you budgeted for isn't a bad thing.

While it is true they put some of the surplus against the debt, that should have been budget in the first place...

So, who is this economist or group of economists that you feel can accurately forecast our countries fiscal details with such precision? Projections are only accurate if you can nail all of your assumptions.

 

[dj03]

And if the Government continued it's trend of 34 deficits out of 36 years, how would that have helped us with our debt repayment?

Of course, this is exactly what I have been arguing, that continually running deficits would be ok.

:roll:

They just dropped $1.4 Billion this week for Anthony Henday Drive NW in Edmonton, without much hoopla. From what I understand, there's a lot of money being spent on transit infrastructure from the surplus. That's good, isn't it?

And how long has that road needed to be fixed? This is what you don't get, these things have been in disrepair, in some cases, for close to a decade, while the government ran huge surpluses and refused to properly fund infrastructure, education and health care...we haven't even had a debt out here for years now.

Two years ago many schools had leaky roofs in Calgary, one was closed because there was a danger the roof would collapse, the media asked the school board about this and were told they didn't have enough money to fix the problems. The money comes from the provincial government so the media asked them about this "sorry, we've already set the budget for education this year, talk to the school board". At the end of the year...BANG...huge surplus (and no debt because we had paid that off years before). They lowballed spending to impress people like you and it continues to work despite potential disasters.

Take a look at Deerfoot Trail in Calgary, how many people died because of cars crossing the meridian and hitting oncoming traffic? They couldn't fix it by spending a few million dollars on a metal fence, it wasn't in the budget, be we ran a huge surplus that year.

Why are we seeing a change now? Because last spring the PC Party was concerned that they might lose seats in the upcoming election because people were getting fed up with things falling apart and roads being gridlocked, so the coffers were opened up and lots of spending was promised and is now being followed through on. However, their post-election budget has once again lowballed oil prices at around the $75 bbl level, that means they have lowballed spending again and that means that the proper long term funding of infrastructure, education and health care is being lowballed again.

Honestly, I am giving up trying to get you to grasp this. You can have the last word.

 

[L Gilbert]

Yes, and I'm sure Gilbert you too would be just fine if your spouse left you with your credit statement showing a relative deficit to it.

"Oh don't mind the overdrawn account honey! I just had a more expensive meal once again which we really couldn't afford. Especially with all the plant closures that has left you jobless. Gee, I guess it's a good thing I made all those cuts to our kids after-school programs, ha ha. Oh honey, it's all good. Hugs and kisses."

lol That's cute, 11.
Anyway, debt is debt. Deficit and debt are not synonymous. And I agree, if the gov't has overbudgetted, I would rather see the surplus pay down the debt or be of some use in healthcare than anything else.

 

[Tonington]

Of course, this is exactly what I have been arguing, that continually running deficits would be ok.

:roll:

No, it wasn't what you said. But you still haven't explained how to "put together a proper budget."

All you've said is that our Government should learn how to put together a proper budget, and then occasional deficits will be OK. They'll be OK because we're spending more money on budget item spending which we need (duh?) which somehow isn't at all like surplus spending in the political capital category (hilarious!)

How would you have turned around Canada's fiscal framework? Where would you have cut spending to stop the continual deficit budgets?

Where is this model of superior forecasting abilities?

In other words, how does your plan take us away from 34 out of 36 deficits?

Was that too subtle?

Take a look at Deerfoot Trail in Calgary, how many people died because of cars crossing the meridian and hitting oncoming traffic?

Not as many as speeding vehicles, which is the number one cause of accidents on the Deerfoot Trail. I avoided working in Calgary this summer for that exact reason, however. That's a cheap fix, which doesn't require infrastructure spending. Maybe you, like some Albertans I've met out here think you can spend your way out of this problem.

They couldn't fix it by spending a few million dollars on a metal fence, it wasn't in the budget, be we ran a huge surplus that year.

Right, running surpluses must be the problem, and not:

a) lack of political involvement by citizens
b) inept politicians
C) very vocal complaints for anything that adds another 5 minutes to the morning commute.

:roll: <-------------my eyes can roll too!

Honestly, I am giving up trying to get you to grasp this. You can have the last word.

I could care less about the last word. I'm trying to understand your idea of improved economic forecasts--partly because I love models-- but so far you're heavy on rhetoric, and scant on the details. I hope you'll forgive me if I say:

I've heard that one before.

 

[elevennevele]

Yeah, just a short while ago they were taking credit for the economy. Even though they inherited a robust one to begin with in addition to massive surpluses which they blew.

Let me guess. They are still going to take ownership for the economy right? Hey, they've been telling us month after month how great our economy is. Prancing around... Flaherty's with the biggest chester smile... rah rah... with government spending up (14%?) and a government ad budget which has doubled under Harper. Talk about priorities.

http://www.theglobeandmail.com/servlet/story/RTGAM.20080728.wads29/BNStory/National/home

Ad budget doubles under Harper

DANIEL LEBLANC

From Tuesday's Globe and Mail

July 28, 2008 at 7:46 PM EDT

OTTAWA — Ottawa's advertising budget doubled to more than $80-million in the first full year of the Harper government, the first rise in marketing spending since the start of the sponsorship scandal in 2002, according to an unreleased federal report.

You know, I have to give Harper credit though. I underestimated how quickly he would take us to this point. I mean how long has it been already? Two and a half years?

Conservatives have got to be the worst economic stewards ever. They talk a big game but give them the stage and it really is just an act.

(excerpt)


http://www.reportonbusiness.com/servlet/story/RTGAM.20080808.wjobs0808/BNStory/Business/home


Canada posts biggest job loss in 17 years

JOHN PARTRIDGE

Globe and Mail Update

August 8, 2008 at 8:40 AM EDT

The Canadian economy lost 55,200 jobs in July, when economists had forecast an increase, but the unemployment rate shrank to 6.1 per cent, Statistics Canada said Friday.

The employment figures showed the biggest loss in jobs since February 1991, when 57,000 disappeared as recession gripped Canada. The bulk of the July losses – 48,000 – came from part-time positions, while the hardest hit sectors were manufacturing, business, building and other support services, and educational services.

In fact, the only significant gains came in accommodation and food services, which added a combined 22,000 jobs during the month, Statscan said.

While private sector employers shed 95,300 jobs, the public sector added 29,500, and the ranks of the self-employed rose by 10,600, the agency said.

“Statistics Canada seems to have caught up with what we've been reading in the newspapers for months, that a lot of plants were closing and a lot of jobs were being shed,” CIBC World Markets economist Avery Shenfeld said. “There were particularly heavy losses in the private sector, which is, again, a worrisome sign.”

 

[elevennevele]

lol That's cute, 11.
Anyway, debt is debt. Deficit and debt are not synonymous. And I agree, if the gov't has overbudgetted, I would rather see the surplus pay down the debt or be of some use in healthcare than anything else.

Yeah, I know what debt is and what deficit is, and it appears Canadians will get to know much more about what both are under this Harper government.

 

[elevennevele]

Quoting #juan
Chretien could at least balance the budget. Something the Tories have trouble with...


Quoting Risus
You had better check your facts...

Hey Risus. There was a whole message board about how the Harper government can't balance the books. Did you miss it? Cheers! :smile:




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