Tories to focus on debt reduction and tax cuts

[LittleRunningGag]

Tories to focus on debt reduction and tax cuts

TENILLE BONOGUORE

Globe and Mail Update and Canadian Press

A national regimen of debt reduction and sweeping tax cuts forms the backbone of the Tory economic vision unveiled by Finance Minister Jim Flaherty on Thursday afternoon.

Issuing a blanket release of the fall fiscal update Advantage Canada: Building a Strong Economy for Canadians, Mr. Flaherty said the government will adopt a new national objective to eliminate the total government net-debt by 2021.

In effect, that proposal would balance Canada's books, leaving the nation with a level of debt equal to the value of its assets.

"The federal government will do its part by continuing to plan for annual debt reduction of $3-billion," the report states.

Mr. Flaherty also wants to cut total federal debt to 25 per cent of GDP by 2021.

Mr. Flaherty says the money saved in interest on a reduced debt will be returned to Canadians in the form of tax cuts, and any unexpected surpluses will also be plowed into tax cuts and debt reduction.

"From this year forward, every dollar of every surplus of the Government of Canada will be applied to bringing down the debt," Mr. Flaherty told the House of Commons Standing Committee on Finance.

"We believe it's time to mobilize Canadians to make a national commitment to pay off Canada's national mortgage."

I'm impressed. Debt reduction is the number one priority in my book. My hat is off to the Cons on this one.

 

[Toro]

Good stuff.

 

[BitWhys]

lacklustre, unimaginitave and fiscally savant

pretty well what I expected

 

[MMMike]

I'm all for debt repayments. But this 'net debt' concept is totally fabricated, a simple gimmick. I actually thought he was talking about paying off the entire federal debt by 2021 at first - now that would have been an accomplishment.

 

[Jay]

Mr. Flaherty said the government will adopt a new national objective to eliminate the total government net-debt by 2021.

Mr. Flaherty also wants to cut total federal debt to 25 per cent of GDP by 2021.

....

 

[Colpy]

I'm all for debt repayments. But this 'net debt' concept is totally fabricated, a simple gimmick. I actually thought he was talking about paying off the entire federal debt by 2021 at first - now that would have been an accomplishment.

Me too

 

[Toro]

I'm all for debt repayments. But this 'net debt' concept is totally fabricated, a simple gimmick. I actually thought he was talking about paying off the entire federal debt by 2021 at first - now that would have been an accomplishment.

"Net debt" has been in the lexicon at the finance ministry for some time.

Let's look at Mr. Martin's last budget.

Federal Debt (Accumulated Deficit)​

Since 2002–03 the financial statements of the Government of Canada have been presented on a full accrual basis of accounting. Under the previous accounting standard—modified accrual accounting—net debt and the accumulated deficit were identical. Under the new standard, net debt now includes a comprehensive costing for financial liabilities but excludes non-financial assets. The accumulated deficit includes both. It is the sum of all surpluses and deficits since Confederation.


Federal debt, referred to in the fall Economic and Fiscal Update, the budget documents, The Fiscal Monitor and the Annual Financial Report of the Government of Canada, is the accumulated deficit. It is the federal government’s main measure of debt.

http://www.fin.gc.ca/ec2005/ec/ecc3e.html

By the way, in the financial world, when looking at the health of a corporate balance sheet, "net debt" is the relevant concept, not total debt.

 

[MMMike]

It matters not that it was buried in the pages of some budget document. No-one uses the term in common language. It is meaningless anyway: who calculates the value of all the assets of the Crown? It will be a very imprecise measurement. And making it policy to simply pay off the net debt makes little sense: it's like paying off a car loan until the amount owing equals the assessed value of the car. WTF?

 

[Toro]

It matters not that it was buried in the pages of some budget document. No-one uses the term in common language. It is meaningless anyway: who calculates the value of all the assets of the Crown? It will be a very imprecise measurement. And making it policy to simply pay off the net debt makes little sense: it's like paying off a car loan until the amount owing equals the assessed value of the car. WTF?

Those are very good points, especially when valuing the assets of the governemnt.

But it is not meaningless. The analogy of the car is only partly correct, because a car is a depreciating asset. The other analogy is debt to a rising asset, such as a house. People may not use the term "net debt", but most people intuitively understand the concept when they calculate the equity in their homes, which is their "net assets" or the value less the mortgage.

Most corporations carry "net debt", and there's a reason for it. Debt is a cheaper form of financing than equity. In government, taxes are "equity." If you finance everything through taxes, you are doing so using the most expensive form of financing. Most people do the same thing to with their home. You didn't save $300,000 to buy a house, did you Mike? (If you did, I applaud you.)

I don't disagree with the poor optics. Flaherty is guilty of being a wonk, and no doubt some are going to use this as the Tories using obfuscation. The term "net debt" is one used within the Ministry more than it is in the political discourse, (though more than you might think as if you read the budget documents year in and year out, there is always a reference somewhere to "net debt"). I understood exactly what he was saying. The bond market where interest rates are set (and where this is most relevant) understands what he is saying.

 

[Paladin]

how do you reduce taxes and reduce the net debt at the same time?

All that aside im suprised no one has mentioned why labour productivity or research in technology was not included in the Tories focus. In fact im suprised the tories havent mentioned either of those, since labour productivity or research in technology are the two main things that will drive the Canadian economy which will lead to elimination of debts and reduction in taxes. yet no one has mentioned this...why?