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Editorial: Hooked on credit

This province does not have enough revenue to cover its bills and will have to exist on credit for 38 days of the year.
This province does not have enough revenue to cover its bills and will have to exist on credit for 38 days of the year. -

 

Don’t think of it as deficit spending, or as living beyond our means — even though it’s exactly that.

Instead, stop and think about what this province’s ongoing current account debt would mean if the province was a household.

Let’s think of it as if we can’t afford December. In fact, we’re just going to put that entire month — and more — on the credit card.

Tuesday, provincial Finance Minister Tom Osborne released his mid-year financial statement and revealed that the province is slipping even further into debt than predicted. Instead of going $777.6 million in the hole, the newly expected debt figure is more like $852.4 million.

After that, we’re essentially running on credit at $22.2 million a day until Dec. 31.

If you average out, on a daily basis, the $8.112 billion the provincial government expects to pay out this year in expenses, it comes to $22.2 million or so a day. Each day. Every day.

Given that the government is only going to take in $7.26 billion, we’re going to come up a little short.

And that means the money will run out — and if you were to move the spending to a calendar year, it would run out on Nov. 23rd.

After that, we’re essentially running on credit at $22.2 million a day until Dec. 31.

That might not be so bad if we were expecting some kind of windfall in the new fiscal year that would let us pay down that borrowed money. But we’re not.

About the best thing Minister Osborne can come up with as a positive is that the people who lend us money still think that we’re not bankrupt, and are willing to keep bailing us out for the 38 days this year when we will have not one penny.

Imagine you were running your household like that, putting a full month’s expenses into new debt every year. You’d be lucky to make it through your third year.

Looking at government debt this way is a calculation that was first put forward by France’s Institut Molinari — the point being to make the difference between revenue taken in and expenses paid out simple and clear. As commentator Matthew Lynn pointed out in Britain’s Telegraph, using that method, you can see clearly how European central governments are exhausting their revenues. France ran out of cash and began living on borrowed money on Nov. 7. For Spain, it was Nov. 11th. Italy will be using credit exclusively as of Nov. 26. The list goes on, virtually across Europe.

The problem is that we’re conditioned to governments babbling on about current account deficits, about “(continuing) to take a balanced approach, with a focus on delivering programs and services that are important to the public in a smarter and more efficient way,” and suchlike.

What they won’t say is the simple truth: the money’s running out before the bills are paid.

 

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