Have You Ever Seen The Canadian Public Sector Balance Sheet?

Injured Piggy Bank WIth Crutches

Canadian Government Finance Statistics (GFS) are released on a quarterly basis by Statistics Canada. The GFS seeks to measure total public sector finance statistics according to International Monetary Fund standards. It includes data from the federal government, provincial/territorial governments, local governments and Canada and Quebec Pension Plans. Here is the snapshot for the end of fiscal year 2011 (data expressed in millions of dollars):

I wish to make a few observations. First, despite the current federal veil of fiscal probity, our governments regularly spend far more than they earn. In the fourth quarter of 2011, they spent $11.675 billion more. To fulfill this obligation, every man, woman and child in the country would have to contribute an extra $337. Plus interest. And that only covers this deficit for three months. Clearly, this spendthrift approach to government is unsustainable.

Second, our country is a debtor nation. After collecting taxes and other revenues, we are forced to borrow tens of billions of dollars more to remain afloat. This is money that will have to be repaid. This means more taxes.

Finally, Canada’s public sector now has a net financial worth of almost negative $928 billion. There is a word for this: bankrupt. This means a Greece-style debt crisis and default is looming on the horizon.

Default can happen in one of two ways. The first is bankruptcy. One day granny no longer receives her cheque in the mail. This makes granny angry. She says: “Don’t you dare touch my benefits.” She wants to throw the rascals out. Because politicians are also thinking about the next election, they are inclined to keep sending granny her cheque. They prefer to kick the proverbial can down the road.

The second option is to inflate. Money is created out of thin air to come up with the shortfall. The Bank of Canada does this. This decreases the purchasing power of existing money. The end game is when the nation’s money becomes worthless. This process is called hyperinflation. Hyperinflation is the reason Zimbabwe has a $100 trillion banknote. You can protect yourself against this outcome by owning gold.

When it comes to a federal budget, all that matters is this year. For example, the federal government’s recent promise to balance the budget by 2015-16 is meaningless. For all we know, they may not even be governing then. Ludwig von Mises interpreted this situation well:

What the doctrine of balancing budgets over a period of many years really means is this: “As long as our own party is in office, we will enhance our popularity by reckless spending.”

 

Thanks to www.SeniorLiving.org for the image.

 

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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