The federal finance ministry has confirmed the predictions for a balanced budget this fiscal year are not accurate – instead we are looking at a continued deficit, for years to come.

The liberal party have announced the tax cuts (and tax increases) they planned as part of their election platform will not be revenue neutral as previously stated, but rather lead to increased deficit spending.  I am shocked.  A political promise during an election campaign that was not accurate, how can this be?

What happens if you don’t balance your checkbook?

Whether talking about personal, corporate or public accounting if you write checks totaling more  than your cash on hand there are only two outcomes.  You can borrow to cover the deficit or you can declare bankruptcy  (there are variations of declaring bankruptcy with different results, but we won’t get into that here).

Borrowing means …………..

Obviously at some point you need to pay it back.  In an extreme sense borrowing can lead to “mortgaging the future”.  Simply put a debt cycle that cannot be recovered from.

The other big downside of borrowing is the cost of doing so.  It is not free.   About 10% of the Canadian federal budget goes toward interest payments.  I can think of a lot better ways to spend this money.

The government of Canada has been making interest payments on debt my entire life (and that is not a short period of time).  The obvious conclusion is there is no intention, nor political will to retire the National debt.  Is this really fair to future generations of Canadians?

Debt is a way of using others money (at a cost) to obtain benefit now.  This approach makes sense if you expect to increase your assets over time, that is  if you think you will have more income or liquid cash in the future, why not spend it now (at a reasonable carrying cost) because you will be able to pay it back later.   This lets you have the pleasure of that nice car or home now (even though you cannot afford to buy it outright) because the future is bright.

For Canada this logic does not hold true.  Yes, the country is growing and we do expect increased gross national products year by year; However, the spending today is far outstripping the growth predictions of the future and in reality there is no reasonable expectation of catching up and becoming debt free.

Is it not high time to bite the bullet and pay down the debt?