Tales from the Mouth of the Fraser: Unfounded Liabilities
The Fraser Institute says the debt monster is gonna getcha:
The study, Canadian Government Debt 2008, shows that federal, provincial, and local governments have accumulated $791.2 billion in direct debt and more than $2.4 trillion in total government liabilities. Total liabilities include direct debt and programs that the government has committed to provide such as Old Age Security and Medicare (Canadaâ€™s public health care system).
The objective of the report appears to be coming up with a really big number to scare people about â€œbig governmentâ€. Total liabilities are estimated over 100 years.
Should we share the Fraser’s concern? According to the latest fiscal reference tables, the federal debt as a percent of GDP fell from 68.4% in 1995/96 to 32.3% in 2006/07. Total provincial debt has fallen from a high of 28.4% in 1999/00 to 19.0% in 2006/07. Because of economic growth, both debt-to-GDP ratios will continue to fall even if there are modest deficits, up to the point where a deficit was equal to the growth rate of nominal GDP.
Whatâ€™s missing from their scary picture? The uncounted income we will have in the future. Even if one accepts that their calculations are useful on the expenditure side, they are meaningless without the context of projected future income. And we should expect income to grow â€“ in absolute dollars, and in per capita real terms.
By the one-sided Fraser measures, my household has an unfunded cable bill liability of several hundred thousand dollars. And my mortgage is also an unfunded liability because I (like almost everyone) have borrowed against future income and do not have financial assets in the bank right now. Even the payroll of the Fraser Institute is an unfunded liability running in the hundreds of millions of dollars. (I wonder if management makes this latter point when trying to defeat staff requests for higher salaries.)
The other missing piece is that governments table budgets every year looking one to three years forward and can make adjustments as need be. They can even do “crazy” things like raise taxes or run a deficit if need be. But this is not likely necessary as programs are generally on a stable footing.
PS. I recycled some of this content from a previous post that touched on the previous iteration of the Fraser report. The quoted text above is from the current press release but it too is recycled material.