Pour en finir avec la dette…
The previous post reflects a general mood about the QuÃ©bec election and its perennial debates, constitutional and otherwise. Nonetheless, for all the talk about QuÃ©bec’s specificity, many economic discussions bear striking resemblance to what is happening in the rest of North America. Worry about the public debt is one of them, one that has taken centre stage, amidst speculations of QuÃ©bec’s future as a petro-province (or state) and the rush to tap northern mineral resource. I know it has been over 25 years since the whole thing began (under Mulroney, if I recall), but that still baffles me.
Jim Stanford, a little more than a month ago, wrote a post about the debt situation in Canada, rightly stating that debt levels were fine. Some of the comments that followed questioned that there would even be limits on government borrowing. This is true as long as Canadian debt is denominated in Canadian dollars, which it by and large is. As long as the government retains the power to print its payment, its solvency would be hard to question.
What of the provinces, though, since they don’t have control over money creation (leaving aside that the federal government could back them up, given that the debt is largely in Canadian dollars) ? Well, another aspect of the issue for Canada is that the debt is, by and large (over 85%), owed domestically, to Canadian people and entities, over which the government has a power of taxation. This is also true for a province like QuÃ©bec, as l’Institut Ã©conomique de MontrÃ©al, one of the strong voices claiming the provincial debt to ba a major challenge of our time, itself acknowledges. In short, we owe it to each other and, currency aside, debt servicing and tax payments are an internal redistributive device, with the government establishing who pays whom.
So here we have a useful financial asset, which is still in high demand (some of the rates at which Ã‰pargne Placement QuÃ©bec borrows these days are some times even below inflation), without much of a repayment issue. And yet it dominates the economic side of the campaign. The whole thing becomes farcical when leaders, such as FranÃ§ois Legault, urge the others to think of their grand kids and address the debt issue. At any point in time, some living quebeckers [through taxes] will be paying other living beings, likely QuÃ©bec individuals and institutions.
This leads me to a question with which I have been struggling for years : How to explain that public debt in Canada is essentially a non-issue ? Is there any strong image that could do what the fallacious mortgage metaphor has done for the other side ?