• Debt interest payments top $6 million a day

Liberal Response
NDP Response

VICTORIA: The Canadian Taxpayers Federation (CTF) called on the NDP and Liberal Party leaders to take a second look at the public accounts and give the province's mounting debt the attention it deserves. "Voters and taxpayers alike should be concerned that the two parties vying for control of the public purse have no plan to reduce the province's burgeoning debt. In effect, both the NDP and the Liberals are telling the electorate that they think its acceptable to spend $6 million of taxpayer money each day on debt interest," noted Sara MacIntyre, BC director for the CTF.

On April 18th the CTF sent letters to BC Liberal Party leader Gordon Campbell and NDP leader Carole James asking for their debt management strategy as well as their position on a legislated debt retirement plan. Both parties responded that they would maintain the do-nothing status quo, neither party committed to a targeted debt reduction goal, a set payment schedule or even an ideal debt-to-GDP ratio.

"The NDP and Liberal response was basically the same, if there's money left over at the end of the year, then it will go toward the debt. But the past four years have proven that the fiscal leftover approach doesn't work. It hasn't managed to keep the debt from growing, let alone reduce it." MacIntyre explained, "Since 2001, the debt payment by accident approach has watched the overall debt grow by $3 billion and is on course for another $3.5 billion jump by 2008. Clearly, the current 'strategy' adopted by the Liberals and endorsed by the NDP is not working."

While in office, the Liberal government dedicated unused forecast allowances (funds set aside to cover any revenue shortfalls), contingency funds (for unplanned expenditures) and surplus amounts to go toward the debt. Government accounting policies do not permit surplus amounts to carry over from one fiscal year to the next, so any surplus at the end of the year automatically goes toward the debt.

"The problem with the current approach is debt repayment is not part of the budgeting process. There is no reduction target, no plan to retire the debt and no strategy to keep it from growing. To put the costs into perspective, the annual interest payments for the debt are greater than the combined ministerial budgets for Child and Family Development, Community, Aboriginal and Women's Services as well as Sustainable Resource Management. Although the NDP and the Liberals might not want to recognize the debt as a priority while out on the campaign trail, there is no denying that it is a very big drain on resources and will continue to eat up more and more tax dollars unless a debt retirement schedule is adopted."

During pre-budget consultations last year, the CTF recommended the government adopt a mandatory debt retirement schedule, similar to the one used to pay off Alberta's debt. "Unfortunately, the benefits of being debt free are lost on the NDP and the Liberals. Both parties are more concerned with spending tax dollars than paying our creditors to free up resources and offer the next generation of taxpayers a break," concluded MacIntyre.

Note: The Canadian Taxpayers Federation will be releasing a comprehensive spending analysis of the NDP and Liberal Party campaign promises next week.



Backgrounder

The CTF submitted a proposed debt retirement schedule to the Finance Committee last year during pre-budget consultations. The proposal called for a legislated payment schedule of the greater of 75% of the surplus amount (according to the First Quarterly Report) or 2.5 % own source revenue (all revenue less federal transfers) to be applied to the debt each year, with an option to accelerate payments to 5% in 2015. This proposal requires a simple amendment to The Balanced Budget and Ministerial Accountability Act and would see BC debt free by 2033. To view the full report, click here.


Currently, there is no set debt payment schedule. However, because The Balanced Budget and Ministerial Accountability Act requires that at the end of the fiscal year, the government must post at least 50% of the surplus amount forecasted in the February budget, and because surplus amounts cannot be carried over to the next fiscal year, the 50% surplus target goes to the debt. In effect, the year's surplus is also the debt payment. Should the government forecast a surplus amount in February and fail to post at least 50% of that amount at the end of the year, than members of the Executive Council do not receive their 10% salary holdback back. The incentive for the government to meet its February surplus goals is tied to the personal salary of the members. However, that same incentive also pushes the government to set modest surplus forecasts in their February budget to ensure the 50% target is met and members get their holdback back.

For example, budget 2004 forecast a $100 million surplus, the government therefore, needed to finish the fiscal year with at least a $50 million surplus in order for the members to get their holdback back. Strong tax and resources revenues, as well as federal transfers kept increasing the expected surplus throughout the fiscal year. The Second Quarterly Report projected a $2.2 billion surplus. However, the latest fiscal update for 2004 noted the debt payment would be $1.7 billion. So what happened to the half a billion dollars It was spent in a flurry of pre-election announcements. That is the precise problem with leaving debt payment to chance, or by accident, it is subject to manipulation. The debt would never be paid off by elected representatives who have a four year shelf life.

According to the government's latest budget projections, the surplus, forecast allowance and contingencies are not enough to hedge the debt's growth. By 2008, the debt will hit $39.5 billion. If a retirement plan is not adopted soon, the debt load may become too great and the idea of retirement insurmountable.

Although the forecast allowance and contingency fund have increased payments over the past couple of years, the amounts are not set and thereby subject to manipulation which can result in reduced debt payments, like in the NDP platform. In order to pay for the increased spending measures promised in the platform, the costing appendix notes that the NDP plan to reduce the projected surplus amount, the contingency vote and to use half of the forecast allowance as an end-of year spending party. As a result, the NDP plan reduces possible debt payments by $340 million in their first and only costed year.