I may not agree with all aspects of the Alberta government’s budget but I can follow the reasoning for most of it.
During the Great Depression, John Maynard Keynes published The General Theory of Employment, Interest and Money, which formed the basis of Keynesian economics. The basic principles of this theory are that during a recession we should stimulate the economy through a reduction in interest rates and government investment in infrastructure. I managed to stay awake through most of my macroeconomics classes in university and I remember that this was a pretty standard economic model for the developed nations during the latter part of the Great Depression, the Second World War and the post-war economic expansion.
I get the reasoning behind borrowing for infrastructure spending right now.
The part of the budget that I just can’t wrap my head around is borrowing for day-to-day government operations, borrowing to make payroll.
If a reduction to operational spending is a complete non-starter, wouldn’t it make more sense from a financial perspective to raise taxes? I know that no one wants to pay more taxes, myself included, but that would cost us less in the long run.
Everyone with a mortgage or a credit card knows first hand that borrowing isn’t free. Therefore, a dollar spent on operations isn’t just a dollar when the money is borrowed. It’s a dollar plus interest. We will continue to pay that interest year after year until we pay back that dollar. How long will it be before we are able to pay back that dollar? I don’t think that anyone has a solid answer to that question yet.
Call me crazy but is this just a strategy by the Alberta government to gain public support for large tax increases in future years? Perhaps even a strategy to gain support for a provincial sales tax?
After a few years of borrowing to make payroll and increased public anxiety over growing provincial debt will we be asking them to charge us more taxes?
Reducing operational spending would make more sense to me but the provincial government has made it clear that even a wage freeze is a non-starter.
