Tuesday, July 13, 2004
This business of "no debt": is it all wet?
So, as many of you (especially those of you not presently in comas) have probably noticed, Ralph Klein has declared Alberta to be "debt-free". The New Democrats have swiftly countered by pretending that the province isn't debt-free at all, and that the Klein government has simply hidden the debt, or something (this seems an odd strategy for a party that has spent much of its time accusing Klein of understating the robust state of the province's public finances, but I'm a pundit, not a strategist). Let's briefly resolve this debate before we move on to my main point, which is, as usual, that Ralph Klein sucks.
Is Alberta "debt-free" in the sense that most layfolk would understand it? No. The public coffers still owes money to various creditors. This money owing is debt. The province is not debt-free. What the government *has* done is set up an account with exactly enough money in it to make all remaining debt payments as they become due. This means that the debt will go away without future budgets required to allocate a single cent for debt repayment. For this reason, I think it is acceptable for the province to call itself "debt-free" in the course of normal discourse.
Now, the big question: so what? What advantage has the province gained by setting up this account? Well, let's see: it means we don't need to allocate money in future budgets to pay down the debt. But it also means that we had to allocate more money this year to debt repayment. And, all other things being equal, the time value of money (note to people who have no idea what I'm talking about: "time value of money is a fancy term for the common sense principle that you're better off with a dollar now than you are with a dollar a year from now) means that it's better to spend that money later. Of course, that account will be generating interest, but unless that interest exceeds the interest accumulated on the unmatured debt, this was a terrible financial move.
Until, of course, the value of that kind of election-time PR is factored in. . .
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So, as many of you (especially those of you not presently in comas) have probably noticed, Ralph Klein has declared Alberta to be "debt-free". The New Democrats have swiftly countered by pretending that the province isn't debt-free at all, and that the Klein government has simply hidden the debt, or something (this seems an odd strategy for a party that has spent much of its time accusing Klein of understating the robust state of the province's public finances, but I'm a pundit, not a strategist). Let's briefly resolve this debate before we move on to my main point, which is, as usual, that Ralph Klein sucks.
Is Alberta "debt-free" in the sense that most layfolk would understand it? No. The public coffers still owes money to various creditors. This money owing is debt. The province is not debt-free. What the government *has* done is set up an account with exactly enough money in it to make all remaining debt payments as they become due. This means that the debt will go away without future budgets required to allocate a single cent for debt repayment. For this reason, I think it is acceptable for the province to call itself "debt-free" in the course of normal discourse.
Now, the big question: so what? What advantage has the province gained by setting up this account? Well, let's see: it means we don't need to allocate money in future budgets to pay down the debt. But it also means that we had to allocate more money this year to debt repayment. And, all other things being equal, the time value of money (note to people who have no idea what I'm talking about: "time value of money is a fancy term for the common sense principle that you're better off with a dollar now than you are with a dollar a year from now) means that it's better to spend that money later. Of course, that account will be generating interest, but unless that interest exceeds the interest accumulated on the unmatured debt, this was a terrible financial move.
Until, of course, the value of that kind of election-time PR is factored in. . .
