Public debt of Selected Countries

Following the bailout of Greece and Ireland there has been talk about trouble in other European countries. I have taken a look at the public debt trends in these countries over the past 50 years and contrasted it to Canada and the United States. Public debt may be only one factor, but it a very important one. Here is what I found.

All those countries have experienced sharp increases in public debt over the past couple of years, but so has Canada and the United States of America. It is clear that Greece was already having significant problems similar to what Canada experienced in the early 1990's, but they have been unable to to anything about it. Ireland on the other hand made great progress over the past 15 or so years.

Public Financing of Canadian Federal Political Parties

The debate on the per-vote subsidy for federal political parties has been simmering since Finance Minister Jim Flaherty proposed eliminating it in his fiscal update of November 2008. It was that update that almost sent Canadians back to the polls, mere weeks after electing a minority Conservative government, because it lacked a stimulus package to spur the slumping Canadian economy.

Flaherty proposed elimination of the per-vote subsidy to ensure there is "no free ride for political parties”. He went on to say "This is the last stop on the route; there will be no free ride for anyone else in government, either," and "Canadians pay their own bills, and for some Canadians, that is getting harder to do. Political parties should pay their own bills, too, and not with excessive tax dollars.". What Flaherty overlooked are all the other direct and indirect taxpayer subsidies that political parties benefit from.

A lot has transpired in the intervening months, but the per-vote subsidy issue has remained on the back burner; occasionally being raised as is was by Tom Flanagan and David Coletto of the University of Calgary in January, and Jeffrey Simpson in the Globe and Mail on August 11^th. The day following Simpson's article, Alice Funke (who runs PunditsGuide.ca ) pointed out political parties rely on four sources of revenue: the per-vote subsidy, party fundraising, as well as riding association and candidate fundraising. There are also two additional sources of revenue: leadership contests, and Elections Canada's 50% reimbursement on election expenses. Registered political parties that obtain at least 2 percent of the total valid votes cast in a general election, or 5 percent of the valid votes cast in the ridings where they have endorsed candidates, are entitled to a reimbursement of 50 percent of their actual election expenses paid. In keeping with Flaherty's assertion that political parties should pay their own bills, not with excessive tax dollars, it is worth considering all tax dollars the parties benefit from.

The per-vote subsidy, has already been well reported. The reimbursement of election expenses is published by the Receiver General in the Public Accounts of Canada in the year following an election or bi-election. The final figure is the indirect taxpayer rebate that individual taxpayers receive when making any federal political contributions. This can be found on line 410 of the federal worksheet. This indirect rebate ends up in many cases being the most significant taxpayer funding of political parties. Being indirect, and hidden, it is easy to ignore. The Canada Revenue Agency keeps this data confidential so there is no way to calculate the exact value without their cooperation. Reasonable estimates however can be made, as I have below.


All parties emphasize this tax rebate when soliciting donations with statements like “your contribution in any one year may entitle you to generous political tax credits on your next tax return”. They talk about getting 75% back on your contribution up to $400. Supporters of this rebate often counter that donations above the $400 do not benefit from the full 75% and use this argument to dismiss the significance of the rebate. With the majority of political contributions below $400, that is not a solid argument. It is worth exploring what the effective rebate would be on higher value contributions. The following graph illustrates the effective rebate in dollars and percentage on donations up to the $1,100 maximum.

As illustrated, even at the maximum $1,100 donation level the effective rebate will be just under 54%. Lacking detailed accounting from the Canada Revenue Agency we need to make some estimates on what rebates would apply. Funke has started some related investigation, she looked at the 2009 contributions from individuals based on detailed reports from Elections Canada and groups them into amount per individual contributor. Contributions vary by party, and from year to year. For the purposes of this analysis I have selected broad categories to reflect an approximate average between the parties. 55% of the contributed funds are assumed to have the full 75% rebate, with the next 15% at the $600 rebate, and so on according to the following table. With fewer donations, and those being higher in value, the Liberal party is probably benefiting slightly less from taxpayer dollars than this average and the converse for the Conservative Party.

Contributions	Value	Effective rebate
55%	<= $400	75.00%
15%	<= $600	66.67%
5%	<= $800	61.46%
5%	<= $1,000	55.83%
20%	<= $1,100	53.79%

I have calculated the average annual contribution to each federal party based on the returns from Elections Canada for the past 5 years. It is now possible to estimate the average annual tax rebate on contributions that benefits each federal party with a range of minimum (53.79%) to maximum (75%) covered by the hashed area, and my estimated value is represented by the vertical line and value.

To complete the model, tax rebates attributed to candidates, riding associations. and leadership campaigns need to be taken into account. Far less information is available on these to make reasonable estimates. I have included a very rough estimate of the public component for candidates and riding associations at the end of the next two charts, assuming a low rebate of 40%. We now sum up all these taxpayer contributions to the political parties and get a more complete picture of federal party financing from the public accounts. The following chart illustrates for each party how much funding they are receiving on average annually from the taxpayer (based on the past 5 years). The non per-vote subsidy ranges from a low of 44% of total public financing for the Bloc Québécois to a high of 69% for the Conservative Party of Canada.

One final view of the public funding is from a popular vote perspective. The original intent of the per-vote subsidy was to ensure an even playing field for public funding of political parties. The more votes the party received, the more funding it would be entitled to. In an ideal world the average annual per-vote funding should be even across all parties, but this is clearly not the case. Here is the total estimated annual public funding divided by the number of votes received in the fall 2008 General Election.

Looking at the average election cycle of 3.58 years (40^th Parliament, 143 years) we can get an estimation of how many public dollars each party consumes for each vote received. Some parties are over twice as efficient in their use of public funds as others for their electoral campaigns.

If Jim Flaherty is truly interested in “no free ride for political parties”, then he needs to consider the entire public funding spectrum. Today our federal parties together have an aggregate annual revenue of about $95 million. My calculations demonstrate that 80%, or over $70 million, is from the taxpayer. The per-vote subsidy only accounts for slightly over one third (36%) of that public funding. It is a fallacy that any of the parties are self sustaining and pay their own bills.

In a democracy it is important to have strong candidates and healthy parties, and public funding helps achieve that goal. The per-vote subsidy is a fair system that levels the public funding between all parties and strengthens our democracy. Expense reimbursement and individual contributor rebates distort it.

It is time to bring accountability and fairness to public funding of federal politics:

1. Request that the Canada Revenue Agency start reporting on total tax rebates (Schedule 1 line 410) relating to each federal party, candidate, riding association, and leadership contestant. We need full transparency to understand where our tax dollars are going.
2. Eliminate reimbursements and individual political contribution tax rebates (step 1 will then become obsolete).
3. Maintain the same overall level of public funding of political parties as today by increasing the per-vote subsidy to cover the current average of funding across all parties.
4. Explore public funding alternatives for candidates, riding associations, and leadership contestants.

Copyright © ?Impact - Questionable Impact, 2010

Was that really a missile?

On Monday November 8, 2010 the KCBS news helicopter captured some spectacular footage of what they thought was a missile launch. This story quickly went viral.





It really appears to be something spectacular when you look closely at the footage. The apparent vertical launch profile of the missile, the plume of smoke, and the light flashing from the solid fuel rockets as some people claim.

The Pentagon and NORAD denied any knowledge of a missile. That simply added more fuel to the fire and gave license to the conspiracy theorists. The story went viral. There were many of us who accepted the official story that it was probably an airplane contrail, and knew that all we needed was the exact location of the helicopter taking the footage, direction the camera was facing, and time it was shot. Thanks to the work of blog writer Liem Bahneman we now have a very credible explanation. There are two possible commercial flights that were in the area at the approximate right time, they are US Air flight 808. and UPS flight 902. The most likely candidate is the US Air flight, as shown in the map below.

A more detailed map shows the coastline of California, and where it passes over Santa Catalina Island.

I extracted the flight details for both of these and put them into Google Maps. The airplane icons represent US Air flight 808 which is the most likely candidate, and the smaller triangles are UPS flight 902. If you click on any icon you will get details about the time it was at that location and altitude, speed, heading, and if it was in level flight, climbing or descending and at what rate.


View US Air Flight 808 in a larger map


It's up to you to believe in secret missile testing, or show of strength from North Korea or whatever theory grabs your fancy. I believe there is sufficient evidence to explain this is simply a contrail from US Air flight 808. I have provide all the links to the details you need. The rest is up to you.

Political Attack Ads

It appears that modern politicians have nothing on those of a by-gone era.

Canada Deep in Debt for over 50 years

  Background



Recently the Department of Finance Canada published the latest fiscal tables that detail our federal governments' financial history over the past 49 years. After some searching around, I found an older copy that includes another 15 years earlier. I took the 1960-61 year from the earlier table and combined it with the latest 49 years to provide the 50 year snapshot of Canada's financial health. Besides being a nice round number (half-century), I was born within 6 hours of the start of Canada's 1960-61 fiscal year and I can identify very closely with this time frame.



This 50 year snapshot begins halfway through the term of John Diefenbaker and concludes in the middle of Stephen Harper's term. I generally stick to the 50 year term for comparisons, but will make some additional observations outside that term. In general, John Diefenbaker carried larger budget deficits in his earlier years in office ($557 million higher annually), and we are only through 7 months of 2010-11 for Stephen Harper but the "on-track" statements suggest that the 2010 budget which forecast a $49 billion deficit this year will happen (i.e. the trend is going in the wrong direction).

The Bottom Line

I will start with the bottom line, because this is really what matters to Canadians. We have been carrying a large debt load since at least World War II. If we did not have this starting debt load, today we would have been able to afford an average of 19% higher program spending with zero debt today. The big problem with the finances of our country is debt management.

The Raw Data

Let's first look at the annual operating surplus (deficit) and the national debt. Note: click on any of the charts to enlarge them.

In the above chart I use the operating surplus (deficit), not budget surplus. The budget surplus (deficit) however is reflected in the (mounting) debt. The operating surplus illustrates how well the government balanced the program costs with revenue in a specific year. The government is still responsible for past debt, making the budget surplus (deficit) most important. The green lines at the bottom of the chart represent changes in Prime Minister, and the coloured background represent either Progressive Conservative/Conservative (blue), or Liberal (red) governments. It is clear that the years 1975-1995 were very bad for our debt, and the year 2009 and looking forward is also very bad.



I delineate with the start and end date of each Prime Minister's government. It could be argued that policies of one Prime Minister will affect the early part of the next one(s). This is especially true for those who served very short terms (Turner ~3 months, Campbell ~4 months, and Clark ~9 months); unfortunately there is no clean way around this. By being consistent I hope to at least provide a balanced view. Just as poor [financial] decisions during the latter part of Trudeau's time in office affected Turner & Mulroney, the poor decisions during latter part of Mulroney's time in office affected Campbell & Chrétien, and the good decisions during Chrétien & Martin's time in office affected Harper. If you look at the details on the charts you will clearly see the trends that start in one term and continue into the next.

The Basic Scorecard

In a few calculations, I provide the absolute numbers for a term (e.g. total debt accumulated by each Prime Minister). In most case however I will provide annualized results. This allows comparisons between Prime Ministers even though their relative terms may vary in length. Let's first look at what I call the budget scorecard. This has both the operating surplus (deficit) and budget surplus (deficit), in annualized form. The operating surplus shows us that Trudeau, Clark, and Turner were not able to cover program costs from revenues (taxes) on average over their term in office, although they may have had some years with an operating surplus. Harper was able to manage an average operating surplus over the first four years of his term, unfortunately the trend is downward and last year was twice the worst operating deficit in history. 2010-11 looks like it will be similar. If this keeps up, Harper will be looking at an overall operating deficit. The budget surplus is most important as it includes the debt servicing charges. Regardless how a Prime Minister deals with current expenses, prior debt servicing is part of his/her responsibility. The situation here is much different, and we can see that over the past 50 years it was only during Martin's term that a Prime Minister has managed an annualized budget surplus.

How much did they borrow?

Not all our Prime Minister's borrowed money to cover their program operating costs, but many did. Those that did are in the following table, sorted from worst to best on an annualized basis. I did not include the three who didn't borrow any money to cover their operating costs: Campbell, Chrétien, and Martin.

Prime Minister	Total new money borrowed for programs	Annualized new money borrowed for programs
Turner	$2,658 million	$12,288 million
Harper	$26,184 million	$6,317 million
Clark	$2,591 million	$3,466 million
Trudeau	$48,223 million	$3,122 million
Mulroney	$13,450 million	$1,534 million
Diefenbaker	$174 million	$57 million
Pearson	$193 million	$39 million

Scaling to reflect inflation

It is argued that in our inflationary economy, a better comparison is debt/GDP levels. With a larger economy, it is suggested that it becomes easier (I'm still waiting) to pay down previous debt. The analogy is like buying a house, and then switching to an accelerated payment plan after getting a raise. Let's first compare the national debt with Canada's GDP.




I find the accelerated GDP growth rate in the new millennium a bit disconcerting, but that is a topic for a different discussion. To simplify viewing, I have combined both into a single metric (debt:GDP ratio). The following chart shows that ratio in the blue line (left axis), and the growth of the debt:GDP ratio is reflected in the bars (right axis). A red bar is bad, as we are growing the debt relative to GDP. A green bar is good, as we are shrinking the debt relative to GDP.

It is clear from the above that things were going well during the Pearson years, and the first half of Trudeau's first term. Things then turned bad throughout the rest of Trudeau's time, including Clark's and the first year or so of Mulroney. Mulroney then made some changes that reversed that trend for a couple of years, but unfortunately that was short lived and the latter part of his term, Campbell's and the first year of Chrétien saw us slide back down. The situation was fixed by Chrétien and we saw improvement through his term, Martin's, and into the start of Harper's. The past couple of years however we have again slid back into increasing debt relative to GDP. I did not get GDP data back far enough to evaluate Diefenbaker in this respect, part of a future project. It does not look promising however, as he had even larger deficits earlier in his term.

The Redrawn Scorecard to accommodate inflation

It is now possible to return to the earlier scorecard, but scale it relative to GDP. This is probably the best overall comparison of the ability of the different Prime Minister's governments to manage our debt.

We can dismiss the 3 & 4 month terms of Turner and Campbell as they had little time to make effective changes. This leaves us with a poor record in debt management for Trudeau's second term, and Mulroney a close second. Note that if both of Trudeau's terms are combined (right of chart), then Mulroney is about twice as bad as Trudeau's overall debt management performance. The best overall is Martin, followed by Chrétien and then Pearson. Everyone else is bad, it is just a matter of degree.

Budget surplus as a percentage of revenue

Looking at debt:GDP ratio we are depending on inflationary forces to make our problem less severe, but in the long run we need to reduce the debt. The only way to reduce debt is to have a budget surplus. We pay down the debt from our revenues, so we should look at the budget surplus as a percentage of revenue. We need to run many years in the green (above zero) in order to pay debt down.

The Big Picture

Over the past 50 years we have spent $4.16 trillion on programs, and have collected a total of $4.74 trillion (taxes and other revenue). In that same time-frame our national debt has increased by $506 billion. We have gifted $1.1 trillion to the bankers during my lifetime, or $32,563 for every man, woman, and child alive on March 31, 2010. Better debt management would have allowed us to have both zero debt today, and spend 19% more on average for programs.

Why did this happen?

There never seems to be enough money to go around, but it is abundantly clear the main reason is our poor management of the debt. Regardless if your view is that governments should have lower taxes and less services, or higher taxes and more services, either situation could be accommodated if we had the flexibility of a lower debt. First and foremost our governments need to deliver balanced budgets. Second we need to clear this debt off our books rapidly. The only way to accomplish that is to direct sufficient funds toward that goal. Chrétien, Martin, and Pearson get full marks here and the rest of the our Prime Minister's governments are failures. We can neither raise program expenses without a corresponding rise in taxation, or cut taxation without a corresponding drop in programs. The actions of Prime Minister Stephen Harper took in making drastic cuts to corporate and consumption taxes turned us again on the road to financial ruin, just as clearly as new programs initiated by previous governments did.

Until we get our heads above water, we will continue to drown in debt. It is imperative we maintain adequate taxation to not just cover program expenses but with enough headroom to accommodate debt repayment as well. There is no magic formula for appropriate level of taxation and money to allocate to programs, it all depends on what priorities we want as a country. With a 50 year history however we do have a good template from which to make comparisons. The following chart has program expenses and revenue scaled to GDP.

In an ideal world with balanced budgets, both lines would be equal and maintained at a constant level to maintain a standard level of service. We can see that program expenses have been dropping steadily since the early 1980's, with the exception of last year's stimulus spending. Until the debt is repaid we also need to maintain the revenue sufficiently above program expenses to cover interest and principal repayment. Based on historical averages it look like having revenue around 23% of GDP, and program expenses around 17% of GDP (about 5% of GDP delta) will allow us to repay the debt. It will still take many years to complete that repayment, but once we do we can then afford whatever combination of lower taxation and/or increased programs we want.

What if we didn't start with any debt?

I thought it would be interesting to look at the scenario if there was no debt owing when I was born. Is this a problem caused by my generation, or one we inherited from a previous generation. It is clear to me that my generation has not done enough to solve the problem, but did we start it? With the data available, it was easy to generate a simulation based on a starting debt in 1960 of zero dollars (actually I can simulate any starting value), and maintain the same program expenses and taxation for the past 50 years. As I expected, the debt was repaid. So the other question in my mind is if we ran a surplus and invested that surplus what would we end up with. I have charted below 5 scenarios. The status quo is charted in brown and shows our current debt, the other four lines represent 0% interest on any surplus invested, a fixed rate of 1.5% interest, a variable interest rate equal to 33% of what we paid to the banks on their interest charges, and finally the unlikely full bank-rate interest. It would be easy to plot other scenarios with different rates, or perhaps a point spread.

What is clear however is that our current debt is inherited from previous generations. All simulated scenarios show a surplus today, even if we didn't earn any money on investing our surplus funds. They all run a debt during the 1980's and 1990's but we managed to get ahead by 1999. I also ran this model with different starting debts, and found that anything below $8.5 billion debt in 1960 would allow us to be debt free today.

Making it Personal

When I was born, I owed the banks $722 on behalf of the federal government. By my 50^th birthday, that had increased to $15,385. Over my lifetime, I gave $162,799 to the federal government of which $18,472 went straight to the banks. I know, you are thinking you paid more taxes than that. Well just remember, I am your average Canadian that includes man, woman, and child.

Comparison by Party

During the past 50 years we have had either Progressive Conservative, Conservative, or Liberal party run governments. In all the charts I have shown this with the coloured background. I will now provide a table to sum up the differences between these governments. I have grouped Progressive Conservative and Conservative together for this comparison.

Party	Progressive Conservative / Conservative	Liberal
Time in office	17 years (33%)	33 years (66%)
New money borrowed	$40 billion	$54 billion
Average new money borrowed annually	$2.3 billion	$1.6 billion
Total operating surplus	$128.30 billion (22%)	$452.30 billion (78%)
Average annual operating surplus	$7.5 billion	$13.7 billion
Total budget deficit	$345.0 billion (67%)	$173.1 billion(33%)
Average annual budget deficit	$20.2 billion	$5.3 billion

It appears that Progressive Conservative or Conservative parties run budget deficits that are four times higher than Liberals, and operating surpluses that are half that of the Liberals.

Without our original debt load that dates back to World War II, we would be debt free today and have 19% room to either focus on more programs or lower taxes. We need to focus on clearing up this debt so future generations will not inherit our parents problems.

Crime Rate & Total Crime 1962-2009

This is just a quick update on crime in Canada. Some people are under the impression that although crime rate is decreasing, overall crime is increasing due to population growth. Like Crime Rate, this has not been the case since the peak year 1991. I will try to provide a more refined view when I get a chance but here is a preliminary graph to illustrate the trend. To find the data source I am working from, check out my other articles with the label 'crime'.