Negligent Use of the Federal Surplus

The letter below was sent to the following newspapers on October 28: Toronto Star, Star Electronic Publishing, Ottawa Citizen, Kingston Whig Standard, Independent Voice (Kingston), Kingston Eyeopener, Vancouver Sun, The Scoop (Windsor), Windsor Star.

Richard Priestman

The Editor:

David Miller, Mayor of Toronto, is outraged over the federal government’s nearly $14 billion debt payment, and other city mayors should be, too. This money could have and should have been used to repair some of the damage inflicted on Medicare, education (especially post secondary), housing programs and infrastructure such as roads, bridges, water lines, sewers and water treatment facilities. Municipalities are almost swamped with downloads and property taxes are rising.

Using the money to pay down the national debt is negligence of the most serious nature. We have a public bank, the Bank of Canada, which can carry federal debt at almost no cost. It could have assumed $14 billion of the debt leaving the $14 billion surplus for other uses. All the parties in the House are aware of this, but none of the current crop wants to talk about it – and neither, it seems, do journalists.

Both Liberal and Conservative finance ministers’ responses to using the Bank of Canada to finance public debt is that that would cause inflation, completely ignoring our history. From 1939 to 1974, the government used the Bank to finance a significant portion of public debt. In 1950 the inflation rate was 2.8; in 1971 it was 2.9; then it began to rise as a result of the big increase in the cost of oil. One of the tools used to contain inflation was the statutory reserves. These were removed by Brian Mulroney in 1991 and would have to be re-instated to keep inflation under control. For example, chartered banks and other financial institutions could be required (collectively) to put $14 billion in reserve so that the $14 billion put into circulation by the Bank would be off-set by the funds put in reserve.

While you and I cannot get an interest-free loan from a bank or other commercial lender, the government of Canada can when it borrows from the Bank of Canada because it owns the Bank. Any interest charged to the government by the Bank comes back to it as dividend less a small cost for administration. Amazingly, our government chooses to borrow commercially rather than from its own bank with the result that we pay in our federal taxes about $32 billion a year in unnecessary interest. More than that, with the co-operation of the federal government, provincial and local governments could also borrow from the Bank of Canada at very low cost, but this does not happen. Provincial and local governments, collectively, pay about $30 billion a year in interest for a total of over $60 billion a year paid by Canadian taxpayers in unnecessary interest.

We used the Bank of Canada before to finance public capital projects and we can do it again. It is a matter of political will, and this is a good time, politically, to act on this. Politicians are more inclined to listen to proposals from their constituents when faced with an election.

Richard Priestman, Kingston Chapter, COMER

– from Economic Reform, November 2007