So tomorrow I talk to a bunch of cops, which probably means I shouldn’t arrive on my Harley while I simultaneously text and post blog comments. Actually it’s a conference of chiefs of police, and my job is to tell them about the future. I will wear body armour.
Reality is, public finances suck right now. Just as house lusty couples have mortgaged up their future to have GC-tops & SS today, whether they can afford them or not, so too have governments lived way beyond their means. The two are about to collide.
A few dozen people who work for the federal Industry Department had a crappy day yesterday when they lost their jobs. At least they have company. Seven hundred more are being fired at Public Works. More went at the organization which runs our museums. And more at Environment Canada.
In fact the federal public service is about to shrink by 11,000 people a year as the feds implement an austerity and downsizing program few people knew existed. No retiring workers will be replaced. Soon whole programs will be cut. Departments will be slimmed. Ottawa real estate will meet the Cookie Monster, aka Tony Clement. When asked if more people were about to be trashed he said: “I would say there are more layoffs coming, yes.”
But this is not just the feds. Every province but one (okay, okay… the first one to tell me which gets a book) is running a budget deficit. Some, like the $19-billion bottomless pit in Ontario, will be almost impossible to contain, unless health care is nailed and taxes goosed.
Cities? Forget it. Vancouver is a basket case, thanks to some recent sporting event. And Toronto is sinking faster than modesty at the Gay Pride parade. Debt there soared 20% last year and now stands at $4.4 billion. To pay the interest on that takes $400 million a year in tax revenues, which is more than the fire department costs. And every year, the debt rises more.
Imagine. Every Torontonian coughing up a double land transfer tax, per-garbage-bag levies and a car tax, while watching the province’s debt rising by almost $20 billion a year and the feds spending $40.5 billion more than they take in. It’s unprecedented. Never before in history – even during the Depression – did virtually every government in the country pee away more money than it took in.
This is called leverage. It’s when you need to borrow to get what you want because you can’t afford it. It’s a fundamental principal of real estate ownership these days, and also a reason why the cops won’t like what I have to tell them. Because leverage can’t last.
Take Greece. Those ouzo-swillers have been living on leverage since Aristotle was a rock star, and the results are in. Interest rates soared, bonds crashed, banks are wobbling, the government’s under siege and a national debt default (at some point, inevitable) will wipe away pensions and public services.
Too much leverage is why some US cities don’t answer most 9-1-1 calls anymore and teachers are being laid off. Beleaguered taxpayers simply hit the wall and are unable to finance governments which need money just to pay the interest on old debt, while they accumulate new debt. We’re not there yet, but we’re on the path. Every leader knows it, and now that H has his majority he’s determined not to go into history as they guy who left the cupboard bare and sold off the copper plumbing.
This is why deleveraging is coming. It’ll happen through austerity, cutbacks and layoffs. The stimulus spending that kept recession from becoming depression will end. Civil service (and corporate) pensions will be under review, then attack. Government will of necessity become smaller and meaner, and not necessarily without a measure of public support – since the alternative is endlessly higher taxes.
Of course, taxes will go up anyway. It’s one good reason you might want to stop stuffing your RRSP. The odds are in future personal tax rate increases mean you pay more money in tax on withdrawals than you ever saved on contributions.
For house hornies, this is not cool. With deleveraging comes less economic growth. With public sector layoffs and pension revisions come downward pressure on private sector wages and benefits. This is not what a nation needs where half of us, effectively, have no savings and household debt’s endemic. Thousands of young fools with no money bought houses since 2008 convinced they could borrow big because economic recovery would bring rising prices to wipe away their debt. Surprise.
And I haven’t mentioned European debt, a stagnant America, unreliable China, a nuke-oil crisis or the threat posed by Canuck fans.
Which brings me back to the cops. We might be needing more of them.