Editor’s note: This is the third op-ed by Fairmont Hot Springs resident Doug Clovechok, who is the BC Liberal regional director for the East and West Kootenays, and the president of the BC Liberal Columbia River Revelstoke Riding Association. Readers are invited to email
firstname.lastname@example.org with any questions or hot-button issues they would like Mr. Clovechok to address.
Over the past few weeks I have shared with you some of the amazing success stories that the BC Liberal government has achieved for British Columbians and I have appreciated both the positive feedback and the constructive criticism I have received.
I would like to thank you for your questions and I am excited to tackle one of these — the question related to the growth of our provincial debt between 2001 and 2015 and if this growth reflected poorly on the BC Liberals economic track record. (Question: When the Liberals were first elected in 2001, the provincial debt stood at $23.1 billion. Over the last 14 years, this number has increased to over $40 billion. How can the Liberals claim that they are the most fiscally prudent party given their economic track record?)
When I started to think about this issue, I realized that by just comparing 2001 and 2015 debt numbers without adjusting for economic factors (growth) does not help us arrive at an accurate answer! I also realized that, in part, this very important issue would be best answered, not by politicians or those associated with political parties, but by those who make their livings rating governments and businesses around the world.
For example, economists at Moody’s, one of the most well-respected credit rating agencies in the world, have again affirmed our province’s economic standing by giving us a AAA stable credit rating — the highest possible. What this rating does is give the province a much lower interest rate on the money we borrow, therefore saving millions on debt reduction.
B.C. is one of only three provinces in Canada to achieve this rating and the fact that B.C. is the only province in Canada that has balanced its budget three years in a row helped secure the AAA rating.
This AAA rating, in many ways, is like you and I having our local bank or credit union manager tell us that we have an excellent personal credit rating. That means we can borrow money to do the things that we feel are best for our families while prudently staying within our spending means. How did we earn the excellent personal credit rating? Simple. We pay our bills and we have demonstrated that what we earn is not only capable of paying off our debts, but that what we earn also has the ability to grow into the future.
The same is true with a province. The provincial “salary” is called the Gross Domestic Product (GDP), which, in simple terms, means the total value of all goods and services produced domestically by a province during a year. Add this total number to the amount we owe and you get what is called the “debt-to-GDP ratio” (how much we owe compared to what we earn).
The size of the provincial debt most certainly factors into the ratio. In order to understand how this factors, we must examine what I call “credit card debt.”
In provincial terms, this type of debt results from government borrowing to finance the annual operations of government, which does not increase the GDP and results in an ever-increasing debt-to-GDP ratio.
The fact of the matter is that, in 2001, the BC Liberals inherited massive amounts of “credit card debt” that the NDP had accumulated in the 1990s and we have had to work hard to pay off this debt.
Since 2001, we have been building our economy with a new vision and borrowing principals. The kind of debt that we have borrowed is not the old “credit card debt,” but debt that allows us to invest in capital projects and infrastructure such as schools, hospitals, highways and bridges, etc. that, in turn, contribute to growth in British Columbia’s GDP.
This is no different than a business borrowing to invest in their future growth or an individual borrowing to buy a house, knowing they will have the personal “GDP” to pay it off over time.
There is no question the provincial debt we have today is greater than the debt we had in 2001. Yet, there is also no doubt that the type of debt we have is different.
There is no question that our economic strength, our GDP, is light years ahead of where it was in 2001, meaning that we have a greater capacity to not only to pay off our debt, but continue to grow our GDP. Just this week, the Minister of Finance announced that the BC Liberal government will post, for 2014, a $1.68 billion surplus — a surplus that will be applied directly to our debt!
None of us want debt or like it, and we all aspire to be debt-free. But, in reality, during our working lives and when we are raising our children, it is necessary to borrow and amortize debt over a long period and plan to be out of debt by retirement. Provincial governments don’t ever get to “retirement.” They must borrow to maintain and build infrastructure, and that is the debt we have today — not the credit card debt the NDP incurred in the 1990s.
Doug Clovechok can be contacted at email@example.com.