Debt and deficits not covered in teaching: experts

Provinces have bigger issues than federal government to look at concerning indebtedness: commentator

OTTAWA (CCN)

When it comes to running deficits and increasing government debt, Catholic social teaching provides no straightforward answers, say experts.

“The Church is quite wary about blanket statements of the ethics of deficits,” said Joe Gunn, executive director of Citizens For Public Justice.

While there is a long history in the Church of suggesting usury is a sin, the view of charging interest has changed over time, he said. “Generally, the way to look at these issues is trying to understand the specific situations and making a moral judgment based on the specific circumstances.”

“Then you would look at two things: the quantity of the debt and the quality of the deficit spending,” Gunn said. “So if you’re looking at the quantity of the debt, you would be guided by the debt to GDP ratio, the size of the debt related to the size of the economy. For the federal government, it is lower than it’s been since 1995, when we were in a big pickle.”

Gunn pointed out the provinces have bigger issues to look at in terms of their indebtedness than the federal government does, because it’s debt to GDP ratio compares favourably with that of other countries. “There is room for deficit spending this time around,” he said.

“But I wouldn’t turn that into a once-and-for-all statement that we can always say deficits are fine,” he said. The need for deficit spending comes from the the downturn in oil prices, the need for a transformation in the economies of Alberta and Saskatchewan, and the poor.

Cardus director of work and economics program Brian Dijkema said it is not always easy to “draw a straight line to a specific policy” from Christian social thought.

One debts and deficits, however, there are a few principles at play, he said. “There is an intergenerational reality. There are times when taking up debt to serve a particular general will unduly burden future generations.”

An intergenerational justice issue has to be considered he said, so that future generations aren’t unduly mortgaged by the debts of today.

“Ideally, if the government is going to increase debt to stimulate the economy it should be doing so in ways that enhance greater productivity in the long term,” Dijkema said. If stimulus money is spent on better transportation, public goods such as bridges, an improving community infrastructures, “an argument can be made” that government is “taking advantage of low interest rates and spending” on projects that will make it “better for Canadians down the road.”

The question is, “How likely is that to happen?” or “How good is the government in doing that?” Dijkema said. “I’m not convinced either the Liberals or the Tories are good at doing that.”

What ends up happening is stimulus programs “end up dispersing a great deal of money,” but he can’t see any measurements productivity was increased in the long term.

Economist Father Bill Ryan of the Jesuit Forum for Social Faith and Justice said the general Keynesian principle is “when the economy is going well, you should run down your debt.”

When the economy is not working well, when people are unemployed, then one uses fiscal means, he said. Lowering interest rates no longer works, since they are so low, and there’s no proved link between helping the economy and lowering business taxes.

The main concern in deficit spending is the need for long-term consideration in spending priorities, he said. “Unfortunately our elections are short-term.”

Thus decisions are made on elections and not economics, he said. Canada, as most countries around the world, except China, needs long-term investment to renew aging infrastructure such as roads, sewers, and bridges. “Our infrastructure across Canada is falling down.”

In terms of the quality of deficit spending, one of the biggest spending envelopes in the budget is the new Canada Child Benefit (CCP) that Gunn said most ethicists would say was “a good thing” because of it lowering “the incredibly high level of child poverty in Canada.”

Gunn said it’s estimated the CCP, designed to give lower-income families with children a large increase in benefits through the tax system, could lift 300,000 Canadian children out of poverty.

Father Ryan also believes Canada has to pay attention to income distribution, so that new wealth created does not only go to the top people who are rich. “The best way is to put money in people’s hands, to give people jobs,” he said.

In Catholic social teaching, the main consideration is how does it affect the poor? Ryan said. If in avoiding a deficit or paying off the debt, the poor will suffer, that has to be kept in mind.

Yes, future generations need to be considered, he said. But the government must prevent the present generation “from being angry, from revolting, or from going more and more into poverty. It’s a balancing act.”

Gunn said borrowing money this year and next to help workers now facing unemployment in the oil patch to transform the sector and move workers into preferably more sustainable jobs.

Dijkema said ideally if sustainable green jobs are funded, they should continue beyond the time the government funds them.