, 12 tweets, 5 min read Read on Twitter
I watched some of the #firstdebate last night. I heard some mention of the supposed great burden of the "massive" deficits on interest payments.

Let's take a look at the facts.....

1/x
Here is federal government interest payments as a share of GDP from the 1960s projected to 2024.

We are at historic lows here for interest payments.

Sources and data:
docs.google.com/spreadsheets/d…

2/x
Those projections of the debt servicing costs are from Budget 2019.

Here are the projected 10-yr bond yields from Budget 2019, and today's Bloomberg 10-yr Canadas yield.

3/x
Because 10-yr yields have fallen by so much, those projections of future debt servicing costs from Budget 2019 are almost surely higher than what we will actually see in 2019-20.

That is, debt servicing costs are very likely to come in under budget. 4/x

Now, what about the size of the debt and deficit?

I did a thread on this back at budget time. Have a look here.

But here's a tl;dr graph. It's almost impossible to see any bump in the debt.

5/x

Will these deficits lead to tax increases?

No.

Why? Because the existing tax structure raises revenue on new GDP as the economy grows. This increase is larger than the interest on new debt, when deficits are small (like now).

6/x
...so, on current policy, our economy is on the path to zero debt according to the @PBO_DPB .

Of course, future policy may change! But current policy is sustainable.

7/x

pbo-dpb.gc.ca/en/blog/news/F…
Federal debt in 15-16 was $634B. According to Budget 2019, we'll hit $705B by 19-20.

So, the first-term extra debt is about $71B.

At today's 1.45% 10-yr yield, that costs us $1B/yr to service.

That's not nothing! But it is also not large in a $2.3T economy.

No crisis.

8/8.
Bonus pre-buttal #1: "Hey, what if there is a recession?"

In 2009 we had the largest nominal deficits in history in response to the great financial crisis.

This is what this looked like in debt/GDP terms.

We have capacity to handle that size shock again.
Bonus pre-buttal #2: "But provincial debt is unsustainable!"

True!

So, what response do you have in mind for the *feds*?

Higher transfers from feds to provs?

Lower fed taxes to create tax room for provs? (which would require fed spending cuts....)

Good debate to have!
Bonus pre-buttal #3: "Small deficits always become large ones. Can't trust politicians."

This is falsified by looking at almost *any* country or province. Deficits go up and down. Under govts of all stripes.
What do outsiders think of Canada's fiscal policy?

"Over the past five years, Canada has employed a judicious mix of policies to support inclusive growth"

This is from the *IMF*, not known as wild spendthrifts, lol.

imf.org/en/News/Articl…
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