Borrowing money is back in style.
Justin Trudeau’s success at the ballot box this week showed that Canadians aren’t afraid to borrow money to build the country. We need more public transit and other vital infrastructure, and we need it now. So if we don’t have the money today, we have to borrow.
This makes sense – especially at a time when interest rates are at rock-bottom lows. As long as our tax system collects enough revenue from the new growth that infrastructure brings, paying off the new debt shouldn’t be a problem.
But there’s something else Mr. Trudeau can do to build the country and keep our finances solid.
A long time ago, a poor, broken-down country called Canada lifted itself out of the dust of the Great Depression and threw its energy into fighting World War Two. Over the course of the war, Canada built 12 million military vehicles and hundreds of ships. We equipped a million men and women in uniform and joined the invasion of Europe.
How did a poor country do that, when we had no money? Easy. We borrowed it from our own bank – the Bank of Canada.
Like any bank, the Bank of Canada creates money when it creates loans. And it can set its own interest rate. Under the Bank of Canada Act, the Bank can lend the federal government up to one-third of its expected revenues for the year. It can lend provinces up to one-quarter of their expected revenues for the year.
We don’t have to pay private sector interest rates on public debt. We can charge ourselves as little as we feel like.
That’s what we used to do. That’s how we built our country up, after the war.
Then, in 1974, the government of Canada decided to stop borrowing from the Bank of Canada. (The Prime Minister at that time was a fellow named Pierre Trudeau.) From that point on, our governments only borrowed from private lenders. And it has cost us hundreds of billions in interest charges over the decades.
Here in Ontario, our Auditor General has shown how public dollars are wasted when governments pay private sector interest rates for public works. Government can borrow for less, even in private markets, but if we borrowed from the Bank of Canada, we’d hardly pay at all.
Here in Ontario, Premier Kathleen Wynne wants to sell off Hydro One, a strategic asset, because she says she needs money to build transit, roads, and bridges. But a one-time cash injection won’t work. Whenever we privatize the assets our society needs, we end up paying for companies’ greed. What we need is stable, long-term financing. And Kathleen Wynne’s good friend Justin is in a perfect position to make it possible.
Eduardo (Eddy) Almeida
First Vice-President/Treasurer, Ontario Public Service Employees Union