Thank you very much for the invitation to appear with you today. It's an honour to be with the committee. My only regret is that, even as we speak, Jagmeet Singh, leader of the federal New Democratic Party, is going to be addressing a C.D. Howe Institute webinar. I had hoped to host Mr. Singh for that event, but when the invitation came, I thought it was best to respond positively to an invitation to appear in front of parliamentarians, so here I am. I hope my contributions will help you in the important work you're doing.
I look forward to your questions. My opening remarks key off Bill C-14's provisions related to borrowing.
The federal government's current reliance on borrowing, rather than taxation, to fund its programs is unprecedented. That means that the apparent cost of federal programs to taxpayers is unprecedentedly low. This situation will not last. I urge members of this committee to evaluate all fiscal proposals, including those in Bill C-14, in light of the sharp increase in the tax costs of federal programs that is inevitable over the next four to five years.
As you know and have discussed already, Bill C-14 would amend the Borrowing Authority Act to increase the debt limit from about $1.17 trillion to $1.83 trillion. Those numbers are astonishing, as is the fact that this is projected to cover borrowings only until March 31, 2024, so about three years from now.
Those of us who remember the federal government's fiscal problems of the 1980s and 1990s get little comfort from assertions that borrowing on this scale is not a problem. Some of you will remember that successive governments, Conservative and Liberal, had to deal with tough trade-offs among programs and taxes during a period when interest payments meant that the federal government was asking Canadians to pay more than a dollar in taxes for every program dollar. We don't want that. We make better decisions when we are paying a dollar in taxes for every program dollar.
It came up earlier, and let me just say, since I'm talking about the quality of decisions, that I have not had an opportunity to comment in this forum on the failure to produce a budget in the 2020-21 fiscal year. That was a failure of accountability that was also unprecedented. Parliament needs and Canadians need proper conversations about fiscal choices. Those fiscal choices have to hold up over time, when the normal healthy process of evaluating each program and each tax, dollar for dollar, resumes.
I'm using this concept of the tax cost of a program dollar because the hundreds of billions or trillions of dollars that we're now talking about in programs and debt are a bit hard to grasp. I think it helps if we boil it down to ask how much tax each year Canadians are paying to the federal government for each dollar of program spending they get.
To give a simple example, if the budget is balanced, the number is going to be a dollar. It will be a bit more than a dollar if there are a few cents that are covering interest payments. If the government is targeting the ratio of debt to GDP—and I know many of you have talked about this and many economists have advocated it—then the number is going to be one dollar plus interest and then as much borrowing, as much of a deficit, as GDP growth allows subtracted from that. If interest rates are higher than growth rates, as was the case in the late 1990s, the number will be larger than one. If interest rates are lower than growth rates, it will be less than one, but over time it always gravitates towards one.
In the fiscal year about to end, the numbers in the fall economic statement show that the tax cost of a program dollar was 46¢. The federal government borrowed more than half of every program dollar it spent. To repeat, that is unprecedented. Even in the late 1970s, when the seeds of the fiscal problems of the 1980s and 1990s were planted, that number never got below 80¢. It won't last.
Even the projections in the fall economic statement, which has very low interest rates and continued heavy reliance on borrowing to finance programs, prefigure the tax cost of a program dollar doubling to 92¢ in 2025-26. If you project further out, it keeps rising. If you allow for the higher interest rates we're already seeing, it will surpass a dollar.
The message in my opening remarks is that the apparent cost of federal programs to Canadians is currently very low. It's less than 50¢ on the dollar. It is going to rise. In round numbers, it's going to rise back to a dollar. Our choices have to make sense when the cost of programs is not half-price. Easy credit undermines good decision-making. We prevent people from using credit cards to buy lottery tickets for a reason.
The federal government overextended itself in the 1970s. It expanded many of the programs, including income supports to people, and transfers to provinces got cut when the tax cost of a program dollar rose in the 1980s and 1990s. If we build big ongoing programs on the premise that Canadians can have them at 50¢ on the dollar, we build them on a foundation that will shortly melt away.
The only programs the federal government should promise are ones we can sustain: those for which the government is willing to charge and those for which Canadians are willing to pay full price.
Thank you for allowing me this opportunity to appear. I hope you found my opening remarks helpful. I look forward to your questions and comments.