What should be done with the surplus?

Topaz · October 30, 2014

A report out today, says that the feds have 7 BILLION of approved spending just sitting and would have 18 Bil in years Now I'm sure the Tories are very proud of themselves for the surplus but like ALL surplus any government creates this is not good for the country of its people. The military needs money badly, the vets, etc and what they want to do with it is give income-splitting to a few Canadian families who are already making good money, which I include as the MP's themselves. It was cost 2.5 Bil yearly for this program and I don't think it a good thing to do. I think any surplus should go back to ALL of the people not just a selection of people and I don't care which party does it, it wrong I think this could backfire on the Tories and even though it was a promise....if Harper had said, I'm sorry I can't do it but I will do... http://www.canada.com/News/canada/Billions+federal+cash+goes+unspent+Tories+mull+cuts/10336395/story.html

Shady · October 30, 2014

I would say pay down the debt.

PIK · October 30, 2014

Did the conservatives not have one third rule about surpluses, a 3rd to the country, a 3rd to debt and the rest for programs.

Argus · October 30, 2014

I would say pay down the debt.

I would agree. Though I'd also like to see the military get the kit they need and were promised.

Boges · October 30, 2014

F-35s for everyone!

Moonlight Graham · October 31, 2014

Pay down debt. And buy post-Halloween candy on sale for everyone.

August1991 · October 31, 2014

I would say pay down the debt.

That's insane. Current federal government borrowing is at about 2% or so. If you had debt at 2% interest, would you pay it back?

Shady (and Argus), you both seem to think that we should accept (and finance) the current level/way of governments spending money. (Balance the budget! No debt!)

I care little about where/how the government gets its money - after all, it's our money however you tally the numbers. I question rather the budget size and more particularly on what and how governments spend the money.

Edited October 31, 2014 by August1991

August1991 · October 31, 2014

Pay down debt. And buy post-Halloween candy on sale for everyone.

Let me correct that post for you - and explain Harper's dilemma:

a. Pay down debt

b. Buy post-Halloween candy for everyone.

c. Cut taxes

d. Give money to people who may vote for me.

Edited October 31, 2014 by August1991

Argus · October 31, 2014

That's insane. Current federal government borrowing is at about 2% or so. If you had debt at 2% interest, would you pay it back?

Shady (and Argus), you both seem to think that we should accept (and finance) the current level/way of governments spending money. (Balance the budget! No debt!)

I postponed paying a final big balloon payment for my house because I'd rather put that money in the stock market and the interest rates are very low. BUT. If interest rates rose I could pay it off instantly and easily. That's the difference. The government has a large debt which, even at present low rates is consuming $30 billion in taxes each year just to service. If interest rates go up just a little bit, say from 2% to 3% that servicing charge rises to $45 billion. If interest rates rise to 4% now we're at $60 billion.

And interest rates WILL rise. Maybe not quickly, maybe not even this year, but they WILL rise in the next few years. The present rates are at historic lows. So the time to start paying down the debt is NOW, not when interest rates have doubled or tripled and we're in the middle of another recession.

Edited October 31, 2014 by Argus

hitops · October 31, 2014

I postponed paying a final big balloon payment for my house because I'd rather put that money in the stock market and the interest rates are very low. BUT. If interest rates rose I could pay it off instantly and easily. That's the difference. The government has a large debt which, even at present low rates is consuming $30 billion in taxes each year just to service. If interest rates go up just a little bit, say from 2% to 3% that servicing charge rises to $45 billion. If interest rates rise to 4% now we're at $60 billion.

And interest rates WILL rise. Maybe not quickly, maybe not even this year, but they WILL rise in the next few years. The present rates are at historic lows. So the time to start paying down the debt is NOW, not when interest rates have doubled or tripled and we're in the middle of another recession.

Sounds like you know what you're doing here. Paying down the house these days doesn't seem nearly as smart as putting money into the stock market.

That said, it's still compelling to pay down the house for some reason.

bush_cheney2004 · October 31, 2014

Those who are so confident that investing in the stock market is smarter than paying off the house should ask themselves a question: If it's such a great idea, would you pull equity out of your house to invest in the stock market ?

hitops · October 31, 2014

Those who are so confident that investing in the stock market is smarter than paying off the house should ask themselves a question: If it's such a great idea, would you pull equity out of your house to invest in the stock market ?

Only if you invest in assets you can quickly sell to put back into the house if interest rates rise. The problem with having a huge amount of your net worth in the house is it is very non-liquid. When you need the money, it's a very expensive and time consuming process to sell the house.

Then the most obvious benefit which is that while you're paying your 2-3% on your house, the market is getting 7-10% (actually a fair bit better in recent years).

In many place in Canada today, renting makes far more sense than buying. That includes almost every major market.

Edited October 31, 2014 by hitops

bush_cheney2004 · October 31, 2014

....Then the most obvious benefit which is that while you're paying your 2-3% on your house, the market is getting 7-10% (actually a fair bit better in recent years).

The market pays more because there is higher risk. Paying off the house provides a priceless personal peace of mind that is not the equivalent of paying down Canada's debt with the surplus.

hitops · October 31, 2014

The market pays more because there is higher risk. Paying off the house provides a priceless personal peace of mind that is not the equivalent of paying down Canada's debt with the surplus.

For Canadians buying a first house right now, putting your money in a house just means a lifetime of debt. Our average home price is $400K (that's the average, it's double that in Van and TO), vs around $180 in the US. OECD says we have the most over valued housing in the world.

When the market is performing so much better than the bank interest rate, it makes sense to go with the market. But borrowing and spending is not the same as investing. Governments do not invest in the market, they 'invest' in various other nonsense which usually just mean vote-buying (such as we saw yesterday). That's not an investment that pays back, that's just spending money.

In the future, we don't benefit from the government buying people votes today. We do benefit from having a lower national debt.

Edited October 31, 2014 by hitops

Moonbox · October 31, 2014

Now I'm sure the Tories are very proud of themselves for the surplus but like ALL surplus any government creates this is not good for the country of its people.

Topaz no offense, but this is one of the dumbest things you've ever said on this forum. A government surplus is a bad thing for a country? That's a supremely ignorant/delusional comment and ignores both common sense and basic math. First, the only alternative to a surplus is a deficit, as a perfectly balanced budget is practically impossible. Next, western governments are burdened with enormous loads of debt from the failed Keynesian economics of the 70's and 80's, so the surpluses of today aren't just going into the "piggy bank". They're going to pay back the excesses of the previous generation.

While I agree with your point that income-splitting is a bad idea (it is), the national debt should be a top priority. Surpluses should be directed to paying as much of it back as reasonable so that we're not mortgaging the future for short term comfort like the Baby Boomers did.

The_Squid · October 31, 2014

they should squander it like they did with the last surplus they had!

I can't believe that anyone can take the government's fiscal record seriously after a decade of ineptitude.

Moonbox · October 31, 2014

Governments do not invest in the market, they 'invest' in various other nonsense which usually just mean vote-buying (such as we saw yesterday). That's not an investment that pays back, that's just spending money.

Some government spending does yield positive investment returns (healthcare, infrastructure, education etc), and some of it most certainly does not.

Shady · October 31, 2014

That's insane. Current federal government borrowing is at about 2% or so. If you had debt at 2% interest, would you pay it back?

Shady (and Argus), you both seem to think that we should accept (and finance) the current level/way of governments spending money. (Balance the budget! No debt!)

I care little about where/how the government gets its money - after all, it's our money however you tally the numbers. I question rather the budget size and more particularly on what and how governments spend the money.

No, I'm more interested in paying off past debt. Just because interest rates are low now, doesn't mean they will be 5 or 10 years from now. If they rise, so does the cost of financing the debt. Which will squeeze other spending, or cause even more debt. I'm looking at the long term picture.

Argus · October 31, 2014

Those who are so confident that investing in the stock market is smarter than paying off the house should ask themselves a question: If it's such a great idea, would you pull equity out of your house to invest in the stock market ?

Last year and the year before I made one-time $35k payments on the house. I now owe about $30k on my mortgage, which I'm allowed to pay off in full any time I want to. That represents about 7.5% of my house's likely value, so in effect, the mortgage pretty much IS paid off. I can get rid of it at any time by withdrawing the money from the stock market, and in any case it will be paid off in a couple of years.

I have considered pulling equity from the house to do it but I'm pretty conservative with money.

Michael Hardner · October 31, 2014

No, I'm more interested in paying off past debt. Just because interest rates are low now, doesn't mean they will be 5 or 10 years from now. If they rise, so does the cost of financing the debt. Which will squeeze other spending, or cause even more debt. I'm looking at the long term picture.

If we paid down the debt for even 5 years at 2%, we would save billions in interest payments by my (back of the envelope) count.

Big Guy · November 1, 2014

This large debt that Canada us paying interest on, who or what holds that debt and who or what are we paying interest to?

Michael Hardner · November 1, 2014

This large debt that Canada us paying interest on, who or what holds that debt and who or what are we paying interest to?

People who hold Canadian bonds... from Canada and elsewhere.

Big Guy · November 1, 2014

So we owe ourselves the money, pay ourselves the interest on the money but do not want to pay off the loan - with the interest we make off that loan.

Huh?

Michael Hardner · November 1, 2014

So we owe ourselves the money, pay ourselves the interest on the money but do not want to pay off the loan - with the interest we make off that loan.

Huh?

"Ourselves" being a subset of Canadians, and others, who have loaned money to Canada as a whole.

hitops · November 10, 2014

Some government spending does yield positive investment returns (healthcare, infrastructure, education etc), and some of it most certainly does not.

It's extremely difficult to measure the return on those investments, however I do grant government is the only one who can pay for them and they are indeed necessary.