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Monday July
27,
2009 BACK NEXT
Sorbara: "Numbers don't add up"
By
Angelo
Persichilli
THE HILL
TIMES
While
Bank of Canada Governor Mark Carney and many economists say they're
starting to feel good about the economy, former Liberal Ontario
finance minister Greg Sorbara says he has great concerns about the
country's future. He says he's concerned about the huge debt
accumulated expected to hit $630-billion in five years and its
"serious repercussions." As well, Sorbara says he believes medicare
and pensions are in danger if Canada doesn't have a plan.
Many economists feel more comfortable with the economy
now, but I know that you don't share that optimism. Why?
"Lately, the governor of the Bank of Canada has sent out a
very positive message that next year the economy is going to grow. I
wouldn't quarrel with that analysis. My view, however, is that there
is a good deal of pain that we will experience over the course of
several years and it has to do primarily with coming to grips with
the amount of debt that the entire North American continent has
taken on in order to counteract the impact of the recession. I mean,
debts on all counts; meaning municipal, provincial, states, and
national. To me the big issue is the level of the debt on the
continent and internationally. Certainly, Europe has the same
problem. Sooner or later we have to come to grips with that and that
will mean revisiting what government can provide in terms of public
services, what governments will have to do in terms of taxation and
anyone, including Prime Minister Stephen Harper, who says, 'We will
eliminate the debt, we will not cut public services, and we will not
be increasing taxes,' is wrong. It is as simple as that."
So
what's your solution?
"I suggest that governments begin to
have courage, over the next five years, to implement as effectively
as possible, a program of re-examining services, approaches to
taxation and preparing the population for the fact that governments
will not be able to provide everything that people expect. One small
area in Canada is certainly of particular note. In Ontario, we spend
45 per cent of every public dollar on health care. The fact is that
with the aging population, all the pressures are there for it to
increase annually at a much more rapid rate than the growth of the
economy. We simply will not be able to do that. The government will
not be able to invest those amounts that people typically expect in
health care. And that's only one area of concern."
Basically you are saying that we need to increase the
level of taxation.
"In my view, it has to be part of the
recipe."
Are you saying that harmonization is not that bad
after all?
"Harmonization is going to have, in the short
term, a very negative impact on the economy and it certainly is
going to have a very negative political impact. Ultimately, I
believe that all agree that harmonization will be good for Ontario,
but the medicine will be very distasteful and the public reaction
will be very negative. And maybe, that's the kind of pain we have to
go through."
What did we do wrong to end up in this
mess?
"I think, in part, we lived beyond our means and we
did not regulate the economy in the broader public interest. That
was particularly true in the United States. And we have to remember
that the mistakes made in the U.S. are the primary cause of the
dilemma, but we are all complicit in that, including the European
jurisdiction, China, India, Russia and Brazil."
When you
mention future pains to deal because of the debt, how many years are
you talking about?
"I think that the various stimulus
packages, in Canada at least, will have a positive short-term
impact. And that's over the next couple of years. I'm really
thinking about the longer term, the three to five-year period, when
we will have to come to grips with all of the money that was
borrowed to make this recovery. The issue that is still up for some
debate is the impact of stimulus in the U.S. economy. There are
already some U.S. economists saying that there has to be stimulus
two, the second phase, if any real benefit is going to come from
stimulus one. To me that's a very great concern because the level of
U.S. debt is at a level that is unprecedented in history. So no one
really has any experience with how to come to grips with sustaining
that debt, paying the interest on it, and what impact it might have
on a new period of inflation of dramatic devaluation of the American
dollar."
You expect pain in dealing with the debt. But
your predictions are based on economic theories that don't
necessarily hold water in this new environment.
"Between
1993 and 2008, in Canada we had pretty much 15 years of strong,
sustained, and uninterrupted growth. It's simply unrealistic to
expect that could have gone on forever and we allowed certain things
to take place in the Northern American economy that ultimately blew
up in our face. The world is very much a different place right now.
I believe that we are still looking in a rear-view mirror and using
solutions that were appropriate for yesterday's challenges and the
really smart people are going to be able to have a glimpse of how we
need to regulate ourselves, how we need to allocate resources in the
future in the way that allows us to grow back to real strength. It
can't be very strong economically when you have an unprecedented
load of debt. So, growing out of debt and creating real new
strength, good new foundations, and the smart people will lead us
into that day in the future."
If the debt is so huge, is
it possible that governments will tell lenders to get only some
cents for each dollar they own?
"You have to understand that
whether it is the public, private, or personal, debt must always be
reckoned. When debt is unsupportable, those who fall into bankruptcy
pay only cents on the dollar, but the repercussions on that are very
strong indeed. The notion that a Canadian government, or a
municipality, would effectively default on its debt will have very
serious consequences. However, we see that in some parts of the
public administration, there are defaults. The system now defaults
on the pensions that were going to the auto-workers. And I think
that we may see further defaults on the pension commitment whereas
you or I and others expect to get 100 per cent of the pension
promised, perhaps that person will only get 70 or 80 per cent. We've
already seen a bit of that, and that kind of default it might be
part of the future."
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