It is an election year, and we are hearing so much about how Canada is going to reduce the country’s debt. There has been a lot of fanfare about it and we are all feeling pretty good about this. Now at the same time all this budgeting and release of financial information is going on, so is the release of the proposed debt spending for the coming year. You may not see as much of this being disseminated amongst the government’s media offerings. Although, this sort of information is available at the Department of Finance website.
So what is our Country’s borrowing budget for this year? First of all, by law the Government must put a proposed borrowing report before Parliament just before the fiscal year begins. This report must show what the Government plans on borrowing, and who it is going to borrow from, along with other information.
For the 2015-16 fiscal years the maximum amount that the Government was allowed to borrow was $270. billion, which was the same for 2014-15. During the year 2014, they issued a total of $3.5 billion in 50 year bonds.
So their borrowing funnels this year will be nominal and real return bonds, treasury bills and retail debt products, as well as a variety of other borrowing instruments, which are not revealed in the bulletin.
It all sounds so confusing that it’s no wonder that the average tax payer really doesn’t try to follow the debt situation of the country. We just question whenever we hear about the debt being cleared off as to how did we get into this mess anyway? There is money being collected by the government from all different sources within the country, yet we are still borrowing perhaps up to $270 billion in a fiscal year?
So who are the real lenders? Well if you buy Canada bonds they you are one of the lenders. Many people buy government bonds because they are going to earn some interest and they are considered to be risk free. When you are ready to cash in your bonds, and even if the government had no money they can just raise taxes to cover the payout of the bond.
As we mentioned, one of the borrowing venues will be nominal bonds. These are sometimes called conventional bonds, and merely means they have a fixed amount (not inflation adjusted). Real return bonds on the other hand have a lower coupon, but there is a principal adjustment every six months based on the inflation rate at that time. Treasury bills basically are a short term bond with a maturity often up to a year.
The bottom line is almost every country borrows through various means and has debt. We should be satisfied if our Government practices sound borrowing techniques and gets the best deal possible. Plus, knows for a fact, that the country will be able to handle the debt. This may not have always been the case in the past; otherwise we wouldn’t be making such a big hurray over the balancing of the books that we are currently experiencing.
