Before the previous Federal Election, the Tories claimed they had a “surplus” I read over the Annual Financial Report of the Government of Canada Fiscal Year 2014–2015 is the statement of the National Debt and saw that one of the ways a surplus was possible in the fiscal year 2014-15 was by ministries delaying spending, which made me wonder if it would be possible to do the same thing with our finances?
If we take a young family, with a Home Line of Credit that holds the debt on their house (as opposed to a regular mortgage). This young family goes to a financial planner, who tells them they need to cut down on their spending and get to a point where what they spend is less than what they earn (similar to the concept of this government’s surplus).
The family is lucky in that their Home Line of Credit’s minimum payment is the Interest Charge for that Month (and luckily their Line of Credit interest rate is nice and low). The young family does have a lot of expenses, with small children, car payments and a large amount of discretionary spending (and the debt that accrued because of that spending). The family decides the best way to reach the zen of spending less than they earn is by not paying down their largest debt (their house) so that they can pay for all of their other spendings (cars, vacations, nice clothes, cable, etc.,).
This idea actually works well (assuming the bank doesn’t call the line of credit and ask for all of their money), in that the family is not spending more than they make, but there is a problem. Their debt load isn’t actually dropping, and they will eventually have to pay down the debt on their house, which is a huge problem. An even bigger problem will be when interest rates go up, so in the end, this family is living in a financial fool’s paradise.
In Real Life
At the end of it, the Tories “surplus” didn’t really come to fruition, and thanks to a new Government, we are back to deficit financing programs and such, but there are promises of balancing a budget sometime soon. This might well be how our example family ends up as well (i.e. much farther in debt).
Remember as I always say, Hey we got extra money, let’s spend it! (No, I don’t I am being sarcastic).
Coincidentally, I just read an article saying that the Parliamentary Budget Office (PBO) found that there is a small surplus after all:
This just reinforces that all governments lie, even the shiny new ones.
No there is a way to tell that a politician is lying, their lips are moving…. BOOM! 🎆