Stockwell Day: With budgets, it's the spending, stu--d

There is an inconvenient truth about government spending: As its size relative to the overall economy increases, the prosperity of citizens shrinks - and that's the problem facing Canadian finance ministers during this budget season, Stockwell Day writes.

I'm reluctant to use the full word, "stu--d."

You see, my daughters-in-law relentlessly enforce a no-S-word policy in their respective homes. So if my pre-school grandkids are Googling "federal budget commentary," I don't want to be found running afoul of their mothers' wise edicts.

Still, I wish to make a basic point: The degree to which our governments overspend will have a direct bearing on whether my clean-speaking grandchildren (and others) will have a secure future or not.

There is another inconvenient truth about government spending, which is upheld by decades (centuries, even) of cold analysis: If the percentage of a government's spending (federal, provincial, or municipal) increases as part of the overall economy, the prosperity of its citizens shrinks. Period.

In case my 6-year-old granddaughter really is perusing this column, I should probably define some terms, and not just for her.

(I never like to assume everyone understands abbreviations, especially clumsy economic ones. Besides, I know what it's like to be afraid to ask what something stands for when everybody else in the room is pretending to know, putting me at risk of being the only stu--d person in the group.)

GDP stands for Gross Domestic Product. Basically, that's the total of all economic activity that goes on annually within a country, covering all of the production, sales, services, wages, etc.

Governments need money (revenue) to pay for essential social services for citizens. Government spending also makes up part of the overall GDP. To get the dough to run the show the government uses countless ways (taxes, fees, permits, fines, tariffs) to extract money from our pockets.

Some taxes are necessary. But never forget the Golden Rule of Taxation. That is, "Those who rule, get your gold." The more of your gold (or loonies) the government extracts from you the less you have to invigorate or invest in the economy.

On top of that, there are business taxes. The more gold that all levels of government extract in corporate taxes, payroll taxes, fees and permits from the businesswoman operating her computer sales store, the fewer people she is able to hire. Also, to cover her costs from higher taxes, she has to raise the prices of her tablets and laptops. That means you have to fork out more money to buy one while you're already paying more to cover your own personal taxes, fees and permits.

Whew. On and on it goes.

Excessive taxation in all of its forms will not only depress the economy, it will result in less people being employed. My granddaughter's chances of getting a job go down as government's share of spending in the overall economy goes up.

Costs of carrying debt

One more thought on this. Overspending leads to borrowing. Borrowing leads to debt, which leads to interest payments. Interest payments are one of the largest cost items in every government budget. The percentage of government debt costs in the overall economy is called the ratio of debt to GDP.

The more that ratio goes up, the more you go down, and so does the economy. Hello Greece. Hello Spain. Hello Canada, if we don't keep government spending (and borrowing) under control.

Canada's debt-to-GDP ratio is one of the lowest in the world. But it still makes up about a third of the whole economy.

That's the challenge faced by finance ministers such as Jim Flaherty.

Politicians get blamed for out-of-control spending. There is some blame there. But there is also the dizzying array of people and groups who demand more spending.

At this point in the cycle of most modern governments there is only one way they can spend more without pushing the system to collapse. That is by seeing revenues increase from the private sector, but not by increasing tax rates.

It comes as profits and incomes increase because of a positive economic climate. So if you want government to impose higher and higher taxes on business and investors and young, innovative high achievers, you will see incentive and hard work go down along with the revenue that governments need for social programs.

Former president John F. Kennedy, a Democrat, told citzens to quit asking government to do more. Then he introduced one of the largest tax reductions in U.S. history. That act ushered in one of the longest seasons of citizen prosperity in his country's history.

He was brilliant, not stu--d.