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You are paying for our governments’ debt addiction

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4 minute read

From the Fraser Institute

By Jake Fuss and Grady Munro

Ottawa and the provinces will together spend $82 billion on debt interest this year—equivalent to the total amount spent on K-12 education in Canada during 2020-21.

Budget season is approaching and while government debt has been increasing rapidly for years in Canada, today’s relatively high interest rates have made it more expensive to borrow money than in the recent past.

According to our new study published by the Fraser Institute, between 2007-08 and 2023-24 federal and provincial government net debt (i.e., total debt minus financial assets) has increased by roughly $1.0 trillion in inflation-adjusted dollars. Though pandemic-induced deficits explain part of that, fully 58 per cent of the run-up in debt occurred before COVID. That deserves emphasis: our current debt problems are not mainly the result of the pandemic.

Because both federal and provincial governments borrow—municipal governments not so much—Canadians face different government debt burdens depending on where they live. Newfoundland and Labradorians currently owe the largest combined (federal and provincial) government debt in Canada at $67,471 per person. Ontarians are not far behind at $60,609 while Albertans are in the best shape at $42,293.

In terms of debt-to-GDP ratios, the four Atlantic provinces are all currently above 85 per cent, which means it would take more than four out of every five dollars generated in the economy of each Atlantic province this year to pay off their combined federal and provincial debt.

Nova Scotians are worst off, with combined debt equivalent to 97 per cent of what their economy produces in a year. The national average debt-to-GDP ratio is projected to be 76 per cent this year, up significantly from before the pandemic.

Despite a surge in revenues, few Canadian governments are forecasting surpluses for the current fiscal year. Instead, Ottawa and the majority of provinces have chosen to increase their spending and debt and, in most cases, incur deficits for years to come.

This is a worrying trend, as many governments were already on unsustainable debt trajectories that they are now making worse. Governments need to restrain spending and move towards balanced budgets in the short term, while the economy is in relatively good shape, not put off difficult decisions for someone else to take at some future date.

Debt means always having to pay interest. Because their debts have grown and interest rates are higher than they have been for some time, Ottawa and the provinces will together spend $82 billion on debt interest this year—equivalent to the total amount spent on K-12 education in Canada during 2020-21.

Money that goes to interest can’t pay for tax cuts or spending on health care or education. It drives a wedge between the taxes we pay and the services we actually receive. And it burdens, not just today’s taxpayers, but future generations, too.

Growing government debt is not just another unpleasant COVID symptom. It was a problem well before COVID and it’s getting worse even though COVID is now mainly over. This budget season, our federal and provincial governments need to get their fiscal houses in order and stop their debt binging before it spirals even further out of control.

Business

Musk: X to sue groups that conspire to boycott conservative news sites

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From The Center Square

“That system guarantees that advertising dollars flow only to left-leaning media brands.”

Tesla founder and X owner Elon Musk said Thursday he plans to file a lawsuit against a collaboration of people and organizations that work to prevent advertising dollars from going to conservative news media brands.

Musk announced his intention on X while sharing video of Daily Wire co-founder Ben Shapiro’s Congressional testimony on the topic from Wednesday.

“Having seen the evidence unearthed today by Congress, 𝕏 has no choice but to file suit against the perpetrators and collaborators in the advertising boycott racket,” Musk wrote. “Hopefully, some states will consider criminal prosecution.”

At Wednesday’s House Judiciary Committee hearing on “Collusion in the Global Alliance for Responsible Media,” Shapiro told lawmakers that legacy media and their political allies conspire with online advertising gatekeepers to paint conservative news organizations as “dangerous,” limiting their opportunity to receive advertising revenue.

“There is in fact an internal pressure system created by Democratic legislators, this White House, legacy media, advertisers and pseudo-objective brand safety organizations,” Shapiro testified. “That system guarantees that advertising dollars flow only to left-leaning media brands.”

Shapiro identified the Global Alliance for Responsible Media (GARM) as one of those gatekeepers of online advertising revenue.

“In reality, GARM acts as a cartel. Its members account for 90% of ad spending in the United States, almost a trillion dollars,” he testified. “In other words, if you’re not getting ad dollars from GARM members, it’s nearly impossible to run an ad-based business. And if you’re not following their preferred political narratives … you will not be deemed brand safe. Your business will be throttled.”

​Dan McCaleb is the executive editor of The Center Square. He welcomes your comments. Contact Dan at [email protected].

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Artificial Intelligence

Elon Musk is building the ‘most powerful Artificial Intelligence training cluster in the world’

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News release from The Deep View

Elon Musk’s xAI has ended talks with Oracle to rent more specialized Nvidia chips — in what could have been a $10 billion deal — according to The Information.
Musk is instead buying the chips himself, all to begin putting together his planned “gigafactory of compute.”
The details: Musk confirmed in a post on Twitter that xAI is now working to build the “gigafactory” internally.
  • Musk explained that the reason behind the shift is “that our fundamental competitiveness depends on being faster than any other AI company. This is the only way to catch up.”
  • “xAI is building the 100k H100 system itself for fastest time to completion,” he said. “Aiming to begin training later this month. It will be the most powerful training cluster in the world by a large margin.”
xAI isn’t the only one trying to build a supercomputer; Microsoft and OpenAI, also according to The Information, have been working on plans for a $100 billion supercomputer nicknamed “Stargate.”
Why it matters: The industry is keen to pour more and more resources into the generation of abstractly more powerful AI models, and VC investments into AI companies, as we noted yesterday, are growing.
But at the same time, concerns about revenue and return on investment are growing as well, with a growing number of analysts gaining confidence in the idea that we are in a bubble of high costs and low returns, something that could be compounded by multi-billion-dollar supercomputers.
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