EDMONTON: The Canadian Taxpayers Federation (CTF) is encouraging Albertans to boycott the sale of Alberta Capital Bonds.
“Let’s be clear about what this is. Selling Alberta Capital Bonds is the government taking on old fashioned, 1980s-style debt,” said CTF-Alberta director Scott Hennig. “Albertans shouldn’t be encouraging their government to take on this debt; they should boycott the bonds and send the government a message.”
$100 million worth of five-year Alberta-only bonds will be sold at a rate of 3.3 per cent interest per year starting on February 16th. This is higher than the 2.75 per cent interest rate at which the government borrowed $750 million through public bonds in October and December 2009. This high rate reflects the government’s desire to “
offer a premium to entice Albertans to invest.”
“It’s not smart for the government to borrow money in the first place, but to do so at a much higher interest rate than what you could get in the open market is downright stupid,” continued Hennig.
The CTF calculates that $100 million of borrowing at a 2.75 per cent interest rate, compounded semi-annually, would cost the government, and taxpayers, $14.6 million in interest payments over five years. Yet, $100 million worth of borrowing through Alberta Capital Bonds at a 3.3 per cent interest rate, compounded annually, will cost taxpayers $17.6 million in interest payments over five years.
“This is like having a million dollars under your mattress and then going to the bank and asking for a high interest rate on a loan to buy a new car. Nobody in their right mind would do that,” said Hennig.
“Albertans are the ones who are going to have to pay back this high interest rate through higher taxes or cuts to more programs. It’s like moving money from your right pocket to your left pocket with a few bankers skimming off their cut,” continued Hennig.
Last year the government announced a three-year, $3.3 billion borrowing plan, predicated on the assumption that they could earn more money on the funds in their Sustainability Fund than on what they would have to pay in interest on borrowing money through bonds. Finance officials confirmed for the CTF on budget day that this is no longer the case; that they will pay higher interest rates on borrowing than they expect to earn on their Sustainability Fund.
“Even though this government knows their risky gamble to try and earn a profit through playing the spread on their interest rates has failed, they refuse to cancel their borrowing plans. Albertans should stop enabling this fiscally reckless behaviour and boycott the bonds,” concluded Hennig.
Chart of government borrowing since September 2009:
