Response to Government of NB Innovation Week May 3-10, 2015
1. What is your big idea? Please describe the nature of the product, service or partnership that you believe can help us offer better, faster and more efficient public services. (Max. 500 words)
Our idea is for the government of New Brunswick to establish a public provincial bank that would receive all government revenue, make all government disbursements, and handle all government financial arrangements, including borrowing for deficit financing when needed.
Currently almost 50 cents of every NB income tax dollar leaves the province in debt service payments to private, international, for-profit financial institutions.
If a public bank were capitalized from provincial investment, and all government financial activity routed through this publically owned institution, government would be better able to take effective control of its fiscal situation.
Once the public bank was up and running, government would no longer have to borrow money from the private, international, for-profit, banking industry. Government could then, as needed, borrow from it’s own bank.
In this new arrangement, interest on borrowed money no longer leaves the province as it does when interest payments are made to outside financial institutions. Debt service payments on provincial bank financing would be paid back into the public bank and remain within the jurisdiction of the bank and the province.
International bond rating agencies would no longer be able to determine what rate of interest the government must pay on borrowed money. The public provincial bank would be able to set its own interest rates in relation to its own business model and public service mandate.
Changing government financial service from the international, for-profit, money market to its own public bank would have to be accomplished in stages due to current government indebtedness to the international system. But once a provincial bank was established, government could shift new borrowing to this internal institution and begin to eliminate its indebtedness to outside financial institutions.
This model of public banking for government financing has a significant history. The Bank of Canada became a public bank in 1938. Between 1938 and 1974, the federal government borrowed at low or no interest from the national bank. But in 1974, the government of Canada embraced the for-profit monetary system and began borrowing from private financial institutions rather than from its own bank.
This was neither necessary nor logical. It was a policy change that facilitated the systematic transfer of financial resources from the middle class through government to the private financial industry. Massive public debt and a massive ongoing outflow of interest payments is the result.
NB is now also caught in this same debt trap with millions of dollars leaving the province each year in debt service payments. This severe drain of provincial financial resources could be steadily reduced and brought to an end by the establishment of a public bank for government financial services.
Transition Town Woodstock can supply references and research information for the investigation of the public bank option.
2. How can your big idea lead to savings or revenues for government? What would be the potential scale of these savings or revenues? (Max. 200 words)
Just paying interest on the debt cost NB $643 million in 2010-11. The interest costs increased by $26 million in one year – at a time when interest rates were at historic lows. Debt Service payments are now New Brunswick’s fourth biggest expenditure. It absorbs nearly 50 cents of every dollar we pay in provincial income tax.”
Tony Myatt, Department of Economics, University of New Brunswick; “New Brunswick’s Deficit and Debt Problem: Root Cause and Solution”
External interest rates are bound to go up from their current historic low which will make the situation even worse.
The establishment of a public bank for the handling of government finances would arrest this scale and volatility of external debt service payments.
As new government financing begins to occur within the province’s public bank, external debt load and external debt service payments can be decreased and eventually ended.
Decreasing and eliminating the current external debt service payments is the scale of savings to government that can be associated with this proposal.
3. Which government department or agency do you want to meet with? If you don’t know, please indicate the sector or leave blank and we will help you find the right partner.
Finance
Executive Council Office
Keith Helmuth
Transition Town Woodstock