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One reason for government borrowing is to finance the purchases of “social assets,” such as roads, hospitals, schools, public buildings and airports. Since these assets are too expensive to be paid out of the current year’s tax revenues, the government borrows the money to pay for them – just as households borrow to buy cars and houses, and businesses go into debt to purchase capital equipment or build facilities that are too costly to pay for out of current income. In each of these examples, the benefits of the asset purchased will be received over a period of years in the future, so it is considered appropriate to borrow to buy them and repay the loan in the future.

Another reason for federal government borrowing is to finance budget deficits to combat recessions. Thus, the federal government’s responsibility for minimizing the effects of recessions sometimes requires it to go into debt. Historically, another major reason for government borrowing and increases in the National Debt has been the financing of wartime expenditures. For example, the Second World War added over $10,000,000,000 to Canada’s National Debt.

Each of the above is generally considered to be a legitimate reason for borrowing by the government. However, ordinary operating expenses of the government,such as its payroll, should be paid for by tax revenues. It is not considered to be good financial practice to borrow (or even worse, print) money to cover operating expenses, or to avoid a necessary increase in taxes for political reasons, any more than it is considered appropriate for households to go into debt to pay their telephone or food bills.

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