“Bad Dog!” finger wagging bankers and politicians seem to tell us. “Bad dog!” for getting in debt. “Bad, Bad dog!” for getting deeper in debt. Yet for all this finger wagging, remember that there are three fingers pointing back at you for not being helpful.
Every week it seems, there is a banker or politician that is decrying the evils of personal debt. We are at the highest level of personal indebtedness ever recorded. Last week the rating services company Moody’s downgraded Canadian banks because the level of consumer debt is getting worse and represents a banking risk.
The last time we got the “Bad dog” talk from the Finance Minister, he banged us on the nose with the rolled up newspaper. He changed the credit card repayment rules so that minimum payments were raised. He also changed the rules to qualify for a mortgage.
To add another analogy, this is like throwing a weight to a drowning man. If you are drowning in debt, barely making payments, then a hike in minimum payments is likely to bring you under.
Hey politicians and bankers, we are not like the auto industry looking for bail outs. But we sure could use a life line so that we could swim to shore.
Stop wagging your finger at us. Three are pointing back at you. In my view, here are three lifelines that could help consumers out.
Gasoline Goes on a Cost-Plus Basis. Oil companies charge whatever they please for their gasoline. With very few distributors left in the market, it is not a free market anymore – it is a market run by a few 800 pound gorillas. The increase in fuel prices singularly increased inflation. Which means we have less cash to decrease our debt. They should be regulated like the Hydro suppliers. For example, they could be allowed to adjust their pricing once per month based on a cost-plus uplift from the average price of a barrel of oil from the previous month. The price of gasoline would then be reflective of the worldwide price of oil – not some marketing ploy.
Credit Card Debt Assistance. Part of the debt crisis is from credit card burden. It is lone sharking to be charging close to 20% interest when the Bank of Canada rate is 1%. How can banks have 20% interest credit cards and Prime+2.5% Lines of Credit? This is usury. The banks could change the current debt interest rate to Prime+2.5% as of a specific date. Any further accumulated debt from a declared date would be at the regular rate. People could see real inroads being made on lower their debt.
Give Me More Cash. The Federal Government receives almost 49% of its revenue from income tax, 13% from corporate tax and 12% from value added tax. People are so taxed by their income that they have little left in their budget to pay down their debt. The Feds could shift the tax from income to value added taxes. The Cayman Islands operate on a no income tax system- but you pay 25% value added tax. So if you buy – you pay. If you save or pay down debt, you don’t pay. By shifting the burden from income tax to value added tax, consumers would have a chance to decide what to do with the income.
Three lifelines to help the drowning consumer. They require courage, commitment and action by the bankers and government. Stop wagging your finger at me saying “Bad dog” and throw me a bone!