Debt-laden budgets now an Ontario rite of spring
According to an old poem, in the “spring a young man’s fancy lightly turns to thoughts of love.” In Ontario, it should also turn towards thoughts of debt, since today’s budget will add liabilities the young man (and his dates) will pay interest on when they are old and grey.
Yes, it’s budget day in Ontario and the Wynne government has already spilled the beans—it will run yet another budget deficit this year and add billions to the province’s ever-growing debt mountain.
Perhaps we should be used to all the red ink by now, but this year’s budget deficit comes as an especially big disappointment. Between fiscal years 2008 and 2016, Ontario ran uninterrupted deficits and added approximately $130 billion in new net debt (a measure that adjusts for financial assets). The government repeatedly assured Ontarians these deficits were temporary and that the budget would be balanced (and stay balanced) by 2017/18.
The Wynne government will formally break this commitment in today’s budget. After posting just one hotly-disputed balanced operating budget in 2017/18 (the auditor general and others have questioned the government’s accounting techniques) the government has stated this year it won’t try to convince Ontarians the budget is balanced and will post an operating deficit of approximately $8 billion.
This is a worrying development. Ontario’s debt-to-GDP ratio (a measure that compares debt to the size of the overall economy) has climbed from 26 per cent pre-recession to 38 per cent today.
The government has repeatedly stated that returning to pre-recession debt levels remains an important objective and last year devised a timeline to very slowly get there over the course of the 2020s.
The government’s timeline (which my colleagues and I critiqued at the time as slow and risky), however, was based on the expectation of balanced operating budgets going forward. With an $8 billion deficit this year, and more deficits to come in the years ahead, it’s probably fair to say that even the government’s weak and vague plan for shrinking the debt-to-GDP ratio can be discarded along with its balanced budget pledge.
Nevertheless, Ontario Finance Minister Charles Sousa and Premier Wynne are trying to reassure Ontarians by promising these two deficits will be temporary and that a “path to balance” will appear in this year’s budget.
However, in light of the government’s willingness to toss overboard its key fiscal promise of the past half-decade (balanced budgets in 2017/18 and beyond) and break from a key foundation of its debt-to-GDP reduction timeline just one year into it, it’s difficult not to be skeptical of this latest commitment.
Ontario’s provincial government debt of about $22,000 per person is the second highest in Canada, behind only Newfoundland and Labrador. This means Queen’s Park must spend a billion dollars every month just to pay the interest on its debt—money that’s therefore unavailable for other priorities such as health care, education or tax relief. By returning to deficit-spending this year, the Wynne government is clearly indicating a willingness to drive these debt numbers higher still.
Spring is just around the corner in Ontario, which means nicer weather, Blue Jays baseball, possible long playoff runs for the Leafs and Raptors, barbeques and other lovely things. Less pleasantly, it also means yet another budget from our government relying heavily on new debt (serviced by taxpayers) to fund its day-to-day operations.
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