Minister Sousa misses the big picture on Ontario’s economy and finances
It seems Ontario’s Finance Minister Charles Sousa doesn’t agree with me about the state of provincial finances.
In a letter to the Toronto Sun he criticized a recent column of mine, suggesting I wasn’t acknowledging either the initial steps the government has made towards debt reduction or Ontario’s strong recent economic growth.
First, Minister Sousa notes that after nine consecutive deficits, Ontario forecasts a balanced budget this year. He calls this “an obvious first step to debt reduction.”
And a balanced operating budget is indeed a first step; but it’s one the government took an agonizingly long time to take. A decade in between balanced budgets is a long time, and the result has been a big increase in public debt. Specifically, Ontario’s net debt has doubled and now stands at more than $20, 000 per Ontarian.
Given how long this initial step took and the high cost of delay, it’s important to ask hard questions about what “step two” is going to look like and when it will be taken.
A logical next step would be significantly slowing the pace of debt accumulation. But despite a balanced operating budget, this isn’t expected to happen.
Because of the way government accounting works, it’s possible to keep adding debt while maintaining a balanced budget. And that’s what Ontario’s government is planning to do. Between 2013 and 2016, Ontario’s net debt increased by $34.8 billion. By comparison, from 2016 to 2019, the government expects to add $34.1 billion. The rate of accumulation is essentially unchanged.
This is the reason the province’s debt-to-GDP ratio will remain elevated, creeping down only at a snail’s pace for the rest of the decade.
Minister Sousa waves away concerns about all this debt, suggesting it is the result of “investments” that will help drive growth. And on this score, he says the government’s plan is working, pointing to the fact economic growth in Ontario has outpaced the national average over the past few years. “The data speaks for itself,” Minister Sousa claims.
The data does speak volumes, but the Minister seems able to hear only what he wants to.
Specifically, he zeroes in on the uptick in growth in Ontario over the past couple years while ignoring the bigger picture, which is that Ontario has suffered from economic stagnation and relative decline compared to the rest of Canada in recent history.
Consider that between 2003 and 2015, Ontario’s inflation adjusted per-person GDP increased at an average annual rate of just 0.4 percent. That’s less than half the growth rate in the rest of Canada.
This anemic growth had real consequences for people’s lives. For example, real disposable household income in Ontario slipped below the Canadian average for the first time in recorded history in 2012.
Of course, many factors influence growth. The government can’t control everything. But you can’t logically have it both ways, blaming forces outside government control for periods of economic weakness while crediting prudent decisions for all good economic news. So if Minister Sousa wants to crow about the recent uptick in growth, this historical context needs to be kept in mind.
Minister Sousa tells an upbeat story about a booming Ontario, but reality is more complicated. In fact, the province’s finances remain a mess and many Ontarians are still feeling pain resulting from such a long spell of economic weakness. It will take many years of robust economic growth before any type of triumphalism about the provincial economy can be justified.