Ontario now adding debt even faster than before
Last week, Finance Minister Charles Sousa tabled Ontario’s budget for 2018/19. The fact that the free-spending budget creates an operating deficit of nearly $7 billion this year has been widely reported, but this number alone understates the extent the Wynne government’s fiscal plan will add to Ontario’s already substantial debt burden. In reality, the budget plans a substantial increase in the pace of debt accumulation compared to what has occurred in recent years.
First, let’s review the headline numbers. The budget plans for a 6 per cent increase in program spending this year (that’s all spending aside from government debt interest payments). This increase comes on top of a nearly identical increase last year, meaning spending will grow by 12.2 per cent over just two years. Predictably, revenue growth hasn’t kept pace, with the result being projected operating deficits of just less than $7 billion in each of the next three fiscal years.
But when it comes to adding to Ontario’s debt, this is just the start of the problem.
To see why, it’s necessary to understand that an operating deficit means that the province is spending more money on current day-to-day spending than its collecting in revenue, while passing the cost of the difference along to future taxpayers.
What the operating deficit excludes is new liabilities incurred for debt-financed capital spending. To get a sense of what’s really happening to Ontario’s debt burden, we must also take these new liabilities into account.
When we do so, an even more worrying picture emerges. This year, for example, the government expects to add $16.8 billion to the province’s net debt (a measure that adjusts for financial assets). Nearly identical increases are expected in the following three years, a development which, if it comes to pass, would bring Ontario’s net debt to $377 billion. For context, that’s more than $25,000 per person.
Again, this plan represents a substantial increase in the pace of debt accumulation. For example, over the last three years, Ontario’s net debt increased by $22.8 billion. Over the next three years, the just-tabled budget calls for provincial debt to grow by $52 billion. In other words, the pace of debt accumulation will double, and then some.
The big problem with all this new debt is that it means taxpayers will be on the hook for substantially bigger government debt interest payments going forward. Last year, the government spent $12 billion just paying interest on its debt. That number is projected to rise to $16.9 billion by 2025/26—a 41 per cent increase. Of course, this will make it harder for the province to balance its books in the future, and will siphon away money that would otherwise be available for important public programs or tax relief.
Toronto Liberal MPP Bob Delaney recently said his government is “proud” of how much debt it has added to Ontario’s books. If that’s true, its members should now be positively beaming.
Last week’s budget showed the Wynne government isn’t just planning to add more debt in coming years; it’s planning to put the pedal to the metal and substantially increase the pace of provincial debt accumulation in Ontario, sticking taxpayers with the debt interest bill.
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