Ontario taxpayers on the hook for billions in government debt interest
Readers of this page are likely familiar with the growth of the Ontario’s government debt, which approximately doubled over the past decade and is expected to reach $318 billion this year.
It’s important to recognize that the growth of public debt in this province is not an abstract concern, or an issue that may cause problems at some point in the distant future. Ontario’s big debt is creating direct costs for Ontarians today, never mind the next generation. Specifically, the cost of servicing the debt already takes a significant bite out of your wallet.
The Wynne government frequently dismisses concerns about its rapid run-up in debt by noting that interest rates—and subsequently, the cost of borrowing—are low. But the truth is that once a government’s debt gets as big as Ontario’s, the cost of servicing that debt becomes significant, even at rock-bottom interest rates.
So just how much does it cost to service Ontario’s debt? In 2016/17, the provincial government expects to spend $11.4 billion on interest payments. That’s nearly $1 billion every month just to service existing debt.
This is a substantial amount of money, and it will only go up in the years ahead. The province plans to continue adding about $10 billion a year in new debt for the foreseeable future, which will increase debt service costs. In fact, according to the 2016 budget, Ontario’s debt-servicing costs will be the fastest growing area of government spending, projected to grow at an average annual rate of 5.4 per cent between 2014/15 and 2018/19. This growth rate far outpaces projected annual growth in health spending (1.8 per cent) and education spending (1.2 per cent).
On top of servicing this growing mountain of provincial debt, Ontarians are also on the hook for their share of interest on the federal debt, which is also expected to climb quickly in the years ahead. Once you factor in Ontario’s share of federal debt, the total debt-servicing costs for Ontarians in 2016/17 is a projected $21.2 billion.
Considering all these billions, an obvious question comes to mind. Where will this money come from?
The answer, ultimately, is your pocket as a taxpayer. In fact, if the total annual cost of servicing provincial and federal government debt were distributed equally, every Ontarian would pay $1,517 per year. That’s more than $6,000 for a family of four. Clearly, there’s a direct and immediate cost to government debt.
And remember, these substantial interest payments exist despite historically low interest rates. If interest rates rise, the cost of government borrowing will go up as well, putting upward pressure on debt interest payments.
Finally, it’s important to remember that every dollar that goes to debt service is a dollar that could be used for important public services Ontarians value, or on reducing the province’s burdensome and uncompetitive personal income tax rates.
While some politicians may minimize the significance of Ontario’s debt burden, the immediate cost of interest payments is just one important reason why Ontarians should understand, despite rhetoric to the contrary, that government debt matters.
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