Reality check—Ontario’s finances remain dire despite a balanced budget
The Ontario government last balanced its budget 10 years ago. Tomorrow, approximately $160 billion in new debt later, Finance Minister Charles Sousa is expected to finally table a balanced operating budget for the 2017/18 fiscal year.
But while a balanced budget will make headlines, Ontario remains the most highly indebted sub-national government in the world. So here’s what to look for in tomorrow’s budget.
Will spending growth be held in check? Throughout much of the 2000s, Dalton McGuinty’s government increased spending rapidly. As a result, when the 2008/09 recession hit, the province found itself in a deep deficit with spending levels it could not afford.
Since 2010, the government has at least slowed down the rate of spending growth. But now there are signs the government plans to increase spending more quickly again. Premier Wynne has already announced the end of “net zero” bargaining with public-sector employees, and there’s buzz around Queen’s Park about increased spending in other areas including dubious government expenditures to help spur innovation. If the rate of government spending growth picks up again, it’ll be that much harder to slow the pace of debt accumulation and begin chipping away at the province’s historically high debt-to-GDP ratio.
Will the budget present a plan to meaningfully reduce Ontario’s debt-to-GDP ratio? Ontario’s level of debt is now more than $300 billion—or about 40 per cent of the provincial economy, a historically high level.
The Wynne government concedes this is a problem, and has set a goal of returning to pre-recession debt levels (27 per cent of GDP). Unfortunately, it hasn’t delivered a plan to get there. In fact, last year’s budget showed the debt-to-GDP ratio hovering very close to current levels for the foreseeable future. Keep an eye on whether the government finally meets its words with actions by delivering a credible plan in this year’s budget to meaningfully shrink the province’s debt load relative to the size of the economy.
How quickly will debt charges rise? One important consequence of Ontario’s relatively high debt burden is rising interest costs for taxpayers. Ontario’s debt service payments now consume about $1 billion per month. For context, that’s about as much as the province spends on its entire annual budget for the ministry of community and social services.
It’s not just that Ontario’s debt service payments are large, it’s that they are growing quickly. In fact, debt service payments were among the fastest growing line items in last year’s budget—growing faster than spending on health care and education. If the rate of growth for debt service payments remains high, it will be much more difficult to make progress on reducing the provincial debt burden going forward. Remember, more money spent on servicing debt means less of our tax dollars are available for other priorities such as health, education or even tax relief.
Again, despite what tomorrow’s headlines may say, a balanced operating budget is only a small step forward. To repair Ontario’s battered finances and improving the province’s economic environment, there’s much work to be done.
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