What does the federal budget mean for Ontario?
Last week, the Trudeau government released its 2017 budget. So what are the most important takeaways for Ontarians?
Firstly, something we’re very familiar with in this province—growing government debt. The federal budget calls for significant spending growth this year and budget deficits totalling $120 billion over the next five years.
Of course, the responsibility for repaying and servicing a large portion of this federal debt will fall on the shoulders of Ontarians, who contribute about 40 per cent of federal income tax revenue, a reasonable approximation of their share of federal debt.
The big problem is that the Wynne government also plans to add billions in new provincial debt in the years ahead as well, with the burden falling, of course, on Ontarians.
As a result, Ontario’s combined government debt burden (after adjusting for assets), factoring in both provincial debt and Ontario’s share of federal debt, is projected to climb to approximately $700 billion by 2021/22. For context, this mindboggling sum amounts to about $50,000 in federal and provincial debt for every man, woman and child in Ontario.
Returning to last week’s federal budget, the increase in federal debt will be accompanied by an increase in debt interest payments. In fact, despite low interest rates, more of our tax dollars will be eaten up by debt interest in the coming years. Between 2016/17 and 2021/22, federal debt interest charges are forecasted to increase by nearly 40 per cent, reaching $33 billion annually in the last year of the fiscal plan.
Again, 40 per cent of this burden will fall on Ontario taxpayers. Add in the interest payments required to service provincial debt, and the immediate cost of unrestrained government borrowing starts to come into focus.
Based on the available forecasts out to 2021/22, Ontarians will be responsible for more than $25 billion in federal and provincial debt interest payments annually. That translates into approximately $1,750 each year for every Ontarian just to service government debt. It’s a lot of money that most people would rather see spent on other public priorities such as health, education or even tax relief.
Speaking of taxes, another key takeaway for Ontarians from last week’s federal budget is that federal tax relief is unlikely on the way. Ontarians have seen income tax hikes at both the provincial and federal levels in recent years, raising the top marginal tax rate to 53.5 per cent, among the highest rates in the developed world.
There had been some hope that the Trudeau government would lower income tax rates while simultaneously eliminating various tax credits to make the federal tax system more efficient. Instead, the government proceeded with its plan to eliminate some tax breaks (though not as many as had been envisioned originally) but didn’t provide any offsetting rate reductions.
The federal government’s failure to lower income tax rates, combined with the ambitious spending plan in its recent budget which will leave Ottawa hungry for revenue, reduces the prospects for federal tax reform that would leave more money in Ontarian pockets in the foreseeable future.
In short, for Ontario, the latest federal budget likely means more government debt and higher taxes. That’s bad news for a province that has had more than enough of both of those things in recent years.
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