The Wynne budget—more spending, more fiscal problems, more debt
Finance Minister Charles Sousa has tabled Ontario’s 2018 budget. And above all else, the pre-election document is characterized by a complete absence of fiscal discipline and dangerous willingness to saddle future Ontarians with more debt to pay for big spending increases today.
Specifically, this year’s budget plans to increase program spending (all spending aside from debt interest) by 6.1 per cent this year.
What makes this spending increase particularly remarkable is that it comes on top of a big spending increase last year. Program spending will be up by a total of 12.2 per cent in just two years. This is a much higher rate of spending growth than at any point since the stimulus years surrounding the 2008/09 recession. In fact, this two year growth in spending (again, 12.2 per cent) surpasses the Wynne government’s total spending increase over the previous four years (9.6 per cent). Ontarians, despite a temporary hiatus, once again have a spendthrift provincial government.
Predictably, this surge in spending growth will drive Ontario into an operating deficit for the 2018/19 fiscal year. In fact, the budget forecasts Ontario will remain in a deficit position until 2024/25. Incredibly, this means Ontario’s decision to plunge back into deficit will assume a slower path back to balance than Alberta, a province that has recently suffered a steep recession and sudden fall in oil prices.
The operating deficits are expected to average just under $7 billion each of the next three years. Partly thanks to these big deficits, Ontario is expecting to rack-up considerable new debt. In fact, the budget forecasts Ontario’s debt (after accounting for financial assets) will reach $360 billion by 2020/21.
All this new debt represents significant a burden for taxpayers, who will see more than 8 cents of each tax dollar go to debt interest payments and not public services or tax relief. Interest payments on government debt are, in fact, expected to grow briskly, and will increase by 40 per cent over the course of the government’s “recovery plan.” By 2025/26, the province expects to pay $16.9 billion in interest per year. That’s almost $1.5 billion per month.
Beyond the immediate cost of debt-service payments, more debt creates uncertainty about higher taxes in the future to service the debt, which can dampen investment and make Ontario an even less attractive investment destination.
Subsequently, Ontario’s debt-to-GDP ratio, a key indicator of the sustainability of government debt levels, climbed quickly in the years during the recession, moving from 26 per cent to 39 per cent in the span of a decade. In recent years, the government has repeatedly said it would bring the debt burden back down to pre-recession levels, but has made little progress. The government’s plan essentially jettisons the goal of debt-to-GDP reduction. In fact, Ontario’s net debt as a share of GDP is actually expected to rise from 37.1 per cent last year to 38.6 per cent in 2020/21.
Despite Ontario’s big debt burden, Ontario’s government followed up last year’s big spending budget by opening the spending tap even wider. Nothing, however, is free and future Ontarians will bear the cost of these decisions for years to come. For Ontario taxpayers, more spending means more problems.