Provincial government net debt up 89% in less than a decade
After a lull spanning the first decade of the 21st century, it seems that provincial government debt is again on the rise.
Based on figures compiled from the Federal Fiscal Reference Tables and plotted in the first chart below, total provincial government net debt rose from $109.1 billion in 1990/91 to $287 billion by 2000/01—an increase of 163 per cent. From 2000/01 to the eve of the global financial crisis in 2007/08, total provincial net debt reached $317.4—an increase of only 11 per cent. However provincial government net debt after 2007/08 increased dramatically from $317.4 billion to $601 billion by 2015/16—an increase of 89 per cent.
The early 21st century saw slower provincial debt growth following the fiscal restraint and budget balancing of the 1990s. Moreover, provincial budgets reaped the fiscal dividend of low interest rates, which reduced debt service costs and experienced relatively robust economic growth, which boosted revenues.
The Great Recession in 2009 was a factor in the increase in provincial government debt, but what’s interesting is the differential performance across Canada’s provinces.
The increases in net debt from 2007/08 to 2015/16 range from highs of 103 per cent and 95 per cent for Manitoba and Ontario to lows of 24 per cent and 25 per cent for Newfoundland & Labrador and Nova Scotia respectively. While Alberta did not have any net debt during this period, it also experienced deterioration in its net financial position with its net assets run down by almost 90 per cent.
The resulting long run picture is an interesting one, as the second chart illustrates. Some provinces have been running up their net debt faster than others, and as a result, have come to account for a larger share of provincial government net debt.
On the other hand, some provinces have slowed down their debt accumulation and their share of total net debt has declined. Over a 25-year period, Ontario has seen its share of total provincial net debt rise from 35 per cent—just below its population share—to 51 per cent.
Quebec saw its debt share rise, peaking in 2007/08 at about 40 per cent but has since declined to 31 per cent.
British Columbia saw its share of debt peak at about 10 per cent in 2003/04 and has declined since to reach 7 per cent.
Alberta by 2015/16 had reversed the favourable net asset position it acquired between 2000 and 2008.
As for the rest of Canada—Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland & Labrador—their combined share went from about 20 per cent to 12 per cent over this time period.
Ontario and Quebec are Canada’s largest provinces in terms of population and together account for 61 per cent of Canada’s population. They also have the largest provincial net debts, which in 2015/16 were $305.2 billion and $187.1 billion respectively. They together accounted for 82 per cent of total provincial net debt. However, Quebec since 2007/08 has been adding to its debt at a much slower rate whereas Ontario has been adding to its debt at a rate higher than nearly every other province.
As a result, Ontario is now in the unique and unenviable position of accounting for more than half of provincial government net debt in Canada.