Ontario should learn from Quebec’s debt reduction
Ontario is in debt, big time. And the Ford government does not have a plan to meaningfully reduce that debt burden. In fact, compared to Quebec, a province which had a well-earned reputation for poor fiscal management but has made great progress in recent years, Ontario’s debt management is especially unambitious.
Last week, the Ford government tabled its fall fiscal update, which contained some good news. Due to higher-than-expected provincial revenues, the Ontario’s operating deficit this year will be somewhat smaller than anticipated in the spring budget. Specifically, the deficit is now forecasted at $9 billion this year, down from $10.3 billion forecasted earlier in the year.
Notwithstanding this positive news, the government’s fiscal plan calls for a slow path to deficit-reduction, which means the province will make virtually no progress in reducing its debt burden in the years ahead. The fiscal update forecasts that the province’s debt-to-GDP ratio (the best indicator of fiscal sustainability) will go from 40 per cent this year to 39.8 per cent in 2021-22. The Ford government plans to merely stop the debt burden from growing and keep it below 40.8 per cent through 2022/23.
Again, this plan represents a tepid response to what even the government refers to as Ontario’s “debt problem.”
And yet, next door in Quebec, the provincial government has made great strides in reducing its budget deficit. Remember, Quebec used to have the shakiest finances in Canada—in 2012/13, in the wake of the global economic downturn, Quebec’s debt-to-GDP ratio peaked at 50.9 per cent. Since then, however, the province has eliminated the deficit that emerged after the 2008/09 recession and balanced its operating budget in 2015/16.
(Ontario still hasn’t balanced its books and will run a 12th consecutive operating deficit this year.)
Subsequently, Quebec has substantially reduced its debt burden in recent years. After peaking at 50.8 per cent, Quebec’s debt-to-GDP ratio has fallen by 12.1 percentage points and is now forecasted to be 38.8 per cent this year. And the Quebec government forecasts the debt-to-GDP ratio will fall to 34.8 per cent by 2023/24.
So to recap: Ontario’s stated and unambitious objective is to simply prevent debt-to-GDP ratio from rising even higher than it is now, while Quebec expects to keep running balanced budgets and shave a full percentage point off its ratio in the years ahead.
The Ford government undoubtedly inherited a raft of difficult fiscal problems upon taking office, and it would be unreasonable to expect these problems to be solved overnight. Still, this government was elected by promising to address Ontario’s debt challenge so it’s reasonable to expect ambitious objectives and real progress on this front.
If the Ford government wants to keep its promise and address Ontario’s fiscal problems, it should emulate Quebec’s example by setting ambitious targets for the debt and deficits facing the province. Then develop a clear transparent plan to meet those targets.