Debt interest payments fastest-growing component of Ontario budget
On March 24, the Ford government will table Ontario’s provincial budget for 2020/2021. The government’s last budget, which was tabled in November, included a record-setting $38.5 billion deficit for the 2020 fiscal year. That budget also forecasted additional deficits in the $30 billion range for each of the next two years thanks largely to contingency funds for any COVID-related expenses that may arise.
To understand the nature of Ontario’s fiscal problems, however, it’s important to look past the province’s large short-term budget deficits and focus on the big picture. It’s a mistake to assume the government is failing to balance its books because of COVID-19 and its economic consequences. In reality, Ontario was consistently running budget deficits before the virus hit.
In fact, Ontario has run budget deficits every year since 2008/09. Over this period, nominal debt has climbed from $170 billion to an estimated $398 billion this year.
Of course, this runup in debt has consequences including interest costs, which make it harder for the government to balance the books, lead to additional deficits, more debt and all else equal, even more interest payments. It’s a vicious cycle. So one thing to look for in this year’s budget is how growing debt interest payments will make balancing the budget harder.
Indeed, according to the last Ford budget, the rate of growth for spending on debt interest is expected to be faster than the growth rate of every other major area of government spending (excluding contingency funds for emergency COVID spending).
More specifically, according to the 2020 budget, between fiscal year 2019 and 2022, nominal debt interest costs are forecasted to rise by 11.2 per cent. Compare this to all other major areas of provincial spending. Health-care costs are set to rise by 7.5 per cent over the same period. Education at the K-12 level is expected to grow by 3.6 per cent. Spending on children’s and social services by 4.7 per cent. The growth rate for debt interest payments easily outstrips them all.
Partly as a result of this rapid growth in interest payments, by 2022/23, debt interest is forecasted to comprise almost half of the government’s overall budget deficit. Of course, this larger deficit means more borrowing, which means more debt to service. And so the vicious cycle continues.
To be fair, Ontario’s rising debt interest costs over the next few years are not the Ford government’s fault. There’s very little a government can do in the short term to change the trajectory of debt interest costs. However, the choices the Ford government makes in the upcoming budget—and future budgets—will have a meaningful impact on the extent future debt interest payments siphon off money that would otherwise be available for other priorities that Ontarians value including health care and education.