A new report from Ontario’s Financial Accountability Office (FAO) suggests the province could finally balance its operating budget next year for the first time after nearly a decade of deficit spending. A balanced budget next year would be a welcome (if overdue) development, but it should not distract from the fact the province’s fiscal position remains precarious and that much work remains to be done to get the government’s financial house in order.

Following release of the FAO’s report, Finance Minister Charles Sousa claimed the analysis shows the government is moving in the right direction. However, a closer look at the report confirms the province’s finances are still in bad shape and this is hardly a moment for self-congratulation.

For starters, although the report notes the government could balance its budget next year, it also states that without meaningful policy reform, cost pressures could push spending up in the years ahead, resulting in a quick return to deficit spending. Simply put, even if a balanced budget is achieved next year, the province is on course to revert back to deficits.

Furthermore, the report shows Ontario is on track to rack up considerable debt. In fact, it projects Ontario will acquire approximately $50 billion in new debt between now and 2020/21—this on top of the mountain of debt the province has already acquired in recent years, bringing the province’s net debt load (a measure of debt that adjusts to financial assets) to a record high of $350 billion. That’s about $25,000 for every Ontarian.

The province can acquire so much debt even with annual operating deficits projected to be less than $2 billion because its annual deficit largely excludes debt-financed capital spending on items like roads and bridges. That allows the province to add substantial new debt even if its operating budget is balanced. For instance, next the province’s net debt is expected to climb by approximately $8 billion despite a projected “balanced” budget.

Notably, Ontario’s ambitious and expensive capital plan is one of the key factors cited by the credit rating agency Moody’s when it downgraded Ontario’s credit rating last year.

Defenders of the provincial government nonetheless respond to concerns about future debt accumulation by arguing that there is nothing to worry about because Ontario’s debt-to-GDP ratio (an economic measure of indebtedness relative to the size of the overall economy) is expected to fall. The FAO report provides crucial context for evaluating this argument.

The report shows that the province’s debt-to-GDP ratio is projected to remain almost exactly constant over the next five years, dropping just 1.2 percentage points from 39.6 per cent today to 38.4 per cent in 2020/21. This miniscule drop must be considered in light of the rapid debt accumulation that has recently occurred. Consider that Ontario’s debt-to-GDP ratio has, since 2007/08, climbed by fully 13.6 percentage points. In this context, a barely observable projected decline in the provincial debt-to-GDP ratio of approximately one percentage point over several years is nothing to brag about.

In the absence of meaningful policy change, the province’s debt burden will likely hover near its all-time historical high. This leaves a material burden on future generations of Ontarians and has real costs as taxpayers continue to expend scarce resources to service the debt.

Although the provincial government may balance its operating budget next year, Ontario’s finances will remain in bad shape. Queen’s Park should therefore keep the champagne on ice. The difficult task of repairing Ontario’s damaged fiscal position still lies ahead.