Fiscal watchdog cuts through Wynne government’s spin
Earlier this week, Ontario’s provincial government put out a news release that painted a rosy picture of Ontario’s economy and its public finances. Among other things, the release boasted that the province is on course to meet its “deficit target” for this year, and to balance its budget next year.
Unfortunately, implying that Ontario’s books are in good shape is pure spin. The reality is that Ontario has been racking up debt at a historically rapid pace over the past decade and is on track to rack up still more debt in the years ahead.
This reality was brought into sharp focus on Tuesday, when the government’s own Financial Accountability Office (FAO) published a short report about Ontario’s fiscal position. This report left a very different impression from the government’s upbeat media release.
The FAO bulletin shows that although Ontario may balance its operating budget next year (after nine consecutive multi-billion dollar deficits), the government is on track to return immediately to budget deficits the following year if it continues on its current spending trajectory. In fact, the FAO forecasts that Ontario will accumulate $50 billion in new debt between now and 2020/21.
This new debt is worrisome because it comes atop a veritable mountain of debt that the province has already accumulated over the past decade. In fact, Ontario has accumulated more debt than all other Canadian provinces combined since 2003. As a result, Ontario’s debt burden, which was 26 per cent as large as the provincial economy in 2007, grew to 40 per cent of the provincial economy in 2015. For context, that’s considerably higher than when provincial debt ballooned during the tenure of former premier Bob Rae.
Although the government has established bringing the province’s debt load relative to the size of the economy back to 2007 levels as an objective, the FAO’s report makes clear that the government is making next to no progress towards this goal. The bulletin shows Ontario’s debt-to-GDP ratio is projected to hover near its current historically high levels for the foreseeable future. In fact, the province is currently on track to reduce its debt-to-GDP at rate of just 0.24 percentage points per year between 2015 and 2020.
At this snail’s pace, Ontario won’t return to pre-recession debt levels for several decades—and that’s only if there are no unexpected recessions or economic shocks. In the meantime, Ontarians will continue to be burdened by the province’s inflated debt load and will see billions of dollars every year wasted on debt service payments that would be much better spent on other priorities.
In light of these facts, the government’s upbeat press release with its chipper notes about meeting deficit targets and “balancing” the budget seems completely out of touch with the serious fiscal challenges facing the province. The reality is that Ontario remains burdened with a historically large debt load which, at present, the government has no plan to address.
Given the public finance challenges facing the province, Ontarians need more than spin-heavy press releases that imply our problems are almost as good as solved. What they need from their government is a clear specific plan, complete with milestone dates, to bring the province’s harmful debt burden back down to pre-recession levels.
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