Wynne government could take a few pointers from Liberal brethren in Quebec

Ontarians usually don’t follow closely the economic developments of their eastern neighbour but they certainly should. In fact, Premier Kathleen Wynne’s government could take a few pointers from their Liberal brethren in La Belle Province when it comes to tackling a heavy debt burden.

Quebec has experienced a flurry of good economic and fiscal news lately. Most recently, Quebecers celebrated having the lowest unemployment rate in the province since Statistics Canada began publishing the figures in 1976. There are growing signs the province is starting to shake its traditional reputation of economic laggard within Canada.

There’s also good news for Quebec on the health of provincial finances. Quebec has historically been a weak fiscal performer and the most heavily indebted province in the country (relative to the size of its economy). But in recent years the provincial government has taken firm action to try and change that.

Since coming into power in 2014, Premier Philippe Couillard’s government has made difficult choices to start repairing Quebec’s battered finances. By restraining the growth in program spending, Couillard’s government was able to balance Quebec’s operating budget starting in 2015/16. The province hasn’t looked back since.

Quebec has not only produced consecutive balanced operating budgets, it has managed to essentially stop adding more debt to the books. With a growing economy and stable debt levels, the province’s debt-to-GDP ratio has dropped from a recent peak of nearly 51 per cent to an expected 46 per cent this year. A further decline to 40 percent is expected over the next four years.

Reducing the debt burden with a credible plan has resulted in improvement in the province’s credit rating and less tax dollars going to service the debt each year. It has also boosted the confidence of entrepreneurs and businesses considering Quebec as a destination for investment. Without debt piling up, the concern over taxes going up in the future has diminished.

In fact, Quebec has already introduced modest tax relief, although there’s a long road ahead to changing its high tax status and making the tax system more competitive.

Things are different in Ontario.

Despite the fact that the Wynne government is finally expecting to balance its operating budget this year, the pace of debt accumulation will barely slow in the years ahead. The Wynne government is calling for provincial debt to increase by an average of $11.4 billion over the next three years—approximately the same as the average annual increase over the previous three years ($11.6 billion).

Ontario continues to dig deeper into debt to fund capital spending, which due to government accounting practices, doesn’t fully appear in the operating budget.

Because Ontario continues to add so much debt to its books, by the end of next year it will have more debt per person than Quebec does. This is a remarkable reversal of fortunes, given that Quebec has historically carried a much larger per person debt burden than Ontario.

Premier Wynne has nonetheless implicitly acknowledged that debt accumulation is a problem by setting a goal for reducing the debt-to-GDP ratio to the level that existed before the 2008-09 recession—from an estimated 37 per cent this year to 27 per cent by 2029/30.

The problem is that the government’s timeline does not allow for any progress towards this objective in the immediate future. According to the government’s own estimates, the debt-to-GDP ratio will barely change over the next three years. Any meaningful reductions in the debt burden are being delayed well into the future, which conveniently allows the government to avoid explaining how it will actually achieve its target.

By kicking the can down the road, the Wynne government is not doing Ontarians any favours. Continuing to accumulate debt means more tax dollars will go to servicing the debt—about $1 billion each month.

Instead of delaying the tough choices, Premier Wynne should follow the example of her Quebec Liberal counterpart and take concrete and immediate action to reduce the province’s dangerous debt burden.