Hold the Celebration: A Balanced Budget Won't End Ontario's Fiscal Challenges

Summary

• Ontario’s public finances have deteriorated markedly in recent years. Net debt (gross debt minus financial assets) has approximately doubled since 2007; it is estimated that it will reach $318 billion this year (2016/17).
• After nine consecutive multi-billion dollar deficits, the provincial government forecasts it will balance its operating budget next year (2017/18). Even if the government meets that goal, it would be wildly premature to take this as evidence that Ontario’s fiscal problems are essentially solved or as justification for a more relaxed approach to public spending.
• There are three reasons Ontario should “hold the celebration.” First, balancing the budget in 2017/18 won’t undo the damage caused by the long string of budget deficits in preceding years. Those accumulated deficits (which now form part of the province’s net debt) will not simply disappear when the budget finally is balanced.
• Second, despite a balanced operating budget, the province actually plans to continue adding significant additional debt in the years ahead. The government forecasts it will add approximately $9.1 billion to the provincial debt per year, on average, through to the end of 2018/19, and its Financial Accountability Office (FAO) projects it will continue to accumulate new debt at a similar rate in subsequent years.
• Finally, the government’s own forecasts show that it will make virtually no progress in reducing the province’s debt-to-GDP ratio in the years ahead, as that ratio is expected to hover within a percentage point of its current historically high rate of approximately 40% of GDP.