Ontario on track to add more than $100 billion in debt over five years

Later today, the Ford government will table its final budget of its current term in office before hitting the campaign trail in the Ontario provincial election. Before winning election in 2018, the Progressive Conservative Party of Ontario repeatedly promised to eliminate the province’s budget deficit. As a recent blog post described, it hasn’t come close to keeping this promise. This post considers the implications of Ontario’s debt in the years ahead and places recent trends and future projections in historical context.

Again, the Ford government entered office promising to eliminate the deficit and slow the growth in Ontario’s debt burden. This has not happened. Primarily thanks to continued deficits, provincial debt has continued to grow quickly. In nominal terms, provincial net debt (a measure that adjusts for financial assets) has climbed from $338 billion in 2018 to more than $400 billion at the end of fiscal year 2021/22. This trend is on course to continue, as the government forecasts net debt will reach roughly $450 billion in 2023/24. This would total a $112 billion increase in just five years.

An immediate objection may be to note the effects of the COVID recession on government finances in 2020/21. But this doesn’t hold much water. The province was already adding debt quickly before the pandemic and recession, and is continuing to add more even as the annual fiscal effects of the COVID recession recede.

The implications for other crucial metrics of Ontario’s fiscal health are also worrying. Specifically, during the COVID recession the province’s debt-to-GDP ratio (the best indicator of the overall sustainability of a debt burden) reached a historic high of 44 per cent. This increase is partly understandable, given a recession and the need for emergency spending.

What’s troubling, however, is that the government’s current fiscal plan provides no roadmap to improve this measure of fiscal health. In fact, it doesn’t even try. In recent financial documents the Ford government has articulated the weak fiscal goal of simply preventing further growth in the debt-to-GDP ratio. This is even weaker than the federal government’s fiscal goal of shrinking its debt-to-GDP ratio over time or that of the Wynne government to do the same (although to be fair, the Wynne government never made any progress on these promises).

Given the explicit lack of effort to shrink the debt-to-GDP ratio, the last Ford government projections show that this metric is expected to hold steady around 43 per cent for the rest of the government’s fiscal plan.

This approach mirrors the approach of the Rae government following the recession of the early 1990s and the McGuinty and Wynne governments following the recession of 2008/09. In each case, the recessions saw a large increase in debt (relative to the size of the economy) followed by a failure in subsequent years to move meaningfully back to pre-recession levels. As a result, debt levels stayed elevated in the years ahead, so when the next recession hit the debt burden climbed higher still. That’s how Ontario went from a debt-to-GDP ratio of 13 per cent in 1990 to 43 per cent today. And it’s why, if another recession hits, Ontario’s debt burden will almost certainly climb again to new record highs.

When the Ford government tables its budget on Thursday, it will be its last chance to start making progress to reverse these alarming trends. If instead it chooses to stay the course, we will remain on track for a five-year increase in nominal debt of $112 billion and historically high debt levels relative to the size of the provincial economy.