Ontario's debt crisis
By Jim Poling
Published March 22, 2018
In all the recent dark and depressing news about governments, and the people who run them, comes a pinprick of light. Small and distant like a far away star in the night sky, but enough to give hope that common sense has not been completely extinguished.
The twinkle of light comes from Quebec where the provincial government has grasped the self-evident truth that borrowed money is an anchor that can sink the ship if not managed cautiously.
Quebec will announce next week that it will pay $10 billion over the next five years against its provincial debt. It will be the most substantial debt repayment the province has made in more than 50 years and will save taxpayers $1 billion in interest payments over five years.
Imagine that, a government paying down debt instead of leaving it for next generations to pay.
Quebec has been squirrelling away money into a Generations Fund to get larger investment returns than it was paying in debt interest. The money going into the fund was obtained from a series of budget surpluses.
In case anyone in Ontario has forgotten, budget surpluses are created when you manage financial affairs wisely and spend less than you had budgeted.
Almost all Canadian governments, federal, provincial and local, have ratcheted up their debt loads in the last 10 years. Quebec is one of the most indebted, but at least it is confronting the problem.
The extent of Canada’s overall debt problem was outlined by a 2016 Fraser Institute report. It found that combined federal-provincial debt of $834 billion in 2007/2008 increased to a projected $1.3 trillion in 2015/2016. That’s 64.8 per cent of the economy or $35,827 per Canadian.
Interest payments on collective government debt in 2014/2015 totalled an astounding $60.8 billion or 8.1 per cent of total government revenue that year.
How big is that? It is almost as much as spending on primary and secondary education ($62.2 billion in 2012/2013) and more than Canada and Quebec Pension Plan benefit payouts ($50.9 billion).
While Quebec attempts to deal with its debt, Ontario continues to hurtle toward a debt catastrophe. Many of us won’t be around to feel the pain but millennials will.
Ontario’s debt has almost tripled in the last 15 years. It was $110 billion when the Progressive Conservative government presented its last budget in 2003. It is projected to be $312 billion this year and $336 billion in 2019-2020.
Ontario’s debt problem lies not just in the number of dollars it owes. Its changing population is a major negative factor.
Within the next 12 years, the province’s working age population is expected to fall to 60 per cent of the general population. That number was 68 per cent in 2016.
Also the number of Ontario seniors is expected to grow to five million by 2050, twice the current number.
Fewer working people means smaller government revenues, and more older people means increased spending demand for health care and other senior services.
On top of that, Ontario’s economic growth is projected to average only two per cent over the next 30 years, lower than the 2.5 per cent seen over the past 20 years.
Ontario’s political leaders have three choices: increase revenues (raise taxes and service fees), cut spending (provide less government service) or continue to let the debt grow even larger.
Most of us face the same three options in our personal lives. However, letting debt grow is not really an option for us because creditors will step in and shut us down. Goodbye big screen TV, goodbye car, goodbye the roof over your head.
Ontario’s debt crisis will not be solved under our current political system in which the goal is to put a party in power and keep it there no matter what the costs or consequences.
Difficult decisions that will affect all citizens are required to deal with the debt crisis. Decisions made in current hyper-partisan atmosphere never can be successful.
We need a sincere, fully bipartisan approach to getting out of our debt mess. That means electing people willing to work outside partisan political thinking to find the best solutions.
With the June Ontario election campaign underway we need to be talking about this.