Even the most determinedly disinterested taxpayer should be alarmed by two recent reports assessing the state of Ontario’s provincial debt, and the rapid increase in electricity rates.
The reason Ontarians should take note is simple: The reports indicate the province is in a highly precarious position that could soon have a dramatic impact on household budgets and public programs. The Ontario Liberals have built a financial structure so perilous it could easily be tipped into crisis by forces outside any Canadian’s control, with painful consequences to the very programs people most value.
Although Liberals argue they need public “investment” to promote growth, 56% of additional borrowing since 2009-10 went to financing the existing deficit, while just 26% went to capital spending.
The first of the two reports has to do with debt, an issue that is often discussed but rarely addressed, and, quite frankly, bores a lot of people who’d rather not think about it. The Financial Accountability Office, a watchdog agency forced on Kathleen Wynne’s Liberals as part of a political deal, spelled out in simple terms just how deeply the province has fallen into hock. According to analysts Diarra Sourang and Peter Harrison, Ontario’s debt is among the country’s highest by any of the four most common means of measurement. This is important to understand, because the Wynne government goes to great lengths to hide the reality behind actuarial smokescreens and political spin.
By FAO calculations, Ontario’s debt, at almost $300 billion, has grown almost 90% since 2008-9 alone. The province has $2.40 in debt for every dollar of revenue it brings in. Ontario owed $20,806 per person in 2014-15, compared to $8,387 in British Columbia. Although Liberals argue they need public “investment” to promote growth, 56% of additional borrowing since 2009-10 went to financing the existing deficit, while just 26% went to capital spending.
FAO officer Stephen LeClair says the government also continues to hide information from him as he tries to get a grasp on the true state of affairs.
Interest on the debt, at almost $1 billion a month, is the third highest expense in the budget. Ontario spends more on interest payments than it does on post-secondary education. While the Liberals may manage to use accounting tricks and one-time sell-offs to present a balanced budget in time for the next election, the FAO says the reality is that annual deficits will continue through 2021, pushing the total to about $350 billion. FAO officer Stephen LeClair says the government also continues to hide information from him as he tries to get a grasp on the true state of affairs.
Hydro One Inc.
Hydro One Inc.Ontario Liberals are selling off bits of Hydro One to temporarily balance the budget for the next election, after which deficits will resume.
This is frightening because interest rates are at record lows, and even a small rise will push the province’s obligations — and corresponding payments — to even higher levels. According to the report, a one percentage point increase would add another $350 million a year to repayments, more than the budgets of the Ministries of Labour and Aboriginal Affairs.
The situation puts the Liberals in a perverse squeeze. A stronger economy would almost certainly produce higher interest rates, tightening the noose they’ve made themselves. In effect, the government — while professing to seek growth — needs a slow economy to keep its interest payments manageable.
Meanwhile, the province continues to jack up power rates that are already bumping along the top of the Canadian scale. Bank of Montreal chief economist Doug Porter reports that “in the past seven years, nothing has risen faster than electricity prices.”
Prices leapt 15.7% in the past year alone, about eight times faster than overall inflation, and have increased an average of 7% since 2009. In most other provinces the increases have been closer to 2%. Even price hikes for cigarettes, a favourite of finance ministers in need of additional taxes, trail the relentless increase in Ontarians’ power bills.
The price of power is a key ingredient in investment decisions. Ontario has suffered a well-documented loss of manufacturing during the 13 years of Liberal rule, as firms find they can get a better deal elsewhere. The Liberal reaction has been to promote subsidies for investors, at public expense, rather than simply providing a grid system that offers affordable power.
It’s symptomatic of the government’s propensity for devising programs that encourage the opposite of their aim. In turning the province into a costly location chained to a hefty debt repayment schedule and expensive subsidies it creates a financial stranglehold on itself. As debt costs rise it must economize elsewhere, a dilemma already evident in its bitter confrontation with doctors, its cutback to inspections of nursing homes, and its ongoing effort to retain labour union support while claiming to be cost-conscious.
It can only increase as the debt grows, along with the cost of repaying lenders. Ontario is living on its credit cards, and they’re close to maxed out. The Liberals may eventually pay the price in terms of voter anger, but Ontarians will be paying, and paying heavily, long after that.
Kelly McParland | July 27, 2016 9:01 AM ET