The Wynne government may have pledged a balanced budget by 2018, but according to a new Fraser Institute report, the Liberals are actually adding $9 billion in debt next year — to pay for transit and other infrastructure projects — with the potential of repeating it for the next few years after that.
Ben Eisen, director of the Fraser Institute’s Ontario Prosperity and co-author of Hold the Celebration: A Balanced Budget Won’t End Ontario’s Fiscal Challenges, speaks about what the impacts are of the province landing more debt.
1. What does incurring more debt mean in terms of impact to future services that people can relate to?
“One of the major concerns with government debt is all of the new debt we accumulate needs to be serviced. Just like households need to pay interest on their debt, governments need to pay interest on theirs. That takes away money that then becomes available for a wide range of priorities, including either tax relief or public services — things like health care and education — so, money that goes to debt payment services becomes unavailable for those things. And that’s one of the biggest concerns about our rising debt burden.”
2. What’s the impact on future generations — young people who are entering the workforce, for example — in terms of taxation?
“The burden to servicing that debt is passed along to future generations. It goes on the books and then that money comes out of the paycheques of future generations. (They’ll) see money they earned used to service government debt that we’re running up today instead of either being left in their pockets or lower taxes, or going to services they value. So the impact on future generations can be one of two things: It can be higher taxes to service the debt, or it can be less resources for public services or a combination of those things.”
3. The province’s debt is a runaway train. What can be done?
“What we need to do now is recognize that if the government balances its operating budget next year, as it has forecast it is going to do, we need to recognize that the province’s financial problems are not solved.
“We still face a very large debt burden and that’s going to be passed along to future generations … An awful lot more work needs to be done to get our province back on track, fiscally. That’s the most important take-away from this study.”
DEBT BY THE NUMBERS
- Ontario’s net debt has about doubled since 2007 and it’s estimated to reach $318 billion this year (2016-17).
- After nine consecutive multibillion-dollar deficits, the provincial government forecasts it will balance its operating budget next year (2017-18).
- The government forecasts it will add about $9.1 billion to the provincial debt per year until 2018-19. Its Financial Accountability Office projects it will continue to accumulate new debt at a similar rate in subsequent years.
- The government’s own forecasts show it will make virtually no progress in reducing the province’s debt-to-gross domestic product ratio in the years ahead, as that ratio is expected to hover within a percentage point of its current historically high rate of about 40% of GDP.
Ottawa Sun by Jenny Yuen
March 30th 2017