Ontario's debt worse than California's: Fraser Report
Ontario and its ballooning debt are on a collision course with fiscal reality, a new Fraser Institute report suggests.
The province’s net debt could swell to 66% of GDP by 2019-20 if the government doesn’t slow the rate of health and education spending adopted over the past decade, the report’s authors concluded.
The State of Ontario’s Indebtedness — Warning Signs to Act says that the province is in far worse shape debt-wise than cash-strapped California, and could use the lessons learned from Greece to avoid a similar fiscal fate.
The report says that Ontario’s total debt as of 2010-11 was $236.6 billion, compared to California’s $143.9 billion.
“Ontario’s bonded debt is almost two-thirds larger than California’s even though California is a much larger jurisdiction in terms of both the size of its economy and its population,” the report says. “Simply put, across every comparable measure available, Ontario’s indebtedness is markedly worse than California’s.
“For those Ontarians who look at California in puzzlement over its inability to solve its deficit and debt challenges, this... strongly encourages them to look inward at the severity of their own indebtedness.”
California differs from Ontario because it has strict limits on how much debt the state can accumulate Ontario’s economy has grown by 133% since 1990-91, while the debt shot up 571% over that same time period.
The 2008-09 recession and one-time infrastructure and energy expenses — such as the assumption of stranded Ontario debt — were culprits, as was the fact that the interest rate demanded by buyers of Ontario debt exceeded the rate of growth in the economy every year since 1990-91.
The authors concluded that Ontario’s debt problem is not of the magnitude that prompted drastic belt-tightening in Greece, but argued the status quo and inaction are no longer options.
The two jurisdictions share a history of spending far outpacing revenue growth, leading to sizable structural deficits.
The State of Ontario’s Indebtedness notes that the current Ontario government has recently signalled its intentions to slow the growth in spending.
But one of the roadmaps to savings, economist Don Drummond’s Commission on the Reform of Ontario’s Public Services, has been largely ignored by the government, the report says.
“The conclusions of the Drummond Report should have been a wake-up call for the Ontario Government regarding the immediate need for reform of the province’s spending,” it says. “Instead, the government has chosen to try to simply slow the rate of growth in spending over the next few years without any serious reform.”
Incoming premier Kathleen Wynne has already said that she will revisit the Drummond report.
“Limiting the rate of growth in health and education spending is the key,” the report says. “A broader program of spending restraint hastens the day when the debt burden stops increasing and can begin to fall ... a broad program of spending restraint can stop the growth in the debt burden almost in its tracks.”
Should the Ontario government put greater focus on debt repayment?