Ontario’s debt is set to jump by $50 billion over the next four years, the province’s financial watchdog warns.
Financial Accountability Officer Stephen LeClair says Ontario’s net debt will reach $350 billion by 2020-21. The FAO warns that Ontario’s debt burden is one of the highest among Canada’s provincial governments and an interest rate hike could put its credit and “fiscal flexibility” at risk.
“You do have to be cautious about the amount that you borrow,” LeClair said. “I do recognize that the government is borrowing to finance some of their capital build and that will provide benefits to the province. But you still have to service that debt, and at some point in time, interest rates may rise, which will require a greater amount to service debt.”
As of March 31, 2016, Ontario’s debt sat at $296.1 billion. LeClair notes that in the previous fiscal year, 2014-15, Ontario had the highest debt burden among the country’s major provinces, “carrying $2.40 in net debt for each dollar of provincial revenue.”
LeClair also notes that 38% of Ontario’s current net debt comes due in 2020. The province could “roll over” the debt, which means taking on more debt to pay off the existing balance.
“It’s just a cycle where they continue to borrow to pay off debt,” LeClair said.
Finance Minister Charles Sousa defended government spending Tuesday, saying that it has been part of the Liberal plan since the 2008-09 recession.
“While global economic challenges persist, we are taking the next steps in our plan,” Sousa said in a statement. “Ontario remains firmly committed to eliminating the deficit by 2017-18 and will do so in a way that is fair, equitable and protects the valuable programs and services that Ontarians rely on.”
LeClair also said his office has not changed its view that the Liberal government will balance the budget by 2018. But the FAO is still projecting that the province will slide back into deficit spending in the following years.
Progressive Conservative finance critic Vic Fedeli said the Liberals will use “one-time” asset sales to move the government out of deficit just in time for the 2018 election.
“This is all about trying to give the appearance without doing the hard work to balance the budget,” he said.
“Rather than trying to tackle the deficit and debt by reining in spending, they’re just going to be continuing with new taxes.”
NDP finance critic Catherine Fife said the FAO report shows a “culture of acceptance” within government that there is no end of cash available to spend.
“They’re very focused on short-term political goals,” she said. “There is no long-term strategy to address the needs of Ontarians and balance out on where they’re spending money.”
WHY SHOULD I CARE?
Asked why Ontarians should care about the province’s mounting debt, Financial Accountability Officer Stephen LeClair says it becomes a question of interest costs crowding out other priorities.
“The higher the net debt, it costs more to service that debt. There’s less money for the government to spend on other initiatives.”
That means Ontario will have less money to spend on health care, education and transit. LeClair’s report notes that in the 2016 budget, servicing debt is the third-highest expenditure. More is spent on it than the post-secondary education system in Ontario, he notes.
LeClair also says a single percentage point interest rate hike would see Ontario pay about $350 million more in 2016-17 to service its debt — “more than the budgets of the Ministries of Labour and Aboriginal Affairs.”
Tory finance critic Vic Fedeli says it’s just a matter of time before interest rates jump, and the government needs to be prepared.
“This is a major concern to both businesses and families,” he said. “Businesses know one thing for sure — this government is going to come after them with increased taxes in order to try to manage this debt.
“For families, this means whether it’s health care or education, they’re all under siege by this government whose debts are mounting.”
BY THE NUMBERS
- $20,806 — Each Ontario resident’s share of the debt in 2014-15.
- $296.1 — Billion of net debt in Ontario as of March 31, 2016.
- $350 — Billion, the level the net debt is expected to jump to by 2020-21.
- 38% — Amount of Ontario’s current debt which will come to due by 2020.