Ontario, as with many governments, is lucky its debt interest payments are not substantially higher given its almost doubled debt. That has everything to do with historically low interest rates. But luck is not a long-term strategy for governments -- at least not ones that prefer prudence over accidental fiscal offerings.
Ontario has dug itself into a deep financial hole. The responsible thing to do is curb government spending to balance the books. But some analysts are suggesting that Ontario should raise taxes. McGill University's Dr. Christopher Ragan has even called for a carbon tax. This is a terrible idea. The last thing cash-strapped Ontario families can bear right now is a tax on everything.
We've seen this script before. Higher spending. Tax increases. Persistent deficits. Growing debt. Warnings from credit rating agencies. A government unwilling to make the tough choices to turn things around. That's the Ontario of the 1980s and early 1990s. It's also where the province finds itself today.
Bob Rae and Kathleen Wynne are hardly the only (former and current) politicians to engage in storytelling. Politicians of every partisan stripe do the same thing. But while stories are useful and guide us in a variety of beneficial ways, the rational side of human nature should revisit tales now and then, especially political ones. That leads to better, smarter government. Ontario is no exception.
The government already spends 9.2 per cent of its revenues to service its debt and, according to its own estimates, this will rise to nearly 11 per cent in the next four years. Put plainly, Ontario spends $1 out of every $10 sent to Queen's Park to pay for past debt. This is money not spent on health care, education, transportation, or other public priorities. The increase in rates and the expectation for further hikes means even more tax revenues will go to paying interest instead of key government services.
As the election heats up and politicians fall over themselves to promise the moon to voters, the single largest problem facing Ontario continues to be the province's pitiful finances. Hudak has been brutally honest with the people of Ontario about what his government will cut and the tough decisions they will make to get the province back on track.
The results do not bode well for Ontario. Provincial debt amounts to 237.7 per cent of revenue -- the highest ratio amongst the provinces. In other words, the total debt accumulated by the Ontario government represents almost two and a half years of revenues. Ontario's ratio is much higher than Quebec, the second most indebted province (189.5 per cent) on this metric.
With Ontario lagging behind other provinces on a wide range of economic indicators and recently becoming a "have-not" province, it desperately needed a bold plan to improve competitiveness and foster economic growth. Unfortunately, Thursday's budget failed to deliver and will only exacerbate Ontario's fiscal and economic challenges.
It's far from perfect, but it is a sign of good will that the government has been listening to its critics -- namely the Ontario NDP who demanded no new taxes on "the middle class" and the Canadian Taxpayers Federation who has long called for a dedicated fund to tie taxes collected from drivers with roadway spending.
On May 1 Ontario Finance Minister Charles Sousa will stand in the provincial legislature to deliver this year's budget speech. Imagine if Sousa were to surprise us all and take a different track -- one that sets out a new agenda to return Ontario to its historical position as the economic engine of the country.
Since the financial meltdown in 2008-09, Quebec has run massive deficits each year. The province is on track to add $53 billion to its total provincial debt -- a 35 per cent increase -- by the end of the year. But in the same period, Ontario under McGuinty and Wynne will add $120 billion to its debt -- a 71 per cent increase.
The analysis of one of Canada's leading banks incorrectly concludes Ontario can't be compared to California, should be compared to other provinces, isn't necessarily at fault for being the second most indebted province, and argues the federal government should consider bailing Ontario out. No wonder Ontario is in the state it's in.
A sign of the seriousness of Ontario's debt problem is evidenced by comparisons with California, which for more than a decade has been the butt of jokes of comedians, political commentators, the media, and politicians themselves for its inability to solve its perennial financial problems. This dubious distinction ought to be a wake-up call for Ontario's policymakers and citizens alike.