By MPP Toby Barrett
Ontario’s Auditor-General, Bonnie Lysyk, has thrown out a challenge to legislators, government and people in Ontario – it is time to “start a conversation” about paying down Ontario’s debt.
Her concern – interest rates will eventually rise, meaning the interest cost to service Ontario’s debt will rise dramatically.
By way of example, consider your credit card where interest compounds quickly. When you miss a payment, or you make only the minimum payment, unpaid interest is added to your debt. For many, this has become an almost-impossible cycle to break. The same can be said for many governmental jurisdictions around the world, including the Province of Ontario.
Ontario is scheduled to go another $12.5 billion in the hole this year – more than the deficit of all the other provinces combined – and is scheduled to boost the total debt to over $340 billion by the time the books are promised to be balanced by 2017-18.
Others paint a more dismal picture. The government’s hand-picked economist, Don Drummond, in his 2012 report projected the deficit will not be zero in 2017-18, as promised by Kathleen Wynne, but rather will be another $30.2 billion in the red. Drummond also projects the 2017-18 debt will be a whopping $411.4 billion – not $340 billion.
Dalton McGuinty doubled the debt during his tenure. Wynne will see a doubling of the debt by 2017-18, from its’ recession level of $156.6 billion.
The Auditor General’s past three annual reports have commented on the growing debt, highlighting:
* debt servicing costs reducing funds for other programs
* greater vulnerability to interest rate increases; and
* potential credit-rating downgrades, which could increase borrowing costs.
As debt grows, so does the amount of cash needed to pay the interest on the debt. Ontario now spends more on debt interest than it does on post-secondary education, and these interest costs are growing. In fact, interest on debt is projected to be the fastest-rising cost for the government over the next four years.
By 2017/18, when total debt is expected to be more than $340 billion. The government expects to have to spend nearly one out of every nine dollars of revenue collected on servicing its debt. In 2007/08, only one of every 12 dollars of revenue collected was required.
After the provincial budget was tabled again in July of last summer, the credit rating agencies reaffirmed their existing ratings for Ontario. However, they have indicated that a downgrade will be almost inevitable eventually unless the province implements measures to address its high debt levels.
In July 2014, Moody’s changed its outlook for Ontario from stable to negative and warned of a possible downgrade. Also in July 2014, Standard & Poor’s affirmed its AA– rating with a negative outlook. DBRS confirmed its rating of AA (low), but similar to Moody’s assessment, DBRS noted that the province’s medium-term outlook as weakened. And just before Christmas, Fitch also downgraded the province’s credit rating to AA-.
Ontario’s Auditor General has recommended a long-term debt reduction plan linked to the target of reducing the net debt-to-GDP ratio to the pre-recession level of 27 per cent.
Ontario’s Auditor General has asked us to start talking about the debt. You can continue the conversation with me at toby.barrett@pc.ola.org