By MPP Toby Barrett
Each additional point increase in Ontario’s interest rate will add another $3 billion in interest cost on gross debt.
– Economist Jack Mintz
Ontario’s 41st Parliament commenced this July with the Speech from the Throne – delivered by outgoing Lieutenant-Governor David C. Onley, but written by the office of Premier Wynne.
However, a chill was put on the Premier’s activist agenda with the announcement the day before that Moody’s Investors Service had downgraded the outlook on the Province of Ontario’s debt from stable to negative.
As Moody’s indicated, “After several years of weak to moderate economic growth, and higher than previously indicated deficits projected for the next two years, the province is facing a greater challenge to return to balanced outcome than previously indicated.”
This credit rating downgrade could mean higher interest rates on approximately $250 billion in provincial debt securities. If the interest rate increased to 4.9 percent, an increase of only one point, the province would need to pay roughly $14.161 billion in interest payments on the debt, an increase of $2.89 billion.
According to the 2014-2015 budget, Ontario’s net long-term debt will increase from $269 billion to $289 billion by the end of the year. The budget indicated that the government will pay $11.271 billion in annual interest on its debt.
Interest on the debt is already the third largest expenditure on the Ontario budget, after health and education. And secondly, these interest payments on the debt are the fastest-growing expense in the provincial government. During Question Period, Wellington-Halton Hills MPP Ted Arnott pointed out that over the next three years interest costs will go up eight per cent each year. Remember the average citizen does not benefit from the interest payments made by government.
On the heels of the credit rating downgrade, the Speech from the Throne touted 10 years of $130 billion public infrastructure spending as a critical element in the government’s economic plan, justifying it with a quote from former Bank of Canada Governor David Dodge, “With low interest rates, it is the right time for governments and the private sector to invest in infrastructure.”
However, according to economist Jack Mintz, “If interest rates which have been at a 20-year low levels rise, (the debt) burden would become significantly heavier,” and “if interest rates rise to (even) historical norms, each point increase in interest could add a minimum of $3-billion in annual interest payments. That would severely cripple Ontario’s ability to deliver services.”
And let’s remember David Dodge hasn’t been Bank of Canada Governor since 2008 and many are predicting the low-interest-rate bubble will burst.
As this government states in its Speech from the Throne, “Your government knows that trust is hard-earned, but easily lost.” Kathleen Wynne has promised many times over, to balance the provinces books in three years. I take her at her word although we have yet to see any specific measure that will accomplish that goal.
I will never forget the promise of her predecessor, several times over, to not raise taxes – a promise that was broken by implementing the largest income tax increase in the history of Ontario, the largest consumption tax increase in the history of Ontario, as well as many other hikes in taxes. One can judge future behavior by past behavior.
Historically, both Dalton McGuinty and Bob Rae proved you cannot tax and spend your way out of a recession. For these reasons, in part, I voted against the Speech from the Throne.