Amid the flurry of promises and tax cuts to entice voters in the Ontario election campaign, Jessica Moorhouse said there is one issue on her mind as she gets ready to cast her ballot on June 7: the growing provincial deficit.
“It should be one of the most important things that voters think about,” said the 31-year-old personal finance writer, who often writes about millennials carrying personal debt.
Moorhouse, who lives in Toronto, said she is worried about the provincial deficit ($6.6 billion or $12.5 billion, depending on who you ask), the province’s ballooning debt of more than $311 billion, and the plans from political parties to return to a balanced budget.
“They are dealing with our money and we are going to have to pay for it down the line.”
What’s the issue?
Ontario is carrying more debt than at any point in its history — currently over $311 billion — which could rise to almost $400 billion in 2020-21, according to the province’s Financial Accountability Officer. The province’s net debt-to-GDP ratio sits around 38 per cent, up from 26 per cent before the global economic crisis.
A scathing pre-election report from the auditor general accused Kathleen Wynne’s government of understating the province’s projected deficits by billions of dollars. The report from Bonnie Lysyk calculated the deficit forecast for next year at $12.2 billion — not the $6.6 billion Finance Minister Charles Sousa had predicted. In 2020-21 it’s $12.5 billion, not $6.5 billion.
The accounting dispute stems from an accounting issue involving two of the province’s largest public pension plans and from the Liberals’ Fair Hydro Plan, which cuts electricity rates by 25 per cent using borrowed money that will be later paid back at a higher price.
Queen’s economist Don Drummond said now should be the time to pull back spending, with Ontario’s economy humming along, which experienced around 3 per cent growth last year.
“Governments don’t seem to like running surpluses. It’s tough to put in place the policies that generate them,” Drummond said. “They don’t like political reaction to them.”
He also took issue with the “inter-generational fairness” of passing on the province’s huge debt load.
Passing on over $311 billion in debt is one thing if there are public assets to go along with it, Drummond said, but it’s quite another in Ontario’s case.
“We are passing on way more debt than we giving in assets,” he said. “It’s unfair when it’s so large relative to the assets that are being passed on.”
And with the election less than a month away, new polling shows Ontario’s finances are on voters mind. An Ipsos poll, conducted exclusively for Global News, found 71 per cent of respondents would prefer the government cut spending to balance the budget over 17 per cent who favoured continuing to run deficits or 12 per cent who want raise taxes.
The poll also found that while Conservative voters are significantly more likely to favour spending cuts a majority of every party’s supporters want to rein in spending. Forty-one percent of respondents said balancing the budget is a “top priority,” while 38 per cent believed that paying down Ontario’s debt is a “top priority,” according to the poll.
What are the parties saying?
Ontario Liberal Party
According to their back-to-deficit budget, more than $20.3 billion in new spending is planned over the next three years, with annual deficits of between $6.5 billion and $6.7 billion until at least 2020-2021. (The Auditor General has said that deficits are actually around $12 billion.
The Liberals aren’t projecting a return to balance until 2024-2025.
Ontario New Democratic Party
Andrea Horwath’s NDP have also projected deficits — although smaller — in the coming years with its heavy investment in healthcare and social services.
The NDP platform lays out five consecutive deficits, beginning with $3.3 billion in 2018-2019, before reaching more than $5 billion in 2020-2021 before decreasing to $1.9 billion by 2022-2023.
Progressive Conservative Party of Ontario
While Doug Ford’s Progressive Conservatives have yet to release a fully costed platform, he has promised to tackle the debt, including a cut of $6 billion from Ontario’s budget without firing any public employees. There have been no specific details on how he’d eliminate “inefficiencies.”
The PC leader, however, said that if elected, his government will have a balanced budget by the end of his first term in office.
“We aren’t going to wipe out the deficit the first year, even maybe the second,” Ford told reporters during a campaign stop in Oakville on May 16.
“But again we’re going to be responsible. We aren’t going to go in there and start slicing and dicing. We’re going to make sure that we run a responsible government, a respectful government to the taxpayers. It’s probably going to take a year or two.”
He’s also promised an “outside audit” of the Wynne Liberals and said he would give more funding to the office of Ontario’s Auditor General.
How crushing is Ontario’s debt?
Ontario’s debt is roughly equal to the combined debt of B.C., Alberta and Quebec at around $312 billion. And according to the International Monetary Fund, Ontario’s debt is larger than the GDP of entire countries like New Zealand and Vietnam.
Randall Bartlett, chief economist at the University of Ottawa’s Institute of Fiscal Studies and Democracy, said the numbers are so massive it’s hard for voters to wrap their heads around.
“Once you are on a fiscally unsustainable track, that puts you in a situation where you have either to reduce spending or raise revenues to get your finances back in order,” he said. “You can’t deficit you way out of this problem.”
Interest payments on the debt now amount to $12 billion per year, according to government figures. It’s the province’s fourth largest expense after healthcare, education and social services.
“When you have a large debt burden, you’re burning up a lot of revenues by covering the interest,” he said. “It’s the same as a mortgage. You’re not getting anything out of your interest payments, and you’re not paying down the principal or buying food.”
The debt-rating agency Moody’s Investors Service has changed the outlook on Ontario’s ratings from “stable” to “negative” in the wake of the Liberal’s deficit announcement. Standard & Poor’s now rates Ontario as a single-A-plus. The only provinces that fare worse are Prince Edward Island and Newfoundland, whose economies are far smaller.
Bartlett and Drummond are concerned with the growing debt burden and running deficits, which gives governments less flexibility during tough economic times.
“There is going to be another recession at some point,” Bartlett said. “If we are running large deficits when the economy is robust, those deficits are going to be that much larger in tough times and cause the debt to GDP ratio to go up dramatically.”
How can you fix the problem?
The deficit isn’t an exciting election issue, but it’s a challenge Ontario will eventually have to face head-on, say experts.
Ford has promised to lower taxes and curb spending in the province, but Liberal Leader Kathleen Wynne and Andrea Horwath have warned his promise of cuts would hurt regular people.
“Whoever forms the next government is going to have to get Ontario on a better track in terms of its spending and its debt,” Bartlett said. “At some point someone is going to have to raise revenues, or increase or cut spending dramatically.”
Ontario could look to Quebec, which was in a similar situation, facing a mounting provincial debt. The Generations Fund was created in 2006, whose revenues come from sources such as Hydro-Quebec water-power royalties, mining revenues and a specific tax on alcoholic beverages.
Those revenues have reached more than $2 billion annually. Quebec’s Liberal government announced in its March budget it will use $10 billion over the next five years to pay down the debt.
And while Quebec still has a higher debt-to-GDP ratio than Ontario, at 46.3 per cent, it’s been falling over the last decade, while Ontario’s continues to rise.
“There will be a day of reckoning at some point, when someone has to deal with the fiscal adjustment,” Bartlett said. “It could be my generation or my children’s generation.”