Just how bad is Ontario’s debt? A new study by the Fraser Institute pits the province against the most fiscally irresponsible state in the U.S. – California. Titled Comparing the Debt Burdens of Ontario and California, the study finds the Trillium province owes nearly twice as much as the Golden State.
How High is Ontario’s Debt?
Ontario’s total debt is $267.5 billion, while California’s is $144.8 billion. To put into perspective, each Ontarian owes $20,166 in government debt compared to $3,844 for every California resident. The numbers may be boggling to the everyday person, but don’t worry – there are upsides to being an Ontario resident.
Con: More Debt = Less Opportunity
The report points out that the more governments borrow, the harder it becomes for private businesses to expand. When the government takes on debt it competes with the private sector, limiting the ability of businesses to borrow and invest in plants, machinery, equipment, and research, as well as training and development of staff. This discourages business growth and development, as witnessed in California.
Con: Public Services are Affected
A larger amount of debt also means that more of our tax dollars are going towards servicing it, and that leaves less money for public programs. “Ontario devotes 9.2 per cent of its revenues to interest payments, California’s is 2.8 per cent. Interest payments eat up money that could be used for vital services such as health care, education, infrastructure investment and tax reductions,”
Pro: Austerity Measures Not Needed
Unlike in California or many European nations, deep cuts to government programs like welfare, government pensions and higher taxes are not necessary to get Ontario back on track. The Ontario government, according to the report, can pull itself back from the fiscal cliff by simply halting growth in spending. The report references University of Calgary professor Ronald Kneebone. He says, Ontario’s finances may greatly improve, if Ontario capped program spending growth at four per cent per year.
Pro: Confidence In Ontario’s Debt Abilities
Rating agencies Standard & Poors, Moody’s Investor Service and DBRS still give Ontario a AA rating on its long-term debt, meaning investors believe Ontario can handle its fiscal house. California has a single A rating, from Standard & Poors, Moody’s Investor Service and Fitch, signalling there is less confidence in the state’s ability to handle its bills.
Ontario was pummeled during the 2008 financial crisis, mainly from the pullback of our automotive and manufacturing sectors. These industries have only recently start to show signs of recovery. As a well a lower Loonie is giving a boost to our export sector which will help prop up Ontario’s economy once again.