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TORONTO – To weather economic uncertainty, the 2016-17 Ontario budget be focused on supporting economic stability rather than focusing on deficit and debt, says Sheila Block, senior economist with the Canadian Centre for Policy Alternatives’ Ontario office (CCPA-Ontario).
Block’s newest report, No Crisis on the Horizon: Ontario Debt, 1990-2015, indicates concerns about Ontario’s debt post-recession may be overblown: the province’s net debt-to-GDP ratio grew at a slower pace following the 2008 recession than it did after the 1990-91 recession.
“Despite some concerns about the level of Ontario’s debt, the province isn’t anywhere close to hitting a ‘debt wall’,” says Block. “Ontario is historically low interest rates and will likely have a federal partner at the table to correct fiscal transfer inequities. Both will help the province’s bottom line, so the real focus in this year’s budget should be on stabilizing the economy.”
Among the findings:
- In the 1990s, Ontario’s net debt-to-GDP ratio more than doubled, going from 13.4 per cent in 1990-91 to 31.3 per cent in 1996-97—a 17.9 percentage point increase. But between 2008-09 and 2014-15, Ontario’s adjusted net debt-to-GDP (to take account of accounting changes) rose from 22.8 per cent to 35.9 per cent—a 13.1 percentage point increase.
- The effective interest rate on the Ontario government’s debt has been in a steady decline since 1990-91—when it stood at 10.9 per cent—and is now at historic lows—3.7 per cent in 2014-15.
- Despite rising debt, the share of revenue taken up by interest on debt rose marginally from pre-recession levels of 8.6 per cent in 2007-08 up to between 9 and 9.2 per cent since that time. Interest costs took up a much larger share of revenue in the late-1990s and early-2000s, peaking at 15.5 per cent of revenue in 1999-2000.
This paper points to several potential solutions: raising taxes to generate higher revenues, moving ahead the province’s target for a zero deficit, and working with the federal government to secure increased transfer payments.
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