Ontario’s in bad shape when it comes to debt. And while Quebec may often be cited as “Canada’s poorest province,” Ontario isn’t far behind. But just how much does Ontario currently owe? And just how much has Ontario’s debt increased over the past ten years? What are the reasons for that increase? These are just a few of the questions we’ll answer today, in this second part of our mini-series on debt and debt consolidation.
A look at the below chart shows just how deep Ontario has sunk in debt over just the past ten years. The total amount as of March 31, 2012 was $257.3 billion in gross debt; $238.4 billion in net debt, when you subtract the assets the province holds.
This amount is a combination of public and non-public debt. The majority of it, 94%, is in Canadian dollars while the rest is in American or Swiss currency. The non-public portion of that debt is made up from areas such as public-sector pension funds and the Canada Pension Plan Investment Board (CPPIB.)
A look at the chart clearly shows that while Ontario’s debt grew at a moderate pace through to the year 2007, it increased dramatically in 2008, and continues to do so with each passing year. During the years 2008 – 2012, the province’s debt increased a shocking 10% per year. For the fiscal year of 2013-2014, Ontario’s net debt is forecasted to sit at $281.8 billion.
Why are we in so much debt?
Ontario’s debt was largely accumulated during the years the province was under a Liberal government; but politics alone cannot be blamed. That government for some of those years was a minority, unable to do anything without approval of the Conservatives. The years the debt piled on were also during the recession, when the nation’s public debt went up, and all economies were taking a hit.
First the political issue. It’s a fact that Ontario’s debt has increased over 64% since the McGuinty government took office in 2003-2004. In 2011 that government showed a revenue of $108.3 billion, yet their spending was $124.1 billion. education and health make up 62% of that spending alone. Currently, Ontario is borrowing at a rate of over $50 million a day. The McGuinty government has come under fire for several different programs including: $1.1 billion for the Ontario Clean Energy Benefit; $1.4 billion in temporary HST rebates; $1.3 billion for power supply contract costs; $500 million a year to fund full-day kindergarten, using teachers instead of ECEs; and health programs such as eHealth and Ornge.
But again, McGuinty and company can’t be blamed fully for the mess that Ontario’s currently in. It was also during 2007-2008 that the recession hit, and the crash of the economy South of the border had the hardest impact on Ontario in Canada. Because Ontario is such a central location for both Canada and the United States, the effects weren’t long to trickle over, and Ontario’s economy took a tough blow. Ontario relies heavily on the United States for a lot of its major exports, such as automotives, and when the U.S. economy dried up, Ontario’s partially did too.
What does this mean for Canada?
Ontario’s debt plays a significant role in the national economy as a whole. Nearly 40% of the entire country lives in Ontario; and Ontario makes up 35% of the Canadian economy. Some mistakenly believe that because Ottawa lies in Ontario and is responsible for the nation’s debt and revenue as a whole, Ottawa will not allow Ontario to go bankrupt. However, the opposite effect is in fact what will occur. As Ontario continues to get farther in debt, it puts a further drain on Ottawa, putting the entire country at risk.
What does this mean for you?
Ontario needs to start getting serious about paying back its debt, there is no question. But the bigger solution is to increase taxes and cut spending from which the consumer is currently enjoying. Cutting certain stimulus packages, such as the Ontario Clean Energy Benefit, would allow the province to keep more of that revenue and pay off their debt. However, eliminating this program would also add 10% to Ontario household hydro bills. Of course, taxpayers can’t handle the entire burden and so, it’s important that areas that have large amounts of spending currently going on are examined, to see where it would be most beneficial for the province’s debt; and have the least harmful effect on the consumer.
So how much of Ontario’s debt do you owe? The below per capita, or per person, graph shows just how much – and how that amount has been increasing at an ever-steady rate along with the provincial debt.
Now that we’ve looked at both the national and the provincial debt, make sure you come back tomorrow. We’ll be looking at Toronto’s debt, and what that means for the residents within it.