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Ontario’s debt is large and getting bigger, with a government that has only the loosest plans to start spending within its means sometime in the next decade.
The $308 billion we owe, and counting, is a boatload of money. We’re the most indebted we’ve ever been. The Liberals are explicitly choosing to spend billions of dollars more than they plan to take in, despite the help they’ve been given by a pretty strong economy and their own very recent promises that they wouldn’t.
They argue we need a bigger and more caring government more than we need to reduce our debt. Plus they want to hoover up New Democrat votes in the impending election.
Ontario’s credit rating has been stable lately but it’s suffered downgrades from all the major rating agencies. Our provincial bonds aren’t seen as risky, exactly — they’re still comfortably investment-grade by any standard and people rush to buy them — but they’re not as solid as they used to be.
All of this is true. And yet we’re still not in a crisis.
How is a $308-billion debt not a crisis? Aren’t we the most indebted sub-national jurisdiction in the world?
Yes we are, but Canada’s provinces are strange. They seem ordinary to us because we live in them and we have all those generally similar state governments next door, but federations are unusual and ones with such powerful sub-national governments are weirder still.
Health care is what makes our provinces unicorns: most countries with mass public health insurance handle it at the national level. In Canada, it’s done provincially and health is by far each province’s biggest responsibility. The Organization for Economic Co-operation and Development (OECD) has tried to pull together statistical comparisons of sub-national governments in 101 countries; this is really hard because there are thousands of them, they have widely varying responsibilities and most of them are piddlingly small.
When it comes to what provincial and state governments spend as a percentage of national economies, Canada is way out at an extreme, with just China and Denmark in the same neighbourhood.
But, the OECD says, China’s local governments pretty much just do what the central government tells them, with “no inherent power.” They spend money Beijing gives them. They’re sub-national jurisdictions but they’re really not like our provinces at all.
Denmark’s lower-level governments have powers of their own and do a lot of Denmark’s extensive social-welfare spending, so they’re more akin to Canada’s provinces … but all of Denmark has only 5.5 million people. Ontario has 13.5 million.
Canadian provinces are freakishly autonomous and deliver a freakishly big share of First World public services, and Ontario is the biggest Canadian province by both population and economy. You’d expect all its raw budget numbers to be big, including debt.
What would be a crisis, then?
If lenders were refusing to lend to us, like Greece a few years ago, that would be a crisis. But as I say, our bonds are still treated as solid investments.
What matters more than raw dollars is our debt as a percentage of the economy. Right now, Ontario’s debt is 37.1 per cent of its gross domestic product, the standard quick measure of an economy’s size. It’s recently been as high as 39.3 per cent. The ratio has ticked downward in the last couple of years but it’ll stay about where it is for as far as the Liberals are looking, which is out to 2025, when they figure they’ll get the budget balanced again.
Quebec just released its own annual budget the other day and its ratio is 49.6 per cent. The federal government’s is 30.4 per cent.
Quebec Finance Minister Carlos Leitao.
Again, these cross-jurisdiction comparisons can be misleading, but Greece’s debt is 180 per cent of its GDP. Japan’s is 253 per cent. The United States’ is at 105 per cent. Nobody treats them (even Greece now, though it’s still delicate) as if they’re on the verge of bankruptcy and they’re massively more indebted than Ontario is.
“Not on the verge of bankruptcy” isn’t the same as “doing great,” though. Alberta’s debt-to-GDP ratio is 6.5 per cent. British Columbia’s is about 16 per cent. American states, which aren’t borrowers the way Canadian provinces are, typically have ratios under five per cent.
On the flip side, Puerto Rico has a ratio of about 68 per cent, but it doesn’t have the cash to make its payments. That’s what makes a crisis. Ontario’s nowhere near that.
Interest payments are killing us, though, aren’t they?
We’re talking about a lot of actual dollars, yes: $12.5 billion this year, rising to $13.8 billion by 2021. Interest is famously the third-biggest item in the Ontario budget, after health care ($61.2 billion) and education ($40 billion, counting grade schools, colleges and universities). It’s about what we spend on welfare programs through the community-services ministry.
But again, the context matters. The budget says the government is paying eight cents in interest out of every dollar it collects in revenue. That’s a record low in recent history. If what we’re paying in interest freaks you out, you should be less concerned about it now than at any time since David Peterson was premier.
The figure shot up from 7.7 cents under Bob Rae and the New Democrats in the early 1990s, peaked at 15.5 cents under Mike Harris, then fell sharply under Dalton McGuinty in the mid-2000s. When Kathleen Wynne took over in 2013, it was nine cents on the dollar.
Liberal leader David Peterson (right), and NDP leader Bob Rae in 1990.
(In the last NDP budget in 1995, we paid $8.6 billion in interest, almost the same as we spent on each of education and welfare, and half of the $17.6 billion we spent on health.)
So despite all of the Liberals’ borrowing, the weight of interest payments has shrunk slightly under Wynne’s premiership. It’s projected to reach 8.5 cents on the dollar in 2021 — an increase from today, but not a freakout-level increase.
What if interest rates go up? Are we screwed then?
Crazy-low interest rates have definitely helped. Poor Bob Rae borrowed at interest rates over 10 per cent — a little bit of that debt is still on the books. Now the interest rate on all of Ontario’s debt combined is 3.5 per cent, the latest budget says.
Borrowing money has been cheap and the Liberals have benefitted from retiring old debt at relatively high interest rates and rolling it over into new bonds cheaply. (Last year, Ontario sold $400 million worth of bonds in Europe at 0.25-per-cent interest, ridiculously cheap.) Future governments won’t get that inheritance.
“The global decline in interest rates over the past 25 years is already showing signs of modestly reversing,” the budget concedes.
But McGuinty and Wynne have made the most of the situation by borrowing long-term at low interest rates. The average payoff period for provincial debt has risen from 9.7 years to 10.9 years since 2010.
“Maintaining a long average term of the province’s debt portfolio ensures low interest rates remain locked in for a longer period,” the 2018 budget says in its deeply unsexy technical section. “This reduces refinancing risks and helps offset the impact of expected higher interest rates on the province’s future interest on debt (IOD) costs.”
The point is that a lot of cheap borrowing is locked in. Ontario’s biggest recent bond issues, about $65 billion worth, are at interest rates under four per cent and last until the 2040s. Anything can happen to Ontario’s credit rating or to global interest rates and it won’t make any difference to what we’ll pay on those bonds.
What if there’s another recession?
There will be. There’s always another recession. That’s the thing to worry about. Ontario’s finances aren’t in crisis but they’re markedly worse than they were before the last recession in 2008-09.
The Liberals of 2018 assume that if they’re re-elected, they’ll be able to coast. They’ll balance the budget again in 2024-25, start paying debt down, and everything will be fine. That was supposed to happen this year but if you listen to Sousa, that’s just not something Ontario can afford — we need to spend, spend, spend, even though the economy is spinning off full-time jobs by the thousand.
Then-premier Dalton McGuinty congratulates Kathleen Wynne after she became the new leader of the Ontario Liberal party in 2013.
Every government always assumes smooth waters are ahead. The 2007 budget projected growing surpluses for the next three years.
“Five consecutive fiscal surpluses, a prudent and improving debt-to-GDP ratio combined with ongoing strategic investments in key priorities will continue to strengthen the economy and ensure that Ontario is well positioned to manage both the challenges and opportunities ahead,” that McGuinty-era document said. Bit of trouble in the U.S. housing market but nothing to get too worked up about, it noted.
A year later, the 2008 budget was just as hopeful: “Most economists expect the weakness in the U.S. economy to be short-lived,” it said. It had sections like “U.S. Growth Set to Strengthen in the Second Half of 2008,” “Oil Prices Expected to Remain High,” “Ontario’s Exports to Overcome Short-Term Challenges,” and “Employment Growth to Continue.”
By 2009, the government was running around with its hair on fire. The forecasts had been pathetically wrong. Virtually all pre-recession budgets are. Eventually, there’ll be another optimistic budget that will seem just as dumb when we look back on it later.
Right now, the Ontario government isn’t preparing for the next unexpected hit. We aren’t in a crisis now, but nor are we ready for one.
dreevely@postmedia.com
twitter.com/davidreevely
查看原文...
The $308 billion we owe, and counting, is a boatload of money. We’re the most indebted we’ve ever been. The Liberals are explicitly choosing to spend billions of dollars more than they plan to take in, despite the help they’ve been given by a pretty strong economy and their own very recent promises that they wouldn’t.
They argue we need a bigger and more caring government more than we need to reduce our debt. Plus they want to hoover up New Democrat votes in the impending election.
Ontario’s credit rating has been stable lately but it’s suffered downgrades from all the major rating agencies. Our provincial bonds aren’t seen as risky, exactly — they’re still comfortably investment-grade by any standard and people rush to buy them — but they’re not as solid as they used to be.
All of this is true. And yet we’re still not in a crisis.
How is a $308-billion debt not a crisis? Aren’t we the most indebted sub-national jurisdiction in the world?
Yes we are, but Canada’s provinces are strange. They seem ordinary to us because we live in them and we have all those generally similar state governments next door, but federations are unusual and ones with such powerful sub-national governments are weirder still.
Health care is what makes our provinces unicorns: most countries with mass public health insurance handle it at the national level. In Canada, it’s done provincially and health is by far each province’s biggest responsibility. The Organization for Economic Co-operation and Development (OECD) has tried to pull together statistical comparisons of sub-national governments in 101 countries; this is really hard because there are thousands of them, they have widely varying responsibilities and most of them are piddlingly small.
When it comes to what provincial and state governments spend as a percentage of national economies, Canada is way out at an extreme, with just China and Denmark in the same neighbourhood.
But, the OECD says, China’s local governments pretty much just do what the central government tells them, with “no inherent power.” They spend money Beijing gives them. They’re sub-national jurisdictions but they’re really not like our provinces at all.
Denmark’s lower-level governments have powers of their own and do a lot of Denmark’s extensive social-welfare spending, so they’re more akin to Canada’s provinces … but all of Denmark has only 5.5 million people. Ontario has 13.5 million.
Canadian provinces are freakishly autonomous and deliver a freakishly big share of First World public services, and Ontario is the biggest Canadian province by both population and economy. You’d expect all its raw budget numbers to be big, including debt.
What would be a crisis, then?
If lenders were refusing to lend to us, like Greece a few years ago, that would be a crisis. But as I say, our bonds are still treated as solid investments.
What matters more than raw dollars is our debt as a percentage of the economy. Right now, Ontario’s debt is 37.1 per cent of its gross domestic product, the standard quick measure of an economy’s size. It’s recently been as high as 39.3 per cent. The ratio has ticked downward in the last couple of years but it’ll stay about where it is for as far as the Liberals are looking, which is out to 2025, when they figure they’ll get the budget balanced again.
Quebec just released its own annual budget the other day and its ratio is 49.6 per cent. The federal government’s is 30.4 per cent.
Quebec Finance Minister Carlos Leitao.
Again, these cross-jurisdiction comparisons can be misleading, but Greece’s debt is 180 per cent of its GDP. Japan’s is 253 per cent. The United States’ is at 105 per cent. Nobody treats them (even Greece now, though it’s still delicate) as if they’re on the verge of bankruptcy and they’re massively more indebted than Ontario is.
“Not on the verge of bankruptcy” isn’t the same as “doing great,” though. Alberta’s debt-to-GDP ratio is 6.5 per cent. British Columbia’s is about 16 per cent. American states, which aren’t borrowers the way Canadian provinces are, typically have ratios under five per cent.
On the flip side, Puerto Rico has a ratio of about 68 per cent, but it doesn’t have the cash to make its payments. That’s what makes a crisis. Ontario’s nowhere near that.
Interest payments are killing us, though, aren’t they?
We’re talking about a lot of actual dollars, yes: $12.5 billion this year, rising to $13.8 billion by 2021. Interest is famously the third-biggest item in the Ontario budget, after health care ($61.2 billion) and education ($40 billion, counting grade schools, colleges and universities). It’s about what we spend on welfare programs through the community-services ministry.
But again, the context matters. The budget says the government is paying eight cents in interest out of every dollar it collects in revenue. That’s a record low in recent history. If what we’re paying in interest freaks you out, you should be less concerned about it now than at any time since David Peterson was premier.
The figure shot up from 7.7 cents under Bob Rae and the New Democrats in the early 1990s, peaked at 15.5 cents under Mike Harris, then fell sharply under Dalton McGuinty in the mid-2000s. When Kathleen Wynne took over in 2013, it was nine cents on the dollar.
Liberal leader David Peterson (right), and NDP leader Bob Rae in 1990.
(In the last NDP budget in 1995, we paid $8.6 billion in interest, almost the same as we spent on each of education and welfare, and half of the $17.6 billion we spent on health.)
So despite all of the Liberals’ borrowing, the weight of interest payments has shrunk slightly under Wynne’s premiership. It’s projected to reach 8.5 cents on the dollar in 2021 — an increase from today, but not a freakout-level increase.
What if interest rates go up? Are we screwed then?
Crazy-low interest rates have definitely helped. Poor Bob Rae borrowed at interest rates over 10 per cent — a little bit of that debt is still on the books. Now the interest rate on all of Ontario’s debt combined is 3.5 per cent, the latest budget says.
Borrowing money has been cheap and the Liberals have benefitted from retiring old debt at relatively high interest rates and rolling it over into new bonds cheaply. (Last year, Ontario sold $400 million worth of bonds in Europe at 0.25-per-cent interest, ridiculously cheap.) Future governments won’t get that inheritance.
“The global decline in interest rates over the past 25 years is already showing signs of modestly reversing,” the budget concedes.
But McGuinty and Wynne have made the most of the situation by borrowing long-term at low interest rates. The average payoff period for provincial debt has risen from 9.7 years to 10.9 years since 2010.
“Maintaining a long average term of the province’s debt portfolio ensures low interest rates remain locked in for a longer period,” the 2018 budget says in its deeply unsexy technical section. “This reduces refinancing risks and helps offset the impact of expected higher interest rates on the province’s future interest on debt (IOD) costs.”
The point is that a lot of cheap borrowing is locked in. Ontario’s biggest recent bond issues, about $65 billion worth, are at interest rates under four per cent and last until the 2040s. Anything can happen to Ontario’s credit rating or to global interest rates and it won’t make any difference to what we’ll pay on those bonds.
What if there’s another recession?
There will be. There’s always another recession. That’s the thing to worry about. Ontario’s finances aren’t in crisis but they’re markedly worse than they were before the last recession in 2008-09.
The Liberals of 2018 assume that if they’re re-elected, they’ll be able to coast. They’ll balance the budget again in 2024-25, start paying debt down, and everything will be fine. That was supposed to happen this year but if you listen to Sousa, that’s just not something Ontario can afford — we need to spend, spend, spend, even though the economy is spinning off full-time jobs by the thousand.
Then-premier Dalton McGuinty congratulates Kathleen Wynne after she became the new leader of the Ontario Liberal party in 2013.
Every government always assumes smooth waters are ahead. The 2007 budget projected growing surpluses for the next three years.
“Five consecutive fiscal surpluses, a prudent and improving debt-to-GDP ratio combined with ongoing strategic investments in key priorities will continue to strengthen the economy and ensure that Ontario is well positioned to manage both the challenges and opportunities ahead,” that McGuinty-era document said. Bit of trouble in the U.S. housing market but nothing to get too worked up about, it noted.
A year later, the 2008 budget was just as hopeful: “Most economists expect the weakness in the U.S. economy to be short-lived,” it said. It had sections like “U.S. Growth Set to Strengthen in the Second Half of 2008,” “Oil Prices Expected to Remain High,” “Ontario’s Exports to Overcome Short-Term Challenges,” and “Employment Growth to Continue.”
By 2009, the government was running around with its hair on fire. The forecasts had been pathetically wrong. Virtually all pre-recession budgets are. Eventually, there’ll be another optimistic budget that will seem just as dumb when we look back on it later.
Right now, the Ontario government isn’t preparing for the next unexpected hit. We aren’t in a crisis now, but nor are we ready for one.
dreevely@postmedia.com
twitter.com/davidreevely
查看原文...
