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The most populated province in Canada has a severe debt problem. Over the last 30 years, it has managed to rack up an astounding $325 billion tab, with almost $100 billion of it being added in the previous seven years.
In comparison, California, a heavily indebted American state with almost three times Ontario’s population has a debt of roughly $465 billion. The debt is so large that it surpasses the GDP of 75 per cent of the world’s countries
As comedically broken down by the National Post, it would take Drake more than 2000 years to pay off that debt.
As a result of countless years of deficit spending and our inability to clone Drake, paying interest on that debt now represents the fourth most substantial portion in the Ontario government’s budget.
It cost taxpayers $12.5 billion in 2018 alone.
For the quite sometime pundits, accountability watchdogs, credit agencies, think-tanks, and NGOs have all voiced their concerns in regards to the consistently expanding debt pile. Interestingly, it seems Ontario’s new PC government actually intends to reverse the province’s descent into never-ending interest payments.
According to Ontario’s finance minister Vic Fedeli, $1 billion in higher sales and income tax revenues have already pushed the province’s deficit down to $13.5 billion.
Ontario’s financial accountability officer has said the deficit is actually about $2.5 billion lower.
None the less, that means there is somewhere between $12.5-$13.5 billion in savings the province will need to find before they can start to pay back the actual principal itself.
If you are wondering just how big that deficit is when it comes relative size, here is an interesting fact, the entire province’s revenue for 2018-2019 was projected to be $152.5 billion. The remaining deficit represents almost 10% of the government’s entire annual budget.
Realistically fixing that wide of a budget deficit won’t be easy, as cuts to public services or contracts normally affect the least well off within society.
Already the province has announced 3,475 teaching positions will be cut in order to save $851 million, as well as potential look into finding savings in the provinces largest expense area, healthcare.
Here is the worrying part, this is all likely just the beginning. Normally fixing a provinces financial mess comes partially from taxes paid by the business elite, and partially from citizens themselves in the form of service cuts.
At this moment, Ontario’s business environment remains so noncompetitive globally that new taxes or regulations would likely only make the financial problem worse. For example, when you look at the combined total tax rate for Ontarians in the higher brackets, it stands as the second highest in North America, according to the Fraser Institute.
While these institutional constraints exist, there are even more worrying forces that will radically challenge Ontarians, namely technological change.
A 2018 RBC report claims. automation will likely affect over half of the Canadian job market in the next decade.
That kind of rapid on-set disruption is not likely to provide a smooth base to build economic growth. As a result, governments may have to invest drastically in order to modernize and compete. In that rapidly changing world, Ontario could be left short-handed due to its gargantuan debt. Which I suppose brings us back to why cuts may be just the beginning.
If over the next decade the government must make massive cuts, while also investing immense amounts to modernize, the results will likely be an extended period of austerity, especially in the public service sector.
Now, this sounds horrific, and for most, it may them into giving up on any real plan to fix the mess. But the ultimate truth is, that like any severe addiction, the problem cannot be fixed until it is declared, and the patient chooses to go to rehab.
Ontario’s debt is an addiction built quintessentially of the premise that future generations will pay the sobering and painful come down. At some point, citizens will have to bite the bullet and pay for their consumption, or else risk throwing away the future of their children.
What do you think about Ontario’s debt? Join the conversation by commenting below!