A Debt Burdened Ontario: Risks and Solutions

Blame it on falling revenues, reluctance to limit spending or raise taxes for fear of political ramifications, Ontario is in dire debt straits. If Ontario’s borrowing continues to soar, it will reach $282 billion within the next two years or so. At the moment every single Ontarian accounts for $17,825 in province debt.

Debt Statistics: In Debt Ontario Trust!
Ontario is immense compared to the rest of Canada with its 13.4 million people and $614-billion economy. For some its economy is big enough to take care of itself. Despite that its amassed debt is too massive to be pass over. The total projected debts stands at $257.3-billion as at March 31, 2012 while the net debt that subtracts the assets make up $238.4-billion. Such a whopping file of debt can have grave fallout for the Ontario’s future.

Debt Portfolio and Cost of Ontario Debt
Ontario’s $251.9-billion debt at September 30, 2011 is a mix baggage of public and non-public debt. The Public debt of $236.8-billion speaks for 94% of total debt held mainly in Canadian dollars besides 10 further currencies like U.S. dollars, Euros, and Swiss francs. The non-public portion of Ontario debt is $15.1-billion (6%) and mainly comprised of debt instruments issued to Ontario public-sector pension funds and the Canada Pension Plan Investment Board (CPPIB).

The effective interest rate plunged since the last decade even with a gloomy prognosis for the Ontario economy. From the interest heydays (8.4 per cent) in 2000, the effective interest rate in Ontario declined to 4.4 per cent in September 2011. Despite the modest interest rate, since 2002 Ontario handed over $92.3-billion in debt servicing, enough for seven years budget of
total financial assets of the Ontario. Except for the peak of 8.4 percent in 2005-06, the rise in net debt remained modest between 2002-2007. The net debt story turned to climax from the fiscal year 2009-10 and onward. The figures speak for itself, 14.2% in 2009-10, slightly dipping to 10.8% in 2010-11 and settling at 11.1% in 2011-12. So on average from 2008-2012, it increased at over 10 per cent a year. Similarly, in 2013-14, the net debt is forecasted at $281.8 billion. The story of debt is incomplete without mentioning the interest. Interest on Ontario debt increased from $9.7 billion to $10.1 billion, roughly an increase of 4.2% from 2002-2012.

Ontario is suffering from long-term chronic deficits that contributed to this soaring debt. Take for instance, the province’s annual long-term borrowing fluctuated at $16.8 billion to $43.9 billion between 2002-2012. Just the last three years (2010-12) borrowing average at $36 billion yearly. Looking back for a comparison, Ontario government borrowed $16.8-billion in 2002-03 while a decade later in 2011-12 the figure reached $24.3 billion. Most of this borrowing during 2011-12 went in Canadian dollar (75%) while the rest was in U.S. dollar (24%), Australian dollar and Norwegian Krona.

Why the Debt Piled up?
There are many reasons to be critical of the debt in Ontario. Question arises, why it was build up at the outset and who to blame for it. Starting with the who part, as Gordon Liddy once famously said, a liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money. Indeed, it was under liberal era that Ontario’s debt almost doubled to $250-billion. As early as 2014-15, the Ontario debt be roughly a quarter of Greece debt accounting for 41 per cent of its GDP. There are multitudes of reasons for this excessive debt ranging from excessive spending, productivity issues, and shrinking economy.

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