Ontario’s Rising Debt: 10 Reasons to be Fearful

A bankrupt Ontario is a bankrupt Canada. The decade long recession and ballooning debt could have far-reaching costs and consequences for this indispensable province of Canada.

Here are the top 10 reasons to be concerned:

1Ontario accounts for 38 per cent of Canada’s GDP that makes it the largest economy in Canada and the 25th largest in the world. Its gross domestic product (GDP) around $614-billion in 2010 – an economy bigger than Switzerland, Poland, Belgium, Sweden, and Saudi Arabia.

2Ontario is home to most Canadians. With 13.2 million or about 39 per cent of the Canadian population, it is the most populous province with 1 million sq. km (10 per cent) of Canadian total area. Despite these bounties, each Ontarian owes over $19,000 in Province’s public debt.

3Ontario is declining from its traditional role as Canada’s economic engine. This is a concern in a sense as Ontario is strategic and centrally located for both the Canadian and United States markets. Nearly 80 per cent of its trade is south of the border. However, these built-in advantages were evaporated by the decade long recession in U.S. and the rising Canadian dollar.

4Ontario has a strong skills base with the highest rate of post-secondary and training credentials in the OECD (at 63.0 per cent in 2009). Austerity measures, higher tuition fees, and program cuts like limited bursaries will negatively effects Ontario human development.

5Debt is a huge burden on Ontario as it pays $10.1-billion yearly on debt servicing. Since 2002, Ontario paid $92.3-billion in interest only. By comparison, the Canadian federal government spends $33.3-billion on debt interest.

6Debt servicing is the third biggest spending item in Ontario after education and health. Currently, the interest on debt is low – 4.4 Per cent. Imagine the cost of borrowing soars as was back in eighties and – you’ve guessed it – the Greek style haircuts in Ontario.

7If Ontario government paydown next year’s $16.3 billion deficit, it will boost Ontario’s net debt to $241.4 billion raising further the debt-to-GDP ratio.

8Credit rating agencies expressed their concerned with Ontario dismal growth projections and rising debt as Moody’s lowered its outlook for the province’s debt rating to “negative.”

9Ontario once a ‘Have Province’ went to the league of traditional ‘Have-not Provinces’ such as New Brunswick, Nova Scotia, Prince Edward Island and Quebec. It already received $3.2-billion in such equalization funding and owing to its large size will receive $5.5-billion in 2012-13. This will be bad news for traditional have-not provinces and can hurt the federation unity.

10Ontario suffers from innovation and productivity issues as it ranks low among OECD nations. The demise of RIM and the decision of Caterpillar to move the Electro-Motive Diesel plant in London, Ontario to U.S. speak for its uncompetitiveness.

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