Little ray of sunshine

Ontario’s $295B debt quite manageable, report says,

Amid all Canada’s bleak economic news, there may be a glimmer of hope about Ontario’s massive debt.

A new report on the province’s fiscal situation to be published Thursday concludes the long-term outlook is less grim than critics have feared thanks largely to historically low interest rates and a growing Ontario economy.

“Despite some concerns about the level of Ontario’s debt, the province isn’t anywhere close to hitting a debt wall,” said Sheila Block, senior economist with the left-leaning Canadian Centre for Policy Alternatives.

Block, author of the 20-page study, “No Crisis on the Horizon: Ontario Debt, 1990-2015,” noted as Premier Kathleen Wynne’s Liberals prepare a spring budget their focus should not be eliminating the deficit by 2017-18.

“The Wynne government was elected with an activist mandate, yet it has always allowed concerns about debt and deficits to hamstring that agenda,” the economist wrote, pointing to the “questionable” sale of a majority stake in Hydro One to bankroll transportation infrastructure and the Liberals’ reticence toward raising taxes to generate revenue.

The opposition Progressive Conservatives have long warned that Ontario’s debt load is too high, with interest payments accounting for a larger chunk of the budget than all but health care, education and social spending.

At the same time, credit-rating agencies have warned that Ontario’s planned infrastructure expenditures could hinder plans to balance the books.

That’s significant because a major downgrade to Ontario’s credit rating could mean the province might be forced to pay higher interest rates in the future.

To bolster her contention that Ontario’s debt — about $295 billion — is manageable, Block looked at its ratio to the province’s gross domestic product over the past 25 years.

She also factored in that during that time the stranded residual debt of the old Ontario Hydro, and the broader public sector debt from schools boards, colleges and hospitals was also added to Ontario’s tally.

“Part of the debt increase is due to the changes in accounting rules, not a result of profligate public spending (which is, per capita, the lowest in Canada),” Block wrote.

“Three factors suggest that the province is not approaching a debt crisis. There is a continued appetite in financial markets for Ontario debt. That means that financial markets expect it will be repaid and that the provincial government is not approaching a debt wall,” she added.

“The continued fall in effective interest rates also support this, suggesting that the risk premium on Ontario’s debt is not rising. The stability of interest costs as a share of revenue indicates that this increased debt can continue to be serviced.”

Block said Prime Minister Justin Trudeau’s Liberal government could help the province’s bottom line with increased transfer payments.

The government also received good news from Ontario’s independent fiscal watchdog Wednesday.

The Financial Accountability Office of Ontario pored over last week’s Statistic Canada data showing the province’s economy grew at an annualized rate of 3.5. per cent in the third quarter of 2015.

“Importantly, third-quarter growth was broad-based, with household spending, business investment and net exports all contributing to the overall increase — a positive sign for potentially stronger and more balanced economic growth in 2016,” the office said.