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The Star: Cohn: Ontario's debt is soaring, and province is falling behind

TonyV

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#1
Any comments on this?

http://www.thestar.com/news/canada/...s-soaring-and-province-is-falling-behind?bn=1

Cohn: Ontario's debt is soaring, and province is falling behind

In his PowerPoint speeches, Premier Dalton McGuinty shows off a chart downplaying Ontario’s deficit troubles compared to other countries. It’s in the nature of politicians to paint a rosy picture for public consumption.

Behind closed doors, however, the province’s financial brain trust has been shown a different slide show — one that casts the rapidly rising debt in a darker light: As the debt burden has soared, Ontario has fallen embarrassingly behind most other provinces in recent years.

The premier’s smooth messaging and selective PowerPointing can’t sugarcoat the grim data that the province’s number crunchers are sharing among themselves. Digging itself out of debt won’t be nearly as easy for Ontario as McGuinty makes out in public.

The bearer of this bad news is the little-known Ontario Financing Authority, whose mission is to keep the province solvent by ensuring a constant cash flow. It avoids the limelight while shining a light on Ontario’s high-stakes deficit dance.

It’s not easy keeping the cash flowing when you’re rolling over $40 billion in annual borrowing to finance an unprecedented debt of $236 billion (including old Hydro debt). The net debt (after accounting for assets) comes to $220 billion — or about $17,000 for every man, woman and child.

An influential credit rating agency, Standard & Poors, has put the province on notice that its credibility is in question. S&P has “privately voiced skepticism over the ability to meet expenditure and wage constraint targets,†according to an internal OFA document circulated last month, as next week’s budget was being prepared.

“Unprecedented increase in new debt and refinancing leading to a substantial increase in both financing and interest rate risks in future,†the OFA’s audit service team noted tersely. When you’re borrowing so many billions, you need to diversify your lenders — which leads to “increasing funding cost and exposures to foreign exchange risk.â€

Another costly challenge when rolling over so much debt is staying liquid. To avoid running out of money if the markets freeze up, Ontario has been keeping about $20 billion on hand for the province’s “liquid reserve.â€

If record-low interest rates go up, the province will pay the price. Interest paid on Ontario’s debt for the 2010-11 fiscal year ending this month will be nearly $10 billion — exceeding provincial spending on post-secondary education and training. That’s 8 per cent of total government expenditures.

In his upbeat speeches, the premier often uses a chart to show our deficit is comparatively lower than most industrialized countries and will end by 2017-18. But the government’s internal charts are more sobering:

Ontario’s net debt as a percentage of GDP (the size of its economy) was 33.5 per cent for 2009-10 — not far behind Ireland (now a fiscal basket case), and much higher than Mexico (24 per cent). Ontario’s debt-to-revenue ratio exceeded 200 per cent, compared to a mere 47 per cent in New York.

The most daunting numbers compare Ontario’s finances in 2003-04, when the McGuinty government took power, to the present day. Back then, Ontario’s debt was a healthier 28 per cent of GDP — with only the western provinces doing better.

In 2010-11 the roles are reversed, with Ontario saddled by debt that has reached 36 per cent of GDP — higher than any province except Nova Scotia and Quebec. On a per capita basis, Ontario is borrowing more debt than any province except New Brunswick — $2,100 in 2010-11.

The numbers are depressing but not surprising. Ontario didn’t boost the debt on a whim. It deliberately primed the pump during a brutal recession to keep the auto industry afloat and the economy on life support, just as the federal government did (though Ottawa boasts a higher credit rating and vows to end its deficit sooner).

Big business is pressuring Ontario to take action in next Tuesday’s provincial budget. And Finance Minister Dwight Duncan will try to reassure Bay St. at a lunch speech Thursday, making the case that all political parties — Liberal, Tory and New Democrat — have piled on debt in the past and share ownership of the problem today.

Now, he will argue, time has run out — because the money has run out. Time, perhaps, to give the full slide show.
 

The_Waffler

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#2
The most daunting numbers compare Ontario’s finances in 2003-04, when the McGuinty government took power, to the present day. Back then, Ontario’s debt was a healthier 28 per cent of GDP — with only the western provinces doing better.

In 2010-11 the roles are reversed, with Ontario saddled by debt that has reached 36 per cent of GDP — higher than any province except Nova Scotia and Quebec. On a per capita basis, Ontario is borrowing more debt than any province except New Brunswick — $2,100 in 2010-11.
I recall when McGuinty's first action as Premier was to break his promise of no tax increases and raising taxes, citing the horrible state of Provincial finances he inherited. Looks like he's set the stage for the next guy to take a knife to spending... weather they want to or not. Dalton could care less, he's got his big fat indexed pension funded by us suckers. Nice job.
 

pman

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#3
you're right to worry

Add the federal debt and Ontario residents are on the hook for debt between 80% and 85% of GDP, not including municipal debt or debt issued by quasi-public institutions like hospitals and universities. Oh, sorry, I mean the children and grandchildren of Ontario residents will be on the hook. We continue to live in a fantasy world where public spending is uncuttable, but it's going to be paid for by unborn generations. There's no question these debt levels are going to be a problem for the next 20 years, and McGuinty refuses to have an adult conversation about the problem.
 

afransen

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#4
I think the comparisons in the article are more torqued than McGuinty's numbers. Maybe Ireland had a debt to GDP similar to Ontario back in 2009. But it's a basket case now because it guaranteed the debt of a bunch of huge bankrupt banks. New York has less revenue flexibility than Ontario.

I'm waiting to see credible plans from McGuinty. If I don't, I'll be forced to give Hudak more consideration. But then, he hasn't put forth any credible plans yet either.
 

Northern Light

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#6
In fairness to PMAN, Toronto's DEBT (not deficit) is approaching $3,000,000,000 (That's Billion) with carrying costs of something in the range of 200M this year.

When considering DEBT to GDP, it is perfectly legitimate to consider municipal debt in with that figure, as it is still one economy and one taxpayer. Debt for all 'creatures of the province' including school boards, Universities, utilities and hospitals also needs to be in that tally.

***

None of the party leaders has yet fessed up, that while gov't can and should be more 'efficient' and while there are things that need not be spent on, on which we could all agree....

Taxes of one form or another MUST rise in Ontario.

Income and Corp taxes aren't too far off most other provinces....

But both Quebec and Nova Scotia have upped their HST to 10% (prov) 15% total, taking up the room from the Fed. GST cut.

Other provinces are charging 'Health Tax/prem." just like ON, but considerably higher in some cases.

And road tolls are likely coming or we will never afford the transportation infrastructure we need.

Meanwhile, if we ever want to extend drug coverage to low income earners, we're going to have to raise 'co-payments' or deductibles on the coverage to middle and high income seniors.

No party wants to say that.....but someone is going to have to do some of it, while also making some surgical cuts to services/gov't spending.

One thought about giving McGuinty a 3rd term, it would surely be his last, maybe he'd be willing to do something necessary but unpopular, if not seeking re-election.

Hmmm?
 

Brandon716

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#7
This article seems to have a level of hyperbole and negativity that is largely unwarranted. While Canada fared well during the recession, you can't deny the worldwide recession has had an effect. Provincial revenues are going to increase as the economy rebounds. The grass is a tad bit greener than the author suggests.
 

SimonP

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#9
Canada's debt levels are something to pay attention to, but we're better off than just about any other country in the world.

The concern over a country's debt can be measured by looking at how much credit default swaps cost. At one end is Greece, which currently runs at about an 80% chance of default in the next 5 years. At the other end are Canada and Norway (which has a $500 billion pile of oil savings), which share the title for the least risky debt. Both are perceived as having far below a 1% chance of defaulting.

If Ontario was being run as private company (as conservatives always say it should) this would be a time for taking on more debt. Interest rates are as low as they'll ever be. Wages and commodity prices are still depressed, so our money will go further than it will in a few years. A perfect time to borrow to invest in transit and other projects.
 

kEiThZ

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#10
A perfect time to borrow to invest in transit and other projects.
The problem, is that the same folks who would invest in public infrastructure projects are also the folks who have a habit of running structural deficits (bad debt). And on the other side, you have politicians who don't believe in public investment at all. It's just a bad offer of choices for the average voter.
 

Yoshimura

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#11
This article seems to have a level of hyperbole and negativity that is largely unwarranted. While Canada fared well during the recession, you can't deny the worldwide recession has had an effect. Provincial revenues are going to increase as the economy rebounds. The grass is a tad bit greener than the author suggests.
The only way economy rebounds is by eliminating dependency on government. Which is a catch 22 like in Greece— when %50 rely on some form of subsidy and have an entitlement mentality, governments won't cut anything because they'll lose an election. Which means the debt spiral continues the grow and economy continues to deteriorate.
 

SMC

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#12
We shouldn't be talking about debt in one of the richest nations with such a small population. Someone really messed up....$17,000.00 per person in debt, yet McGuilty finds enough to give themselves a raise.
 

js97

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Big business is pressuring Ontario to take action in next Tuesday’s provincial budget. And Finance Minister Dwight Duncan will try to reassure Bay St. at a lunch speech Thursday, making the case that all political parties — Liberal, Tory and New Democrat — have piled on debt in the past and share ownership of the problem today.

.
C'mon Mr Duncan, isn't it time to fess up a little bit? How far back do we lay the blame 14, 20 years?? 8 years in government is more than enough time to effect change.... If McGuinty has real concerns for the province instead of being just another 2 bit politician worried about his job, he would make tough decisions like a tax increase + Labour union benefit cuts. (that will not happen)
 

yin_yang

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#14
We shouldn't be talking about debt in one of the richest nations with such a small population. Someone really messed up....$17,000.00 per person in debt, yet McGuilty finds enough to give themselves a raise.
well, yeah. the system is mad. i don't care what people say, the government has plenty of money. i doubt they are in debt. this is what occupy is about and why i support it...the math doesn't add up. they'll reject an application for a something but will pay for something else. the system is not democratic, and nobody has any idea what is going on right now.
 

gristle

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#15
well, yeah. the system is mad. i don't care what people say, the government has plenty of money. i doubt they are in debt. this is what occupy is about and why i support it...the math doesn't add up. they'll reject an application for a something but will pay for something else. the system is not democratic, and nobody has any idea what is going on right now.
So if you know the government has money, please tell us where it is. At the same time, can you provide an accounting of government finances ("the math") to support your claim that there is no debt? It'd be nice to see that. And as for picking and choosing priorities, that's their job - you know - the democratically elected representatives.

Just maybe it's you who doesn't know what's going on right now.