TonyV
Senior Member
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.
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.