Ontario’s Projected 74-year Deficit Doesn’t Bode Well for Taxpayers: Advocacy Group

Pedestrians cross University Avenue in front of the Ontario Legislative Building in Toronto in a file photo. (Vadim Rodnev/Shutterstock)

With Ontario projected to run deficits until the year 2095, and with annual payments on debt interest alone projected to surpass $180 billion by then, taxpayers in the province should sit up and take notice, says the Ontario director of a tax advocacy group.

“I think people need to make their voices heard and tell our politicians that these are issues we care about,” Jay Goldberg, interim Ontario director for the Canadian Taxpayers Federation, told The Epoch Times.

“Today we’re spending $14 billion on debt interest in Ontario, and yes, we’re looking at a trajectory that’s going to take us up to $180 billion a year. The reason for that is because governments are not planning to balance their budgets for 74 years straight from now, and they’ve actually been running deficits for a number of years before that.”

In late June, the federal Parliamentary Budget Officer (PBO) released a report showing that when Ontario’s provincial and municipal finances are examined together, the province will be running deficits until at least 2095.

Goldberg said that although interest rates may be low currently and Ontario’s debt may not be as large as some other jurisdictions, decades from now the situation will look very different.

“If we continue on our path, running deficits for over seven decades, it’s going to turn into a very serious and dire financial situation and you’re definitely going to have to see spending cuts or tax hikes to pay for it.”

Taking Municipal Debt Into Account

Ian Lee, an associate professor in business management at Carleton University, said it makes sense for the PBO to look at the debts of both municipalities and the province when analyzing Ontario’s fiscal sustainability, because Canadians pay taxes to all governments.

Under the Constitution, municipalities are not recognized as a separate level of government and are under provincial jurisdiction. This means that provincial governments are also responsible for municipalities if they become insolvent due to debt, Lee explains. Similarly, provinces would turn to the federal government for help if they became insolvent.

“When one analyzes government indebtedness—and this is why the OECD [Organisation for Economic Co-operation and Development] has been doing this forever—they look at total government indebtedness in one country, because all those government debts, whether federal, provincial, or municipal, are repaid out of the wealth and the earnings of the people in that country,” he said in an interview.

Lee said Ontario is “not in good shape” despite the PBO’s estimates that it is one of Canada’s three subnational jurisdictions—along with Nova Scotia and Quebec—that have sustainable fiscal policies over the long term.

“Although Ontario has a crushing debt, the PBO said it was sustainable, and the reason why is because it’s so large—the economy is 38 percent of Canada’s GDP,” he said. “But having said that, it is not in good shape.”

A key step in addressing the problem is for municipalities to present both their capital budgets and operational budgets and to be “up front and honest” with taxpayers when it’s a deficit year, Goldberg says.

An example he gave was the 2021 budget approved by the Toronto city council, which is largely balanced on the operational side but increases borrowing by $1 billion to fund capital projects.

“Toronto is just the tip of the iceberg. All of Ontario’s 444 municipalities also take on debt to pay for capital projects such as transit tunnels, bike lanes, and garbage collection centres,” Goldberg wrote in a recent commentary.

“That goes a long way to explain why even if Queen’s Park balances its budget by the end of the decade, Ontario overall will continue to accumulate debt.”

Spending Cuts, Tax Hikes

Looking ahead, Goldberg says Ontarians will see “exponential growth in debt,” which will have to be paid for either by spending cuts or tax increases.

“If we continue on the current course where you’re running a deficit, Canadians and Ontarians can absolutely expect that we’re going to need to see one of two things. Either we’re going to have spending cuts in order to deal with the rising debt levels—and we saw how devastating that was in the 1990s in terms of spending cuts that were made because the fiscal situation was so dire—or we could be very well looking at tax increases,” he said.

“You cannot sustain payments of $180 billion just on interest on the debt without somehow figuring out a way to pay for it.”

Lee said that as the population ages and “millions of boomers” retire, he is worried about the younger generations having to pay higher taxes to support the health-care system “at a time when the economy is going to be growing more slowly because of aging, fewer workers.”

“I’m nervous for the future because of the aging of the population, the skyrocketing increase in health-care expenditures, and the decline in long-term growth in Ontario which will lead to reduced growth rates of taxation revenues,” he said.