Ontario’s decade of spending decadence

The Ontario government has never made a secret of its desire to have the federal government help fund Ontario’s provincial budget. It even started its own think-tank with $5 million in 2009, which regularly publishes reports that call on the federal government to rescue Ontario’s provincial finances.

I’ll get to the send-Ontario-more-money entreaties in a moment. But first let’s review Ontario’s derelict finances, a 10-year fiscal check-up, if you will.

By the end of this fiscal year, Ontario will have seen its net debt almost double to $298.9 billion from $152.7 billion in 2005/06. The province’s projected deficit will be $8.5 billion. That compares to a $298 million surplus 10 years ago.

Ontario’s estimated debt interest payments will be $11.4 billion this year compared to $9 billion 10 years ago.

Of note, Ontario’s $11.4 billion debt payment is almost exactly the amount of money the province will bring in from its corporate tax on businesses.

Put another way: Imagine an Ontarian who runs a small (or large) business and puts in long hours to keep customers happy and people employed. All the tax dollars that businessperson sends to Queen’s Park goes merely to interest on Ontario’s growing debt—not to health care, education, park upkeep or shelters for the homeless.

Ontario, as with many governments, is lucky its debt interest payments are not substantially higher given its almost doubled debt. That has everything to do with historically low interest rates. But luck is not a long-term strategy for governments—at least not ones that prefer prudence over accidental fiscal offerings.

In response to Ontario’s challenges, the province has done a number of things. It has continually raised personal taxes and now also plans to hike user fees. Of course, provinces can try to balance their books with such measures. But that assumes tax increases have no effect on where individuals choose to locate, or that new and higher taxes won’t chase people from the province.

The provincial government has also attempted, belatedly, to rein in some wage costs in the government sector. In Budget 2015, the province claimed its wage increases for 787,000 unionized provincial government- and public-sector workers have amounted to just 0.6 per cent annually since 2012.

But this modest figure excludes pension contributions and benefits. It also avoids how Ontario’s government and broad public sector enjoy an 11.5 per cent wage premium over comparable private-sector jobs (this after controlling for gender, age, marital status, education, tenure, size of firm, type of job, industry, and occupation).

So one way to bring down costs over time is to restrict government wage growth and reform pension plans to more closely match private-sector realities.

But Ontario’s governing politicians seem to have a different, favourite budget strategy—blame the federal government for not sending enough money to Ontario.

Fact: The federal government almost doubled its transfers to Ontario in the past decade, to a forecast $20.4 billion this year—up from $10.9 billion one decade ago. Per person, federal transfers to Ontario now stand at $1,482 per person, up from $870 in 2005/06 (in nominal terms).

And then there are equalization payments. Between 2009/10 (when Ontario was first classified as a "have-not" province) and fiscal year 2015/16, Ontario's government will have received $14.3 billion in equalization payments from the federal government.

The only response from the Ontario government to all that transferred cash is an assertion the federal government collects more money than it spends in Ontario. But per capita, that imbalance is more than twice as large for Alberta. That fact is also unremarkable: The point of a national government is not to spend exactly what it collects from each province in each province.

It’s not yet clear that Ontario’s government grasps the magnitude of its fiscal challenges, including how much the Ontario government sector is overpaid relative to the private sector. Given that latter reality, the Ontario government might be better advised to deal with the results of its decade of spending decadence, rather than demand more cash from the federal treasury.