fiscal house

Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Friday March 26, 2021

Ontario has no clue how to get to fiscal sustainability

Somewhere in the bowels of Ottawa, officials are quietly preparing contingency plans for a fiscal bailout of Newfoundland, should that become necessary. They may wish to add Ontario to their plans.

Ontario’s fiscal situation was dire before the pandemic; it has grown much worse because of the pandemic; and it is going to get still worse after the pandemic is long past. That, mind, is the optimistic scenario – which is to say, the scenario on which the Ontario government has chosen to base its latest budget.

It shows the province’s net debt-to-GDP ratio rising, not falling, from the astronomic levels it has already reached, for as many years as the government can credibly project. From 47 per cent in the year just ended – more than three times what it was 30 years ago, and second-highest in the country after Newfoundland – it is forecast to continue to increase, to more than 50 per cent.

Only in the last years of this decade does it begin to recede, and then only on some heroically optimistic assumptions, a mix of the usual complacency about interest rates, fond hopes about economic growth and some truly herculean reductions in spending. We’ll come back to these in a minute. For now let us consider whether the government of Doug Ford even appreciates the gravity of the situation it is in.

The most the budget will allow is that the government “remains committed to developing a path back to sustainable public finances.” Not that public finances aresustainable; nor that they are on track to get there; nor even that the government has a plan to get us on that track; only that it is “committed to developing” such a plan.

Well, all right, there’s a pandemic on, and the government is focused on spending whatever it takes to get the province through it. First things first. But longer term? Does it even know what sustainable public finances look like, let alone how to get there?

The government’s choice of targets – not rules, or anchors, but targets – does not fill one with hope. It has three. First, it hopes to limit the debt-to-GDP ratio “to not exceed 50.5 per cent” over the medium term. Why 50.5? Because, one suspects, that is where the debt-to-GDP ratio was headed anyway – though if growth comes in below projections, the target will prove no obstacle.

As for the other two – debt interest to revenue, and net debt to revenue – the government declines even to pretend to have a target for these, other than “to slow their rate of increase.” (Slow it by how much? From what benchmark? It doesn’t say.)

Not only has the government assigned itself a sliding, indeterminate, non-binding target for fiscal sustainability, it seems in no hurry to get there. “Our return to fiscal sustainability,” the province’s Finance Minister, Peter Bethlenfalvy, said in his budget speech, “will take many, many years.” (Continued: Globe & Mail)