Ontario’s provincial government now carries more net debt per person than any province except Newfoundland and Labrador.
In a reversal of historical norms, Ontario carries significantly more debt – almost $4,000 more per person – than Quebec.
Of course, debt (financial assets minus total liabilities) means interest payments.
But Ontarians aren’t just responsible for interest payments on their province’s debt. Like taxpayers across the country, they’re also on the hook for a share of federal government debt.
When you add up Ontario’s provincial debt and the province’s share of federal debt, the total comes to approximately $44,000 per person.
Because of the economic contraction due to COVID-19 and the increased government spending at the provincial and federal levels, Ontario is set to add substantial debt over the next year.
It’s hard to say, as the extent of the economic damage from COVID-19 isn’t fully known and governments across the country are announcing new policy changes with some frequency.
But we can be sure that the amount of nominal government debt Ontarians bear is set to increase.
At the provincial level, the government of Premier Doug Ford recently tabled a Fiscal and Economic Update. It calls for an operating deficit of $20.5 billion for the 2020-21 fiscal year.
But this now looks optimistic as economic conditions are considerably worse than the update assumed would be the case. The operating debt is in fact likely to be upwards of $25 billion. And that’s just the operating budget – the government will add debt for capital projects.
At the federal level, a recent report from the Parliamentary Budget Officer shows that for the 2020-21 fiscal year, the deficit will be much larger than it has been over the past few years. The report estimates the federal deficit will be $112.7 billion this year.
Ontario’s share of this new federal debt would be approximately $44 billion. And both of these numbers could grow higher depending on the performance of the economy.
If we use a conservative estimate and assume Ontario runs a $25-billion deficit this year, that means Ontarians will be on the hook for $69 billion in additional government debt from operating budgets this year. And that doesn’t include further debt accrued as a result of provincial-level capital spending.
Under this scenario, Ontario’s aggregate provincial and federal per-person government debt would increase by approximately $4,600 this year alone.
Of course, for both the federal and provincial governments, responding to the COVID-19 health and economic crises should be the top priority in the near-term.
However, once the crisis has past, Ontario will still face daunting fiscal challenges, and Ontarians will be responsible for servicing substantially more debt than was the case before COVID-19.
Developing a credible plan to address Ontario’s fiscal challenges and make provincial finances sustainable will be one of the government’s most pressing policy challenges.
Ben Eisen is a senior fellow at the Fraser Institute.