Revenue tools could have blunted growth in Ontario’s debt
TheStar.com – Opinion/Editorials – Ontario Premier Kathleen Wynne’s failure to deliver new revenue tools has led to soaring Ontario debt – but she’s not the only one to blame.
July 22, 2016. Editorial
If “a public debt is a public curse,” Ontario is truly jinxed.
According the independent Financial Accountability Office, every man, woman and child in this province is already saddled with more than $20,800 of Ontario government debt. But that’s not the worst of it. Our collective burden is projected to swell by $50 billion over the next four years, pushing provincial debt to a colossal $350 billion.
Accountability officer Stephen LeClair didn’t label this a curse. James Madison, the fourth president of the United States, described public debt that way. But a report released this week by LeClair’s office has sparked legitimate concern over the risks involved in carrying such a heavy liability.
The effective interest rate on Ontario’s publicly held debt is 3.6 per cent, according to authors of the report. Rates don’t stay low forever, and an increase of just one percentage point would boost yearly interest costs by $350 million — more than the budgets of the labour and aboriginal affairs ministries.
Interest payments already represent the government’s third-largest expense, with debt servicing consuming more than what the province spends on post-secondary education. And the bigger the debt, the higher those payments, leaving less money for services that Ontarians want and need.
“Interest rate risk is the most important risk that the province currently faces,” warn the authors of the report.
The bulk of the $50-billion debt increase projected by the 2020-21 fiscal year is due to provincial spending on public transit and other ambitious infrastructure projects. Finance Minister Charles Sousa has quite rightly defended such expenditure as an important economic stimulus. And there’s broad agreement that a substantial investment in public transit was overdue, with traffic gridlock in Greater Toronto and Hamilton draining an estimated $6 billion from the economy each year.
Ontario’s mistake wasn’t to undertake this vital work; it was doing it by massively increasing the flood of red ink. A better way would have been to launch a series of bold new “revenue tools” designed to reduce the province’s need to borrow.
There was a time when Premier Kathleen Wynne seemed poised to introduce such measures. She called for an “adult conversation” about paying for necessary transit and appeared open to innovative ideas before Metrolinx, the province’s agency in charge of coordinating transit and transportation, released a long-awaited list of revenue-generating options.
Included in its tool box was a 5-cent-per-litre fuel tax, to be imposed region-wide; a 1-percentage-point hike in the sales tax; a levy on parking spaces; and a toll on lone drivers using high-occupancy vehicle lanes.
Sadly, Wynne balked when it came to delivering bold, big-money measures. She appointed a special task force, headed by Anne Golden to produce a second opinion. That panel ultimately recommended a higher corporate tax and gradually hiking Ontario’s fuel tax over several years, possibly combined with a half-point jump in the HST.
Wynne didn’t follow this advice either. Instead, her government opted to borrow the money need for infrastructure projects. An unavoidable result is the dire debt level highlighted by the Financial Accountability Office this past week.
The opposition was quick to attack the Liberal government’s record, with Progressive Conservative finance critic Vic Fedeli declaring the province “the largest sub-national borrower in the world.”
But neither the Conservatives nor the New Democrats were willing to support a full tool box of bold revenue measures which would have spared the province from unnecessary debt. Ontarians are at fault, too, with polls consistently showing stubborn opposition to tolls, tax increases and other charges. Nothing at all was gained through such intransigence.
The public is still stuck paying for essential infrastructure, only through higher debt levels and soaring interest costs. It’s a less-efficient way to proceed, with more public money dribbling away to debt servicing.
Madison was right; this is a “curse.” But it’s one that could have been blunted by determined leadership and more willingness to listen from all concerned.
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Tags: budget, economy, featured, ideology, jurisdiction, standard of living, tax
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