Tuesday, March 27, 2012

Ontario's Fiscal History - It Is NOT A Pretty Picture

June 2014

For an up-to-date version of Ontario's fiscal situation, please click on this link:

http://viableopposition.blogspot.ca/2014/06/ontarios-fiscal-problems.html

With Ontario's newly minted Premier standing on the doorstep of the Legislative Assembly of Ontario, I thought that it was time to take a look at Ontario's fiscal past to see just how prudent various governments of various political parties have been since 1986.

As a reminder, particularly for those of you who have either forgotten or never knew, here is an outline showing the terms, Premiers and political persuasions of those who have ruled Ontario as their fiefdom:

1985 - 1987  David Peterson - Liberal (minority)
1987 - 1990  David Peterson - Liberal
1990 - 1995  Bob Rae - NDP
1995 - 1999  Mike Harris - Progressive Conservative
1999 - 2003  Mike Harris - Progressive Conservative
2003 - 2007  Dalton McGuinty - Liberal
2007 - 2011  Dalton McGuinty - Liberal
2011 - present  Dalton McGuinty - Liberal (minority)

Now, let's look at some fiscal history for the province, sourced from the TD Bank as shown on this chart:

Now let's look at some graphical representations of the data starting with the surplus/deficit picture for each year:



You'll notice that out of the 27 fiscal years represented (excluding projections), that the budget has been in surplus for only eight years or 29.6 percent of the time.  As well, over the multi-decade sampling, deficits have outweighed surpluses to the point that the various governments have accrued an additional $146.894 billion in deficit spending.

Now let's look at the growth in net debt:



Since the turn of the century, the debt has grown from $132.5 billion in fiscal 2000 - 2001 to an estimated $260.4 billion in 2012 - 2013, a 96.5 percent increase.  The compound annual growth rate of the debt over that 13 year period is 5.33 percent, well above the inflation rate as shown on this chart:



Lastly, let's look at the change in the debt-to-GDP ratio:



It's really only been since fiscal 2008 - 2009 that the debt-to-GDP level has risen markedly unless we look back to the days before Mike Harris and his highly unpopular and painful austerity cutbacks in the mid-1990s.  Since 2008 - 2009, the debt-to-GDP ratio has risen from 28.9 percent to an estimated 39.5 percent in 2012 - 2013, a rise of 37 percent.  While this debt-to-GDP level seems low when we compare it to what we have seen in the Eurozone over the past year, we have to remember one thing; provincial and state governments have much lower tolerances for debt accrual than federal governments, largely because their ability to tax is limited.  Bond ratings agencies and bond markets have already expressed concerns about Ontario's debt level with Moody's already threatening a debt downgrade back in December 2011. 

Let's hope that Ontario's newly minted Premier takes the role as fiscal caretaker of Ontario's future seriously and ends the government's spend and tax philosophy before austerity is forced upon them.  Ontario's fiscal history has been far from a pretty one over the past twenty-five years and now, Ontarian's are being forced to pay for the mistakes of past governments.  With a long history of deficit spending, the odds of returning to fiscal balance are slim to nil, particularly when interest rates on the outstanding debt rise back to historical levels.  The bigger the hole that's been dug, the harder it is to get out of it.

28 comments:

  1. Not everything can be measured in monetary terms. Those years of Harris are painful memories to lots of Ontarians.

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    1. Yes painful because we had to live within our means not rack up debt to live....

      What a concept only spending what you have instead of what you can dump on the future generations.

      The problem is society is a give me give me attitude....

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    2. Typical answer. Please elaborate...what about your life was so difficult during the Harris years?

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    3. Yeah...painful memories. Harris promised to reduce our provincial tax rate by 30% and he DID it! McGuinty promises to 'neither reduce nor increase' our taxes, and within an instant he introduces the new health tax. Ontario thrived under Conservative rule for decades until the departure of premier Davis and the 'warm' introduction of former Liberal Premier David Peterson. I'm sure all of those who are old enough remember his election platform 'promise' : to reduce auto insurance rates. As we recall, as soon as he came into power, auto insurance rates hiked up considerably! Honestly, anybody who researches anything about politics is absolutely insane to ever even CONSIDER voting Liberal, for about a million reasons!

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    4. Seriously, wow these comments is why I Trudeau is getting votes. You think Harris can fix the NDP driving your debt up to 13,000 M a year and increasing your debt to GDP ratio from13% to 33% without a little pain. Greedy, spoiled people who can't see past their own nose. Now the liberals increased annual debt to up to 20,000 M at times and increased debt to GDP to over 40%. Who's going to fix their mess and then get badmouthed by short sited individuals for doing it. Really, that comment explains a lot.

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    5. Painful. Lol, only if you didn't earn an honest living. You know the people that work so there is money for the people that leach off those that work. What is painful is Mike Crawley getting rich off my hydro bill using the Lieberal green energy scam. Not to mention the state of our health care. Teachers are the biggest scumbags in this province, with their BS working families (more like sponge families, and with the failure our education system has become useless sponges at that).

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  2. Just as some of the Ralph Klein years are painful memories to some Albertans, particularly hospital workers and teachers.

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  3. Good or bad depends on where you lie on society's socio-economic rung, occupation, place of residence. I think an issue is that in good times, governments overspend, and everyone gets used to this new standard. Then when cutbacks must inevitably come, good luck getting past the special interest organizations that refuse any decrease in spending for their cause. So true, if we would only live within our means, things would be more stable over the long run.

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    1. Assumption good times are when economy is perfroming well.
      90-95 economy terrible = not good times still Rae spends
      2008-2012 economy terrible = not good times still McGunity spends

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    2. Yeah, just ignore conventional economic wisdom which encourages increases in spending during troubling times. Which is why our spending and debt drastically increased around the 2008 financial crisis, and tax revenue went down. Increased spending props up the economy so it doesn't become worse and cause a depression. Read up.

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  4. Thanks "A Political Junkie"
    I enjoyed your blog and the comments.

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  5. A neat summary of the fiscal situation facing Ontario. Messrs McGuinty and Duncan, please take note!

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  6. Intersting how in some years, the debt:GDP ratio falls, even on a deficit budget. So, in 11 out of 27 years (41% of the time), the debt fell in real terms.

    (Also, your link to the source is broken).

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  7. I have absolutely no qualms about admitting that I voted for Mike Harris' common sense revolution, and I had no problems with the way he ran the province. He did what he said he was going to do, not like the Lie-berals....

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  8. This forgets Ernie Eves' short tenure as Premier in 2003. It was his PC budget that held a hidden $5.5 billion deficit that was handed to the Liberals to clean up..

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    1. Eves took power in 2002 and, along with his Finance Minister Janet Ecker, presented two budgets for the 2002/03 and 2003/04 fiscal years.

      The latter budget had a "hidden" deficit because the budget planned for revenues that were not guaranteed (increased transfer payments from the Federal government, unspecified asset sales) that never ended up occurring.

      The expenditures did occur though, up $5.5B from the year before while the combination of not realizing the above-mentioned new revenue and SARS causing regular tax revenue to be essentially flat vs. the year before resulted in a $5.5B deficit.

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  9. One thing you might want to add is an explanation for the 1999/00 'bump' in the debt. During that year the Province moved $20B of debt from Ontario Hydro's books onto the main Provincial books. This wasn't new debt, Ontario Hydro was 100% owned by the government so we owned that debt regardless of which set of books it sat on, but without understanding this it makes the numbers look a bit odd.

    The remaining Ontario Hydro debt (another $18B or so) became the "standard" debt for which we still pay a "Debt Retirement Charge" on our electricity bills for.

    In a related note, starting with 2005/06 there were some changes in how other government debt was accounted for. This lead to a slight one-time 'bump' for that year and subsequent years debt numbers are not quite 100% comparable.

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  10. None of it is really comparable because there is no context. National and international recessions have a huge impact on Ontario's export driven economy. From 1993 through to the early 2000's North America experienced it longest period of growth in history, while the early 80's, early 90's and now, are recessionary periods. The current one often referred to as the second worst global economic crises ever.

    Mike Harris had a great opportunity to dramatically reduce our debt when he balanced budgets that he said he could do without touching health care and education. Instead he hacked away at health care and education which means he lied! And worse, he wasted that golden opportunity by actually increasing spending. It's true, look at the actual budgets. He spent more than the NDP, but because of increasing revenues thanks to our riding the coattails of the newly booming U.S. economy he was able to balance budgets. All the while doling out money to big business and pet projects.

    No one mortgaged our future worse than Mike Harris, because no one else had a better opportunity to pay that mortgage off.

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    1. Of course, those health and education transfer cuts by the federal Liberals had nothing to do with that, right?

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  11. Interesting presentation, thanks.
    Have you done a similar one for the federal parties?

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  12. Seems like everyone here who has elaborated has taken aim at the government when who really is the government reacting for or against? Opinions will never cease to field both sides of an argument. The true fact of fiscal responsibility, like the rearing of proper conduct and morality in children, starts at home. Most people dread having to sacrifice for the good of all. They want 'the other guy' to do it. Basic macro economics will always point to where you earn, you must also pay. The public sector, although most worthy of an honest day's pay for an honest day's work does not directly contribute dollars to the Gross National Product of the nation or, in this case, the province. Yet,it keeps growing almost exponentially no matter how little the growth of the GNP. Someone has to give and it must start with those who are paid by the taxes the government accrues from everyone, albeit, those who do not readily bring revenue in from the outside but rather from the government purse alone. Otherwise, we all will be going to hell in a hand basket in the not too distant future.

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  13. The "sourced from the TD Bank" link is broken and I can't find the original document. Can you???

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  14. The problem is with democracy. In order to get elected a political party must make "promises". Spend more on education will result in the teachers voting. Spend more on job creation, gets the auto workers to vote. Every group wants something, but this has to come at the expense of someone or something else. The best thing we as a society can do is pass a Constitution that states the government can not spend more than the revenue it takes in.
    Political parties can then make all the promises they want...it will just be offset with tax increases for the rest of the population. We can then judge these politicians by the trade off choices they make.

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    1. That's a nice idea. Except that all budgets are based on projected revenues for that year. No government can guarantee they can balance their budget since they can only estimate the revenue raised from taxes, transfers, fees, etc.

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  15. Here's the thing no one seems to realize - part of the reason the Harris gov't was able to post surpluses is because they sold off public assets - the 407 was the notable one. It looks great on paper for one year... and then suddenly you don't get that revenue any more. Liberals inherited a mess - much like the Democrats in the US after Bush - and they have done what they can. Perfectly? No. But better than some others might have done (I'm looking at you, NDP...)

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  16. The Debt was 35.4 billion when Rae took over and 90.7 billion when he left. The Liberals had a 132 billion dollar debt when they started and now have a 288 million dollar debt. My math says the Liberals are a whole lot worse than the NDP

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