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Doug Ford, Ontario’s new premier, is to be sworn in on Friday. Here are the challenges he and his Progressive Conservative government have on their plate.

Ontario’s finances aren’t in crisis. But they soon could be: In opposition, the PCs were constantly claiming that 15 years of Liberal rule had turned the province into a budgetary basket case. You’ve no doubt heard that Ontario is the most indebted subnational government in the world, or that the Liberals more than doubled the debt during their time in office. Both of those facts are true, but they’re also meaningless unless they’re related to the size of a large and growing provincial economy.

Here’s the only number the next finance minister has to focus on: the net debt-to-GDP ratio. Between 2003 and 2018, the size of Ontario’s debt relative to the size of its economy – the measure that matters if you’re trying to figure out how much debt is too much – increased from 27.1 per cent to 37.1 per cent.

Ontario, formerly middle of the pack in terms of relative debt load, is now one of Canada’s most indebted provinces. As a result, Ontario 10-year bonds yield slightly more than Quebec bonds, which means that, every time it borrows, Ontario pays a bit more in interest than its neighbour.

Until this year, the Liberals were actually making progress on this problem. The budget deficit exploded after the 2009 recession but, as of three years ago, it was under control. The debt-to-GDP ratio, which peaked at 39.3 per cent in 2015, had been brought down to 37.1 per cent by 2018. The Liberals balanced the budget in the most recent fiscal year, and in the previous two ran deficits small enough to move the debt-to-GDP ratio in the right direction.

And then, in the run-up to the election, the Liberals blew the bank by promising lots of new spending, without new taxes. The PCs did the opposite, promising lower taxes without spending cuts. Both routes spelled a return to deficits, and more debt.

In a period of strong and sustained economic growth, Ontario should be lowering its debt-to-GDP ratio, not increasing it. And yet …

The Ford government’s first promise? A deeper hole: Mr. Ford has promised to lower government revenues by more than $8-billion a year, through moves such as cutting gas taxes by $1.2-billion, lowering hydro rates and ending the $1.9-billion a year raised by the cap-and-trade regime on carbon emissions.

Other than promising to eliminate all green spending funded by cap-and-trade, the PCs haven’t explained what they’ll chop. They’ve talked about finding billions of dollars in “efficiencies,” involving no real cuts and no layoffs. That will be difficult because …

Ontario is a low-spending province: Yes, it’s true. Ontario’s per-capita program spending is the second-lowest in the country, just behind Quebec. And on health care, the biggest item in every provincial budget, Ontario spends less per person than any other province. Cutting billions of dollars in spending without cutting actual services will be no easy trick.

And Ontario’s budget will be further squeezed because …

Borrowing is about to get more expensive: Despite a high debt load, the cost of carrying Ontario’s debt is lower than ever. When the Liberals came to power in 2003, the province was spending 12.9 per cent of its revenue paying interest on the provincial debt. By 2018, that had fallen to just eight per cent, even as debt ballooned.

The credit for this magic goes to low interest rates. In 1991, the average interest rate on the provincial debt was 10.9 per cent. It’s now just 3.5 per cent. But interest rates aren’t going lower – they’re going higher. Interest payments are going to eat more of the budget. Unless there’s a recession …

Warning, trade war ahead: If the North American free-trade agreement collapses, Ontario will be the chief casualty. There are 130,000 Canadians employed by the automotive industry, most of them in Ontario. Ontario’s economy will stabilize and recover even if border walls go up. But it may first have to go through a recession – one that could leave the province with a permanently lower potential GDP. And in the downturn, Ontario’s deficit will have to grow, not shrink, in order to support the economy and the thousands of workers who will need assistance to move to new jobs from old jobs that aren’t coming back.

Welcome to Queen’s Park, Mr. Ford. Good luck.

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