Debt is always tomorrow's problem, which is why politicians in the here and now pay so little attention to it.
No politician in modern Canada ever got elected on a slogan "Let's Lower Debt Together!" or "Less Debt for a Brighter Tomorrow!" Debt is boring. Debt is a bunch of numbers. Debt doesn't hit taxpayers' pocketbooks directly. Debt is tomorrow; politicians live in today.
Debt can creep up on a government, though, as it's doing in Ontario, and as it has been doing for a long time in Quebec. At least Quebec's Liberal government is taking decisive action to eliminate its deficit and reverse the debt increase. The Ontario Liberal government is not acting with the same determination, apart from holding the line on many (but not all) public-sector wages.
A deficit here, a deficit there, then a string of deficits. Before you know it, interest payments on the debt rise faster than revenues, the debt-to-GDP ratio makes ratings agencies nervous and, worse, interest payments begin to squeeze a government's ability to deliver services.
In a textbook case of these pressures, services and wages get cut, or taxes go up, or both – which is what is happening or about to happen in Ontario. Put another way, rising debt charges almost always mean higher taxes, the only remaining decision being how much and which ones.
The last provincial election campaign featured three parties resolutely refusing to talk plainly about the province's fiscal situation, including rising debt. There was a heady assumption among the victorious Liberals that public-sector restraint coupled with big infrastructure spending would take care of the problem.
Which, of course, it would not, as was clear to objective observers then, and has been made evident by recent reports from the Conference Board of Canada and the ratings agencies.
Fortunately, Bonnie Lysyk, the province's Auditor-General, is not beholden to the vagaries of politics and speaks truth both to power, where it most likely will not be heeded, and to the general public, where it will be ignored. As she plaintively wrote in a report this week, the office has been warning about the debt for three years but "has attracted little public attention."
The AG urged "legislators and the public to start a conversation about paying down the province's total debt." Note the words "paying down." Not stabilizing, but reducing. A tall order.
The AG's numbers were stark. Even if the government balances the books by 2017-18 (which is rather implausible), net debt will have more than doubled in a decade.
Ontario's government now spends more on debt interest than on postsecondary education, the AG reported. Interest payments will be the fastest-rising cost for the government over the next four years. These payments will go up by about 7 per cent a year, compared to program spending of less than 1 per cent. Debt charges will rise by $3.3-billion, program spending by $3.6-billion.
The debt-to-GDP ratio, the measure economists worry most about, has risen from 26 per cent in 2007-08 to about 40 per cent in 2015. Ontario's ratio is the second-highest in Canada, behind Quebec.
The Maritime provinces' ratio is slightly below that of Ontario, but their economies have been traditionally much weaker than Ontario's. For Ontario's debt-to-GDP ratio to be worse than, say, New Brunswick's says a lot about what's been going on in Ontario.
Ontario has been lucky. Interest rates have recently been very low. When they rise, as they will, each 1 per cent increase in rates will add about $400-million to yearly interest costs.
The AG could have added three other factors that will make Ontario's situation even more difficult than the report conveyed.
First, the population is aging, and aging comes with more costs for the government. Second, health care is now rising at just 2 per cent a year (compared to about 7 per cent from 2000 to 2010). It's doubtful that this modest rate of increase can be sustained. Third, the population's aging will contribute to lower rates of economic growth, which in turn will crimp government revenues at current levels of taxation.
Ontario has almost 40 per cent of Canada's population but about half of its provincial net debt. Said the AG, "The province's debt load could be viewed as a national concern." First, it has to be seen as a concern in Ontario.