Ben Eisen is associate director of provincial prosperity studies, Charles Lammam is director of fiscal studies and Milagros Palacios is a senior economist with the Fraser Institute. They are co-authors of the report Spending Is The Source Of Ontario's Deficit And Debt Problem.
Ontario tables its 2016 budget Thursday, with all signs pointing to more red ink. This is par for the course, given that the province has run deficits in 10 of the past 13 years, averaging $9.7-billion annually.
The big question is why Ontario has run these deficits and racked up so much debt, particularly since 2003-04. A popular narrative from Queen's Park holds that factors beyond the control of policy makers are to blame, including slow revenue growth resulting from global economic forces that have hampered Ontario's economic performance.
This narrative, however, does not withstand scrutiny. The fact is that revenue growth in Ontario since 2003-04 has averaged more than 4 per cent annually – that's more than enough to offset the cost pressures resulting from inflation and a growing population.
So if global economic forces and weak revenue growth aren't to blame for Ontario's fiscal woes, what is?
The answer lies on the other side of the ledger, namely provincial government spending.
Since 2003-04, program spending in Ontario (which excludes interest payments on government debt), has increased at an average annual rate of 4.7 per cent. This rate of spending growth greatly exceeds relevant economic metrics. For example, over this same period, the provincial economy has grown at an average annual rate of 3.2 per cent.
In other words, government spending has grown at an average annual rate that is approximately 47 per cent higher than the province's economy over a 12-year period. The result: Provincial finances have suffered a major blow, with the government consistently spending more than it takes in while racking up debt at a dangerous pace.
To illustrate this point, consider an alternative scenario where the government increased spending over the period but at the same growth rate as the provincial economy. Under this scenario, Ontario would actually be enjoying a budget surplus of approximately $10.7-billion this year, instead of a projected deficit of $7.5-billion. Furthermore, instead of 10 budget deficits since 2003/04, Ontario would have run just one.
Ontario's persistent deficit spending has caused rapid erosion in its financial position. Consider that in 2003-04, Ontario's net debt stood at $139-billion, equal to 27 per cent of the provincial economy. In 2015-16, debt is projected to reach $298-billion, equal to 40 per cent of the provincial economy. Today, Ontario's debt amounts to more than $21,600 per person.
A large majority of this economically damaging runup in debt could have been avoided if the province had restrained spending increases.
In very recent years, Ontario has finally begun to exercise greater spending restraint, as Premier Kathleen Wynne's government has slowed the rate of spending growth compared with what it was under predecessor Dalton McGuinty. Unfortunately, the steps taken so far have been inadequate to resolve Ontario's fiscal problems, which is why the province continues to rack up debt at an alarming rate.
Ontario now confronts a self-inflicted fiscal mess that has been years in the making. Spending growth over a long period of time – not insufficient revenue – is the reason for the province's perennial deficits and rapid debt accumulation. We hope the government will recognize the cause of its fiscal problems in this budget and lay out a credible plan to strike at its root by reforming and reducing government spending.