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Now that voters have returned Kathleen Wynne to power, the premier will need to find a way to manage a debt load that is larger than California’s while continuing to keep the credit rating agencies mollified long enough to avoid a dreaded downgrade.
With a net debt of $267.5-billion that is growing at a faster rate than the economy, the challenge is just beginning for the party that emerged victorious from the provincial election. “They are still going to be facing pressures from the credit agencies to get the province’s fiscal finances in order,” said Mazen Issa, senior Canada macro strategist at TD Securities in Toronto. “There’s no way to avoid it. The reality is there and it can’t be wished away.”
Put simply, Ontario is increasingly dependent on tapping lines of credit because it spends more than it collects. Currently, the province pays $11-billion annually in interest payments to finance its debt — money that is not going toward paving roads, building public transit, hiring more teachers and shortening wait times in hospitals.
During the 40-day election campaign, which focused predominantly on the economy, the three main parties offered a stark choice: Conservative leader Tim Hudak vowed to cut 100,000 public-sector jobs over four years and lower corporate taxes to kick-start the creation of one million jobs in eight years while balancing the budget in two.
The New Democrat and Liberal parties both promised to loosen the provincial purse strings further and increase spending for at least two years by borrowing more money and increasing taxes. NDP leader Andrea Horwath promised to offer wage subsidies to businesses to hire new workers, slash auto insurance rates and cut government spending by $600-million annually although she wouldn’t say how she would balance the books in three years.
Liberal leader Wynne also promised to balance the budget by 2017 and she too was vague on details of cost cutting, prompting critics to accuse both parties of pinning their hopes on unusually robust economic growth in the range of 2.8% to 4.7% to pump up government coffers.
“It’s a bit of a Hail Mary to hope the economy will recover so much that it will take care of the problem,” said Candice Malcolm, Ontario director of the Canadian Taxpayers Association. “It’s a huge hole to come out of and it’s going to require tough measures, including looking seriously at the spending side.”
Ms. Malcolm believes that the premier will not be given much time to make drastic spending cuts before credit rating agencies and bond markets begin to force her hand. Finn Poschmann, vice-president of policy at the C.D. Howe Institute, concurs: “Certainly the pressure is there for a downgrade. To balance the budget in two or three years will take sharp measures and that is a difficult task.”
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