The New California … then Greece is in Canada
If there was a medal for the race to the bottom, Ontario’s government could easily win a Gold.
So it was fitting that during the Pan Am Games, Standard & Poor’s downgraded Ontario’s government, which has been running backward for years to fall behind the pack, for its spendthrift ways.
Of course, Ontario is not alone in this reverse race to the bottom. It’s not as bad as semi-sovereigns like Greece or Puerto Rico, to be sure, but when measuring apples to apples, Ontario lags dangerously behind America’s most impecunious sub-national government, California.
California’s credit rating has been improving and recent figures are significant.
California’s 39.9 million people are on the hook for a state debt of C$523 billion.
Ontario’s 13.4 million people owe C$298.9 billion.
But Ontario’s economy is C$654.5 billion in size while California’s is C$2.987 trillion – as big as Canada and a second Ontario combined.
As Standard & Poor’s stated in its press release: Ontario is a “a projected underperformer on its budgetary performance and debt burden versus domestic and international peers.”
To label Queen’s Park as an underachiever has never seemed to bother anyone.
Former premier Dalton McGuinty doled out all-day kindergarten, costing more than $1 billion a year forever, just as his province was losing its credit rating. The current Premier, Kathleen Wynne, approved full-speed-ahead borrowing that triggered this latest downgrade, equivalent to Ireland’s.
It is simply reckless to keep spending tens of billions more when you are being routinely downgraded for behaving that way. The province thumbs its nose at experts but clearly it does not have enough expertise in its cabinet.
And if Ontario is on a slippery slope of higher borrowing costs and more debts now, a doubling of interest rates, or slowdown in the economy, or if more severe conditions occur, will mean all bets are off.
Add Quebec’s debts to Ontario’s and their combined tally has reached nearly $500 billion, just shy of Ottawa’s $617 billion total.
California, by contrast, is getting fixed because taxpayers are the focus of political attention, not rioting Quebec students or protesting teachers in Ontario. The state drastically cut spending and grew the economy.
Ontario must face the fact that there is a steep, hidden price attached to this profligacy. Comparatively lower taxes and more economic opportunities have led more than one million Canadians to move to California. These conditions have also led auto parts plants to expand in the U.S. at the expense of Ontario. And to the outflow of one million Canadian snowbirds and their pension dollars to the U.S.
Ongoing failure to keep tax rates competitive is an economy-killer. Add to that an increasing government indebtedness and you get a mortgage all of us will have to pay on a depreciating asset. Ontario’s budget is billed as progress when it’s just the opposite. No one can go forward by moving backward.
First Published National Post July 23, 2015