If there ever was a time for politicians to stop digging, it’s now
It turns out endless spending does come with a hangover: soaring interest rates.
Ontario’s finances have been awash in red ink since Jays star Vladimir Guerrero Junior was in diapers.
Former premier Dalton McGuinty took over Queen’s Park and started Ontario’s debt train in the mid-2000s. Since then, provincial debt has increased by some 171 per cent.
Each and every Ontarian now owes $32,000 in provincial debt, not to mention the tens of thousands per person racked up by Ottawa.
For years, politicians ran deficits and told us there would be few consequences. Politicians were convinced interest rates would remain low indefinitely and seemed to think that racking up tens of billions of dollars of new debt would have little impact on the province’s bottom line.
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But now, all of that has changed. Inflation has finally made its return. Inflation levels before 2022 had been low for decades. But the global pandemic and reckless fiscal and monetary policy have allowed inflation to re-emerge on the political scene.
It turns out that logic still applies. You can’t print and borrow hundreds of billions of dollars of new money and expect it to hold its value.
Canadians, and Ontarians, are now paying the price. Food bills for families rose $1,000 last year. Hundreds of thousands of Canadians are relying on food banks. And mortgage payments have spiralled by hundreds of dollars for many families as the Bank of Canada battles inflation with higher interest rates.
It’s not only hardworking taxpayers who are feeling the pinch. With interest rates rising, governments are also feeling the squeeze. Unfortunately, unlike average Ontario families, politicians can run endless deficits and leave the consequences to future generations.
The Ford government, to its credit, has been honest about how rising interest rates will impact Ontario’s finances. Because the province has a whopping $475 billion of debt, a hole is blown in the province’s budget every time the Bank of Canada hikes interest rates to fight inflation.
According to the finance ministry, for every one per cent interest rate hike from the Bank of Canada, interest charges on the provincial debt will rise by about $650 million. Because the Bank of Canada has increased interest rates from 0.5 per cent to 4.25 per cent in just the last 10 months, debt interest payments this year will rise by some $2.4 billion.
Interest rates are now at their highest levels in several years. Now is the time for governments to finally be financially responsible. That means, among other things, no more handing out corporate welfare payments like candy.
Because of soaring tax revenue, the Ford government balanced Ontario’s budget last year for the first time in nearly 15 years. That’s a good thing. But Ford has already indicated he plans to take Ontario back into the red.
To do so would be extremely reckless. Ontario is poised to spend at least $14.5 billion on debt interest next year. Hardworking taxpayers can thank the careless policies adopted by Ontario’s last few governments for that high figure. But it’s only going to get worse.
Ontario is already spending more than $1 billion per month on debt interest, and interest rate hikes will worsen that figure. Costs went up by $2.4 billion thanks to 2022 interest rate hikes alone. And more could be on the horizon.
If there ever was a time for politicians to stop digging, it’s now. More taxing, borrowing and spending will only fuel the inflation fire and cause interest rates to get worse. While Ontario Premier Doug Ford didn’t start Ontario’s debt binge, he’s joined in on the action.
To stop the vicious debt and inflation cycle, the Ford government needs to keep the books balanced. Only with prudent spending can we start confronting the realities of high inflation and interest rates.
Jay Goldberg is the Ontario & Interim Atlantic Director for the Canadian Taxpayers Federation.
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