House of cards

One of the reasons Canadians generally fared better than our U.S. neighbours when financial markets froze over in 2008 and in the recession that followed was that, relatively speaking, we didn’t have as much household debt.

But while we were managing our own affairs rather ably, we neglected to watch our government as carefully—particularly our provincial government.

Ontarians have been left terribly exposed by the McGuinty government, which seems to have become addicted to borrowing money— money you and I will have will to pay back.

In 2003 Ontario’s net debt was a staggering $138 billion—by next year it will be an eye-watering $238 billion. That’s $100 billion more debt in eight years. That doesn’t include Hydro One’s debt.

What does this mean? California is considered by lenders as the U.S.’s mostly likely threat to default on its debt. It is often mentioned by lenders and credit agencies in the same breath as Greece, Ireland and Portugal.

California’s sovereign debt is about $90 billion. California has 37 million people living there to help pay it down. Ontario has, by contrast, 13 million people to pay nearly two and half times more debt—and it continues to climb.

So why aren’t lenders and credit markets panicking yet about Ontario’s mountain of debt?

Part of the reason has to do with California’s awkward and disjointed political system, which often takes decision making away from legislators— especially on the tougher issues. Simply put, lenders fear voters in that state may opt to revoke their obligations.

Likely the bigger factor is that lenders figure the Canadian government will make good on the debts of this province. And while this is likely true—it should give residents and taxpayers no comfort at all. For in the end it will be you and I who pay for this corpulent excess. Some more depressing numbers.

The McGuinty government is now spending $40 billion a year in taxpayer dollars and new borrowing just to finance its debt. It must keep about $20 billion in cash at any given moment just to pay the bills—if suddenly credit markets were to freeze up or shut Ontario out. As local candidate Treat Hull has observed in these pages, more money is being spent currently on debt servicing in this province than all but two provincial government ministries it runs.

Currently interest rates are close to zero. They won’t stay here. And when interest rates rise—and they will—Ontario may well be faced with a run on its credit. A financial reckoning every bit as turbulent and grinding as those facing Greece and Ireland may well follow.

Here is how it would happen. Investment will stop abruptly. Growth will stall and begin a slow and steady decline. Our ability to finance our debt will be squeezed between these unrelenting pincers—each negative effect amplified by the other. Unable to roll over debt, the province will, in time, be forced to look at a default or a bailout from the federal government—if, that is, the federal government is in a financial position to help. Either way this relief will come at the cost of making our own choices.

Heavy-handed austerity measures will follow— measures that will change the way Ontario presents itself, does business and looks after those on the margins in our society. The choices won’t be ours. Our saviours will dictate the terms.

Given this potentially bleak outlook—one might expect the political parties seeking your vote might be offering their remedies and plans for reducing the province’s debt dependence. Sadly none are forthcoming.

The Liberals and Conservatives say they will work to shrink deficits over the next four years, but both acknowledge that the province’s debt will be higher at the end of the next term if they are elected. The NDP want to snip a bit here and there, but offer no meaningful way out of our debt addiction.

Worse, the parties are squabbling this week over new tax credits we can’t afford. Meanwhile Dalton McGuinty continues to bray about subsidies and incentives he is lavishing upon developers and multi-national corporations in pursuit of a green economy—daring the opposition to kill his green plans.

Dalton McGuinty ought not to worry about the opposition, but rather the province’s lenders, for he has given them the means to kill all his plans—not just the green ones.

rick@wellingtontimes.ca

Next Tuesday the candidates, Leona Dombrowsky, Todd Smith, Sherry Hayes and Treat Hull, will debate energy policy at the Picton United Church beginning at 7 p.m. The Green Energy Act is likely have a significant role in shaping the economy, the environment and the natural beauty of Prince Edward County over the next four years. This will be an important forum to help understand the issues—as well as their cost.