It’s about debt

Moody’s downgraded Ontario’s credit rating late last week. It was a small tick downward, Aa2 to Aa3. But an important signal. One it seems many in our increasingly tribal politics are bound to read incorrectly.

Moody’s is a credit rating agency that evaluates the underlying strength of an organization’s finances to evaluate its ability to pay its debts. Who is a better, or worse, risk. They examine companies, nations or any group that borrows money. Their rating typically governs how much interest the borrower shall pay. The higher the risk, the lower the credit rating. The lower the credit rating, the more the borrower pays.

So in this way, Moody’s evaluation has a direct impact on Ontario residents. When they lower our credit rating, we pay more on interest. That means less money for other services or programs. Or, alternatively, we pay more through higher taxes.

Several armchair observers, and even a few financially challenged or confused columnists, seized upon Moody’s downgrade as an aha! moment this past weekend. Many of these folks were already animated by planned cuts to education and public health spending. They point to Moody’s concern about lower revenue as proof of the failure, perhaps even depravity, of the Conservative government’s financial management.

This government’s first budget is not yet a month old. It is unhelpful and unwise to make this judgement. Not yet anyway. Further, you must dismiss headlines like “Ford cuts school breakfast programs” as the misleading propaganda it is. Instead, read the actual planned measures.

In fact, his government is trimming, by about six per cent, 11 grants the province gives to third party organizations and school boards to fund a basket of specialized education programs, including tutors in the classrooms, experiential learning for adults, and focus on youth after school program.

The province spent $400 million on these grants last year. Some believe this method is inefficient, wasteful, and inasmuch as it is given to some boards and not others, unfair. The Conservative government proposes to spend $25 million less on these grants this year. A 6.25 per cent decrease. It is entirely appropriate to debate the merit of these programs. But we must do so with more facts and less instinctive reflexes.

Many of those pinched by cuts in the last few weeks appeared to cheer Moody’s downgrade last week as proof of the failure of Doug Ford’s budget. And while his government may yet fall flat on its face, there is no basis—at least in terms of managing Ontario’s finances so far—to suggest that yet, despite our tribal leanings.

A fuller read of the Moody’s report makes it crystal clear this rating agency is worried almost exclusively about the size of Ontario’s debt. They worry, too, the Ford government didn’t do more in its first budget to trim the deficit (that is the difference between what the province takes in and what it spends) that is expanding this debt. They worry that when interest rates rise, Ontario will spend a great deal more on interest payments to fund this debt.

These aren’t new issues. Nor does the cause belong at the feet of this new Conservative government.

This column and many other observers have warned about the consequences of Ontario’s bloated debt for more than a decade. In October 2003, when Dalton McGuinty became premier, Ontario’s debt was $138 billion. This year it will reach $325 billion. It took more than a century to accumulate the debt load he inherited. It took just two decades for his government and then Kathleen Wynne’s to more than double it. By amassing so much debt McGuinty’s and Wynne’s governments compromised Ontario’s finances and ensured that any remedy will be hard to swallow.

This debt burden represents a real threat to the viability of the things that the province does—namely healthcare and education. Already Ontario’s interest payments consume more than every other ministry save education and health. When interest rates rise—and one day they will—this burden will balloon. This worries folks like Moody’s. It should worry you too.

That we would be compelled to pay a price for this profligacy ought not have surprised anyone. That we would, sooner or later, be forced to find ways to live within our means cannot be a shock.

Yet we are bombarded with the outrage of folks who point to the “immorality” of a government with the “audacity” to take the first timid steps toward slowing the pace at which we dig our debt hole.

Some have seized upon Moody’s assertion that lower revenues are contributing to Ontario’s deficit. This requires explaining. Revenue in this context means taxes. They want Ontario residents to pay more taxes. And that is a worthy debate. One that we should have. But rather than yell at each other, in ever increasing belligerency, from the shelter of our respective political tribes, we must return to civil and good faith discussion. There is no other reasonable way forward.

The choices will be difficult. For some, painful. We must prepare for a combination of higher taxes and more cuts in order to manage our debt burden.

In our distracted state, we cannot continue to howl at proposed spending cuts, without demonstrating some basic understanding of the predicament in which we find ourselves, and how we got here.

As much as Doug Ford makes an easy target, he didn’t build this mountain of debt. It is wrong to accuse his ham-handed attempts at bending the curve as immoral or evil.

So let’s, please, start this discussion over again.

rick@wellingtontimes.ca