To help put Ontario's debt in context, a second chapter in the report compares Ontario to California, which in 2009 made international headlines as a "fiscal train wreck" and appeared headed for bankruptcy. Ontario and California are measured against one another using a slightly different indicator than is normal: bonded debt. The reason for the alternative measure is that California doesn't publish data on net debt, which is the normally used measure in Canada and elsewhere.
On any comparative measure of bonded debt, Ontario fares much worse than California. Ontario's debt is almost two-thirds larger than California's even though California is much larger in both the size of its economy and its population. As a share of the economy, Ontario's debt (38.6 per cent) is more than five times larger than California's (7.7 per cent). Ontario's per-capita debt ($17,921) is more than four-and-a-half times that of California ($3,833) and Ontario spends more than three times the amount of revenues on interest costs as California.
"The frightening aspect of Ontario's debt is the lack of attention it receives, not just from politicians, but from the media, organized labour, businesses, and just about every single Ontarian," Clemens said.
"Ontario is in a worse situation than California and it will only get worse unless the provincial government finds a way to reduce spending."
The report concludes with a chapter by Lakehead University economist Livio Di Matteo comparing Ontario's fiscal situation to Greece. Di Matteo points out that Greece's net debt to GDP stood at 37 per cent in 1984, the same level as Ontario's today and increased to 66 per cent over the next decade. Since then, Greece's net public debt has spun out of control, reaching 163 per cent of GDP in 2011.
Di Matteo explains that Ontario and Greece share a common trait over the past 30 years: trends in spending and revenues diverged, meaning the long-term trend is towards larger deficits and debt accumulation rather than smaller deficits or even surpluses.
"If Ontario continues spending at its current rate, its net debt will increase to 66 per cent from 37 per cent in just seven years. It took Greece 10 years to experience a similar increase. This highlights the unsustainability of Ontario's current spending trends," Veldhuis said.
Inaction or insufficient spending reforms could mean that somewhere down the road, Ontario could experience a fiscal crisis of Greek proportions. While not there yet, the pain and severity of reform needed in Greece serves as an example to Ontarians about the benefits of proactive reform now before a crisis evolves.
"Neither Ontario nor Greece has been responsible in managing their fiscal situations. Fortunately, Ontario is in a position where it can still restore its public finances to good health without the type of fiscal trauma currently underway in Greece," Clemens said.
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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.
Niels Veldhuis (President, Fraser Institute) will be in Toronto Jan. 31 and available for media interviews.
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