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Should We Worry about Ontario’s Debt?

Should we be concerned about the staggering amount of debt that the province is currently holding on its books?   Based on the numbers it is without doubt something we should keep a very close eye on.   The provinces Financial Accountability officer says that the Liberal promise to balance the books by 2017-2018 is possible under certain circumstances.

If the province is somehow able to grow the economy at a pace that is larger than the average growth experienced over the past five years than the answer would be yes we can balance the books. However, if we grow at the current pace then the province would be underwater to the tune of $1.4 billion by 2017-18 with that deficit growing to approximately $3.5 Billion by 2020.

The Accountability Officer Stephen LeClair also points out the provinces plan to invest in infrastructure will add a further $54 Billion to the overall net debt in the next five years which will hit a total of $350 Billion. His projection currently suggest that government revenues will grow by an average of 3.8 percent per year which is faster than the current growth of only 2.6 percent in the past 4 years. The current debt to GDP ratio will apparently peak at 39.6 and fall to a slightly lower 38.4 by 2020-21 based on the numbers currently predicted.

How the Liberals expect the debt to GDP ratio to fall to 27 percent has yet to be explained with no plans or details of how they expect this to occur being released or forthcoming. All these “pie in the sky” predictions have no explanations attached to them.   The truth is that the numbers clearly show that these predictions will be hard to bring to fruition based on the fact that the province will face serious financial pressures from an aging population and changing demographics that will increase outputs faster than inputs will be able to keep pace.

The higher costs of providing the services we have come to expect will also have a major impact on the provinces ability to meet the expectations of balanced budgets or zero deficits. The province is clearly relying on growth that will exceed the average we have seen in recent years.   How they can possibly look into the crystal ball and see higher growth in ever tightening economic conditions is beyond this lay-man’s ability to understand.

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Sam Seidman, CPA, CA, LPA
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