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A spat over the budget balance misses the bigger picture: provincial finances are in bad shape

We hope that proper accounting practices prevail in the end. But in bickering with the auditor general over the precise size of last year’s operating deficit, and with its fixation on being able to announce a balanced operating budget next year, the provincial government completely misses the bigger picture. Regardless of the exact size of the government’s operating budget balance this year or next, Ontario’s finances are in bad shape and the Wynne government must develop a credible plan to repair them.

Even if the government is able to claim next year that it has eliminated its deficit, the mountain of debt the Liberal government has accumulated over the past nine years will still be there. Just how big is this mountain? Since 2007, Ontario has seen its net debt (a measure of debt that adjusts for financial assets) approximately double, climbing from $157 billion to $308 billion. That’s puts it at about $21,000 per Ontarian. Servicing all of this debt will burden Ontarian taxpayers for many years.

A balanced operating budget next year won’t address this debt burden. In fact, the government’s own Financial Accountability Office (FAO) projects that provincial debt will continue to climb for years into the future, reaching $350 billion by 2020–21.

How can this be the case? Two reasons.

First, Ontario will accumulate new debt because the Wynne government plans to ramp up capital spending on things such as roads and bridges, which will be financed by more debt. The province can add debt, while still maintaining a balanced operating budget, because its capital budget is accounted for separately from its operating budget. The operating budget can be balanced at the same time the capital budget is in deficit.