Ontario’s debt tops fiscally imprudent California: Study

Province devotes 9.2% of revenues to interest payments, compared to California’s 2.8%.

March 18, 2014   by PLANT STAFF

TORONTO — Ontario is by any measure much deeper in debt than California, considered by many economic analysts to be fiscally irresponsible, says a Fraser Institute study.

The public policy think-tank reports Canada’s largest province, with a fraction of the population, carries a debt load of $267.5 billion. That’s almost twice as large as California’s US$144.8 billion. As a share of the economy, Ontario’s bonded debt is 40.9% compared to California’s 7.6%.

“Ontario’s debt relative to the size of its economy is more than five times larger than the same measure for California,” says Sean Speer, associate director of fiscal studies at the Fraser Institute and co-author of Comparing the Debt Burdens of Ontario and California.

On a per person basis, every Ontarian owes $20,166 compared to $3,844 for every California resident.


The think-tank notes the effects of government debt are wide-ranging. When government borrows, it competes with the private sector. That limits the ability of businesses to borrow and invest in plants, machinery, equipment, and research, as well as training and development of staff. And the higher the government debt, the greater the burden on taxpayers who are saddled with the servicing costs.

The report notes Ontario directs 9.2% of its revenues to interest payments, compared to California’s 2.8%, money that could be used for services such as health care, education, infrastructure investment and tax reductions.

The Fraser Institute warns interest costs will represent the fastest growing part of the provincial budget from 2012/13 to 2015/16, increasing at 5.5% annually – more than twice the projected rate of growth in health care expenditures.

Speer says by limiting the growth of government spending, Ontario can back away from the edge of the fiscal cliff.

A recent analysis co-authored by University of Calgary professor Ronald Kneebone suggests capping program-spending growth at 4% per year to avoid draconian cuts.

In California, the state government stabilized its fiscal situation by combining spending cuts with tax increases, which, while temporarily stabilizing, discouraged business development and investment, and made the state even less tax competitive.

Click here for a copy of the report.

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