Ontario’s huge deficits beat disadvantaged Rust Belt

Study says states have significantly less debt, despite same external challenges.

June 18, 2015

TORONTO — Despite a faster-growing stronger economy, Ontario has racked up more government debt than the nearby “Rust Belt” states in the US, finds a study by the Fraser Institute.

The Canadian public policy think tank zeros in again on Ontario’s huge budget deficits as it compares the two regions and their challenges.

The study, Ontario vs. the US “Rust Belt”: Coping with a Changing Economic World , compares Ontario and Quebec’s economic and fiscal performance of with Indiana, Michigan, Ohio, Pennsylvania and Illinois between 1999 and 2013.

Study co-author and president of the Fraser Institute Niels Veldhuis says policymakers in Ontario blame the province’s poor fiscal performance on external forces such as a fluctuating Canadian dollar and global restructuring in manufacturing. He sees the blame lying elsewhere.

The study notes between 1999 and 2013, with an annual average GDP growth rate of 1.9%, Ontario outperformed every Rust Belt state. By comparison, Michigan’s dismal economy actually shrank (-0.2%).

Ontario outperformed all Rust Belt states in private-sector employment growth (1.2%) doubling the average annual rate in Pennsylvania, which had the highest rate of job growth in the Rust Belt. But it also amassed significantly more government debt than each state. As of 2011-12, Ontario’s debt was 36% of the province’s GDP. The Rust Belt states ended the 14-year period with 5% or less in government debt.

The study calls the government on blaming a fluctuating Canadian dollar and global restructuring in manufacturing, noting some Rust Belt states maintain larger manufacturing sectors than Ontario and are more sensitive to changes. During the 14-year period, average government spending (as a share of GDP) in Ontario (17%) was higher than any Rust Belt state, dwarfing government spending in Illinois (10.2%) and Indiana (11.5%).

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