Commission on the Reform of Ontario's Public Services

Debt and Deficits
Over the past two decades, Ontario’s fiscal record has been one of large deficits that have
been only partially offset by sporadic episodes of small surpluses. Before that, from 1986–87
through 1989–90, the government’s debt averaged 14.1 per cent of GDP, a modest burden
that was easily carried by a province as wealthy as Ontario. The recession of the early 1990s
resulted in large deficits that were reduced only slowly as the decade wore on through
spending restraint in all areas; by 1998–99, the debt-to-GDP ratio had doubled to 30 per cent.
Small surpluses in seven of the next nine years allowed the debt ratio to ease to just under
27 per cent in 2007–08 before the substantial deficits associated with the most recent
recession — and the stimulus programs of infrastructure spending deployed to alleviate it —
rapidly pushed the debt higher yet again, this time to 35 per cent of GDP in 2010–11.
The record is one in which recessions quickly create and magnify a deficit, thus pushing
the debt higher in a hurry, but good economic times produce only small improvements in
the province’s debt.
Carrying debt requires spending in the form of interest payments on the province’s outstanding
bonds and other obligations. Interest rates have been low in recent years across most of the
globe and, with a sound record in debt management, Ontario has been able to borrow
cheaply. The province’s interest payments have been treading at around their lowest levels in
the past 20 years, both in relation to GDP and to the province’s total spending. In 2010–11,
interest amounted to 7.9 per cent of total spending (well below the 20-year average of
11.3 per cent) and 1.5 per cent of GDP (compared with the 20-year average of 2.0 per cent).
The danger here is obvious. As interest rates rise to more normal levels, so will the cost of
servicing the growing debt, diverting dollars away from public programs.
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