Canada Government Tax

Ontario is no California when it comes to debt

The Toronto Star just published an article I wrote in response to claims made by the Fraser Institute and the Toronto Sun that Ontario has a runaway debt problem worse than California’s.

The short version: I call BS. The slightly longer version: California has constraints, such as limits on the size of debt and difficulties in raising new taxes, that have severely hampered its ability to take on and manage debt. It has a smaller debt than Ontario on all measures but much worse credit standing. Ontario, on the other hand, still has a lot of flexibility to deal with debt. The “solutions” proposed along the Fraser Institute’s alarmism actually seek to create similar, harmful constraints in Ontario. “There is no alternative” becomes true only if we allow alternatives to be removed.

Read the full piece here.

3 replies on “Ontario is no California when it comes to debt”

This is a good article–but it misses a central truth: Ontario’s debt was on a downward trajectory before the economic crash in 2008-09, and its budget had been in a surplus position, at that point, for three consecutive years. Tax cuts were already firmly entrenched, and government coffers were not empty. So what happened? Ontario began a policy of deficit spending to stimulate the economy during the recession, and that, coupled with lower revenues and higher social services costs, pushed the debt higher.
Yes, the tax cuts–particularly the corporate tax cuts–have hurt Ontario’s revenues, but this is not what’s keeping the economy from growing. The culprit is the Liberals’ reckless about-face on stimulus and its turn to deficit-cutting. Even if taxes were moderately higher right now, Ontario’s economy would still be demand-depressed, inflation would still be too low, and GDP growth would still be anemic

Thanks Anthony! My point was not about specific policies but about the policy space differences between Ontario and California. As you point out, it makes sense that debt would fall in good economic times and then rise as the government responds to a crisis. The kicker is to what extent a government is able to respond — what tools and channels are available to it. You’ll get no defense of the Liberal record from me as they been happy to go along with many of the same constraint and restraint policies.

What I thought was missing from your piece was some context-setting point about why Ontario’s debt has increased in the past few years–that it did not arise from overspending, but from a global economic collapse that governments around the world responded to with stimulus of some sort. The comparisons between California and Ontario would not have even been thinkable before 2008-09, yet the idea that the Ontario government caused the decline and subsequent accumulation of debt is now firmly entrenched–even in straight news articles. I think you fall into this trap somewhat when you write that “the province has slowly undermined its ability to raise revenues through regressive and unnecessary tax cuts.” This is true, but it’s only tangentially related to how the province arrived at this difficult economic moment–and it seems to echo a new push for higher taxes in all quintiles.

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