TORONTO – Millennials will have to foot the bill for Ontario’s rising debt over the next three decades if the government doesn’t hike taxes or cut spending by $6.5 billion annually to address major demographic changes, the province’s fiscal watchdog warned Thursday.
As the baby boom generation ages, the province’s economy will change, experiencing slow revenue growth and requiring increased spending on social programs like health care, Ontario’s Financial Accountability Office explained.
Consequently, government debt — which currently sits at $312 billion — will be driven up unless taxes are increased or spending is cut beginning next year, the office warned in its long-term budget outlook.
“If these difficult fiscal changes are postponed the burden of stabilizing Ontario’s public finances would be increasingly, and arguably unfairly, shifted from the baby boom generation to younger Ontarians,” said David West, the FAO’s chief economist.
The FAO report, which took a year to research, said balancing the province’s budget annually won’t be enough to offset the financial impacts of the aging demographic. The government must generate surpluses and use that cash to pay down debt, it said.
West acknowledged, however, that a $6.5 billion tax increase or spending cut would have large budget implications.
“(It’s) roughly equivalent to eliminating funding for 40 per cent of the province’s hospitals, raising the HST rate by two percentage points, or a 25 per cent increase in federal transfers,” he said.
The report recommends the Ontario government stick to a promise it made to drop the provinces’ debt-to-gross domestic product ratio from its current level at 40 per cent to 27 per cent by 2030. West said the measure, which gauges the province’s ability to pay back and manage debt interest payments, would actually increase to 63 per cent by 2050 if significant fiscal changes aren’t made.
“Since the demographic pressures on the budget will not intensify until the mid-2020s it will be tempting to postpone or even ignore the difficult fiscal policy changes that are going to be required to stabilize or reduce Ontario’s debt burden,” he said, adding that would result in higher costs to reduce the debt.
Ontario Finance Minister Charles Sousa said the province takes the FAO’s findings seriously, but he would not commit to either hiking taxes or slashing spending. The province will find ways to foster further debt management, he said.
“In all of Ontario’s history, for that matter even Canadian history, very little has ever occurred in terms of reduction in actual debt,” he said. “Ontario’s debt is managed by its ability to support growth in our economy. I am very sensitive to the degree of debt.”
Ontario Progressive Conservative finance critic Vic Fedeli called the FAO report a “bleak and stark” budget picture.
“The debt is going to crowd out the services that families need like health and education,” he said. “All the things people have come to rely on they will struggle to pay for and the baby boomers debt will now roll over to the younger Ontarians.”
Peter Tabuns, an NDP legislator said the government has been fiscally irresponsible and has tried to deal with budget shortfalls by selling off public assets.
“Their whole approach is one that’s making the fiscal picture in Ontario much tougher,” he said.