[kEiThZ]

The idea that interest rates will stay low for the forseeeable future is built on a shaky foundation. A slight drop in Ontario's credit rating could see rates go up. An upswing in the US economy could see rates rise (after all Ontario bonds have to compete with US treasuries on the bond markets). We're in a situation, where a small increase in rates, could see Ontario's fiscal situation worse quite a bit.

It's not that all debt is bad. We need Keynesian spending. But that theory is usually aimed at short-term support (like EI) and infrastructure spending that is supposed to boost productivity. This government has spent a lot more on public sector wage increases than it has on any of that.

 

[TOareaFan]

When Harper cut the GST, Ontario went from RST to HST, which had the effect of raising taxes on consumers almost as much as a two point bump in the rate. So good news, you got your wish already.

Cap and trade and/or carbon taxes is the only sensible way for tax policies to go in the future. Of course, the OLP is botching it more than a little, but they're moving in the right direction.

what does RST stand for? how did combining two separate taxes lead to a 2% jump? I get that some things became subject to the provincial portion that were previously only taxable on the federal level....but since the previously taxed items remained at the same cost (and that was most things) not sure how the weighted average calc could ever get close to an increase of 2% taxation? Is there link you know that shows this calc...it would be very interesting to see how that works.

 

[1overcosc]

The idea that interest rates will stay low for the forseeeable future is built on a shaky foundation. A slight drop in Ontario's credit rating could see rates go up. An upswing in the US economy could see rates rise (after all Ontario bonds have to compete with US treasuries on the bond markets). We're in a situation, where a small increase in rates, could see Ontario's fiscal situation worse quite a bit.t.

Except provincial bonds have fixed interest rates. So any rising interest rates will only affect new debt.

The creditors will probably be satisfied with the 2016 budget as it clearly indicates the debt-to-GDP ratio has stopped growing, and the province's economy is on the up.

 

[TheTigerMaster]

That's actually pretty surprising. I guess I was wrong in my earlier assessment.

But on the other hand this shows they havent had a lot of urgency in the past in reducing the deficit, they've just been chipping away at it with their forecasting as if they can take the next 30 years to reduce it.

Not a lot of urgency? In 6 years the deficit has been reduced ~75%. We'll have no defecit within a year or two.

 

[GenerationW]

Also, you don't know if there will always be a new economic crisis. You're making assumptions here.

Sooner or later there is always a crisis, economic or otherwise. The issue is how a particular government reacts to said crisis. But even when there is no looming crisis, most of our provincial and federal governments haven't exactly been prolific is producing surpluses in the last 40+ years.

 

[LNahid2000]

Sooner or later there is always a crisis, economic or otherwise. The issue is how a particular government reacts to said crisis. But even when there is no looming crisis, most of our provincial and federal governments haven't exactly been prolific is producing surpluses in the last 40+ years.

You took my post out of context. My post was in response to crs1026 and I meant that you don't know there will be another crisis before we're in a surplus and start reducing the debt.

 

[TOareaFan]

Except provincial bonds have fixed interest rates. So any rising interest rates will only affect new debt.

and the ~40% of existing debt that has to be rolled/renewed in the next, what, 5 years. The province has done well extending its weighted average debt maturity during this low rate environment.....but no one is perfect at that and 40% of $300 billion (even if we stopped adding debt right now) is still a pretty significant exposure to rising interest rates. Every 1% increase in rates on $75B still means an increase in the province's debt service obligations of $750million a year.

 

[k10ery]

what does RST stand for? how did combining two separate taxes lead to a 2% jump? I get that some things became subject to the provincial portion that were previously only taxable on the federal level....but since the previously taxed items remained at the same cost (and that was most things) not sure how the weighted average calc could ever get close to an increase of 2% taxation? Is there link you know that shows this calc...it would be very interesting to see how that works.

RST was the old retail sales tax from before the HST. I found this paper that said moving to HST increased revenues paid by consumers in 2010 by $3.3 billion: http://www.policyschool.ucalgary.ca...-reform-ontario-consumers-first-look-evidence

The old sales tax was 8% and it raised $17 billion in revenues. So $3.3 billion in extra revenues is about wht they would have got if they raised the old sales tax from 8% to 9.6% or so.

So yah they pretended that it was a revenue neutral change moving to HST but they really fudged the numbers. It was a huge tax grab from consumers, which they used to finance tax cuts for business.

 

[TOareaFan]

RST was the old retail sales tax from before the HST. I found this paper that said moving to HST increased revenues paid by consumers in 2010 by $3.3 billion: http://www.policyschool.ucalgary.ca...-reform-ontario-consumers-first-look-evidence

The old sales tax was 8% and it raised $17 billion in revenues. So $3.3 billion in extra revenues is about wht they would have got if they raised the old sales tax from 8% to 9.6% or so.

So yah they pretended that it was a revenue neutral change moving to HST but they really fudged the numbers. It was a huge tax grab from consumers, which they used to finance tax cuts for business.

It was revenue neutral because they changed other taxes at the same time. From the report you linked above:

Revenue Impacts
In the 2010 Fall Update, the Ontario government projected that the fully phased-in reform
would increase net sales tax revenues by $2.3 billion in 2012-13, plus an additional $1 billion
in revenues due to the temporary restrictions on input tax credits paid to large businesses. The
projected total revenue increase of $3.3 billion is approximately 0.8 percent of aggregate
personal consumption expenditures in Ontario. In contrast, Smart and Bird (2009b) estimated,
based on 2002 input-output data, that RST’s conversion to an eight percent tax on the federal
GST base would be nearly revenue-neutral in Ontario. The difference is mostly explained by
Ontario’s departures from the GST base, including additional taxes on insurance, alcohol and
used cars, and partial ITCs for large businesses, minus the effect of the larger rebate for new
housing and the new point-of-sale rebates.
While the sales tax reform increases revenue for Ontario, taken together with the income tax
changes, the reform is approximately revenue-neutral. The 2010 Update estimates the cost of
personal income tax changes, including the rate cut and the sales and property tax credits at
$2.8 billion in 2012-13, which offsets virtually all of the sales tax revenue increase, even
before full phase-in of ITCs for large businesses in 2018.

So the change from RST (we used to just call it PST) + GST to a HST did not produce the same results as simply (as someone suggested we should) increasing the tax by 2%.

 

[k10ery]

It was revenue neutral because they changed other taxes at the same time. From the report you linked above:

Those tax credits were just for low income families. For 80% of Ontarians, it was just a tax increase with no credits. Plus, those credits are smaller now than they were in 2010, even for low income families. Classic bait-and-switch!

We pay enough sales tax thanks. If you want more money for infrastructure, how about cutting the tax expenditures for small business, for film and TV production, the capital gains deduction, any of a half dozen programs for farmers and horse owners and US auto companies. That could net you $4-5 billion a year, right there.

 

[TOareaFan]

your arguing with the wrong guy....I never said "raise the HST"....I just don't agree that the switch from PST/GST to HST brought in the equivalent revenue as a 2% HST increase would.

If you want to argue against tax increases...find someone who advocates for them and have the argument with them.

 

[BurlOak]

Okay......so let's put it this way. We could build an entire new DRL Long every year for the money that goes in interest payments. With enough left over to fund a teaching hospital.
- Paul

Its not fair to blame the Liberals for the full $11.8B in interest payments. There was a debt there when they started.

Lets look at the federal debt for comparison. When Harper took over in Feb. 2006, the national debt was $481B and went up to $612B when he left in October 2015. That's a 27% increase.
During the same period, the Ontario debt went from $153B to $292B, or a 91% increase.

If we assume that Ontario would have done an equally good job to Canada, then our debt now would be $194B, and our debt would be $98B lower and our interest payments would be $4B lower. Over the 10 years, that over $20B that go wasted on interest, and it could have paid for the DRL long, plus the B-D subway to STC, and the Sheppard Subway. Plus the $4B a year going forward.

Now Harper was the best leader in the G7 over the past 10 years, so maybe its a bit unfair to expect Ontario to have similar numbers, but even if Ontario was half as good as Canada was, that is still several Billion a year that we would have available to spend (plus the $10B we could have banked until now).

 

[LNahid2000]

You can't just compare federal debt to provincial debt. They have different roles and responsibilities. A comparison with another province would be more fair.

 

[crs1026]

How do you know this? If we stop borrowing when interest rates go up, how will our interest payments increase? Bonds have a fixed interest rate.

Also, you don't know if there will always be a new economic crisis. You're making assumptions here.

If the system were in check, one would expect to see some years of surplus, some years of balance, and some years of adding debt. We have more years of adding debt by far, and precious few otherwise.

The Keynesian theory applies sometimes, when an extraordinary stimulus is needed. It does not work if used to excess. If you compare Ontario to any other province - they have all had good years and bad years. Why then does Ontario have such a systemmic use of debt that no other province has matched? Ontario is clearly the outrider.

Do I know there will be future downturns? Heck, I didn't foresee 9/11, or Hurricane Katrina, or the Sub-prime Lending bubble, or the fall in oil prices. I don't know what I will be eating for dinner next week. It doesn't take a crystal ball to know that things rise and fall. I do know that all governments of all ideologies use deficit spending on the premise of needing stimulus, year after year, even in years where the economy is performing well.

- Paul

 

[agoraflaneur]

"Lets look at the federal debt for comparison. When Harper took over in Feb. 2006, the national debt was $481B and went up to $612B when he left in October 2015. That's a 27% increase.
During the same period, the Ontario debt went from $153B to $292B, or a 91% increase."

I don't doubt that Ontario could have shaved a few percentage points off its debt over that timeframe, but this comparison is spurious.

The federal government was exposed to the huge increase in energy prices through its tax instruments and benefited from large growth in Western Canada and Newfoundland. In comparison, Ontario went through a very tough 2000s (run-up of CAD, huge losses to the manufacturing base) only to face the crisis of 08-09 and then have the high CAD and commodity prices endure. Without the large deficits, Ontario's economy would have suffered far greater. Instead, it took advantage of low rates post-crisis. Pre-crisis should have been a bit more restrained, though.

It would actually be better to look at quality of spending rather than quantity. I know on the whole not enough of the spending was economically optimal, but the current investments in infrastructure and education are the only way to drive the economy moving forward.

Still, our future is far from assured: Ontario will rely on innovation and productivity growth, which is poor. I agree that a slightly more aggressive approach to paying down the debt is necessary going forward to guard against (inevitable) recessionary shocks.