The Ontario Liberal Party trounced the Ontario Progressive-Conservatives on Thursday night with a devastating defeat in an election everyone thought would be contentious to the last vote. However, it’s not all bad news for the Ontario PCs, since Liberal premiere Kathleen Wynne has quite a task ahead of her in this new term of government.
Ontario is in trouble. The debt stands at $295.8 billion, or $63,000 for each person who voted Thursday night. I don’t know about you, but finding out I have $63,000 worth of debt would scare the hell out of me. The deficit stands at $12.5 billion, one of the worst in the country on a per-capita basis. While Quebec is now resolved to post a surplus in 2016 (along with the Feds), Ontario seems content to let that deficit number grow. Sure enough, segments of the Liberal base couldn’t seem to care less about spending as long as money is being spent, or debt as long as they can pay their personal credit cards. Ontario is like a teenager with their parents credit card who just keeps spending without realizing that the debt will bite them in the butt one of these days.
But there is a tiny little wrinkle. Ontario isn’t a kid with a rich parent willing to pay for everything. Moody’s Investors Service downgraded Ontario’s credit rating in 2012 to AA1 with negative outlook. A credit rating, in a nutshell, is how easy it is to borrow money; how confident lenders are that you’ll be able to pay them back. If your credit rating is high, lenders are happy and smiley, willing to throw money at you like a rap music video. If it’s low, they don’t trust you at all and treat you like the teenager who just lost all their money at a casino. Moody’s has made clear that eliminating the deficit by 2016 will be key to changing that outlook for Ontario, but no one is confident that that it will happen.
Now elected Premier Kathleen Wynne is confident that she’ll have the budget balanced by then, but the budget that caused this election (and the one she promises to re-introduce), is one of frivolous spending until 2017, and then sudden drastic cuts to try and balance the budget in time. It’s silly. The cuts to the public sector going into an election year are especially ridiculous. It will never happen. And certainly not when 9% of Ontario revenues are paying interest on the debt.
Moody’s responded to the new budget predictably, saying that “the increase in planned deficits represents a credit negative for the province,” especially with Ontario’s debt-to-revenue ration of 237.7%, while Quebec’s is only 189%. Standard & Poor’s also indicated that a downgrade is on the way. With a higher cost of borrowing, the Ontario government will need to make significant cuts, and sooner.
That’s the wrinkle. Kathleen Wynne will be premier when the cuts need to be made. She’ll be forced to cut, and make those hard choices. She’ll likely be forced to raise taxes and to reign in spending. Wynne will be overseeing Ontario’s attempt to reclaim fiscal independence, without which the province’s future as a have-not province will be etched in stone. Ontario has begun to be on the receiving side of federal equalization payments, meaning they are considered a have-not province. Liberal supporters will be aghast, unions will cry, the NDP will mount an army to march on the capital, the PCs will claim they would have done it better. Such will be the next few years in Ontario. Let’s hope that the Liberals do it right, because otherwise, as Mohombi would say, it’s gonna be a bumpy ride.