debtrating

Ontario’s debt has grown by $117 billion since the recession, largely because of government borrowing to fund day-to-day expenses, finds a study by the Fraser Institute.

“Governments typically borrow money as a means to finance long-lived assets such as roads, schools or hospitals,” says Jean-François Wen, study author and professor of economics at the University of Calgary. “In Ontario’s case, the province has gone deeper into debt to pay for day-to-day expenses such as the salaries and pensions of government employees and is passing the bill on to future generations.”

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The study, Ontario’s Debt Balloon: Source and Sustainability, calculates that 66% of the increase in debt since the 2008-2009 recession is directly attributable to day-to-day expenses exceeding revenues.

Since the recession, the debt burden has grown by $7,800 for each Ontarian. By the end of the 2014-2015 fiscal year, Ontario’s net debt is expected to total $287 billion, representing 40% of the provincial economy–or $21,000 per person.

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The study concludes that the growth in debt is unsustainable and will require a change in fiscal direction, including a marked reduction in spending.

“If the Ontario government fails to change course, its unsustainable fiscal policies could provoke further credit rating downgrades, higher borrowing costs and spiraling interest payments,” says Charles Lammam, Fraser Institute associate director of tax and fiscal policy.

“Already, in 2014-2015, more than nine cents of every revenue dollar goes to debt interest payments.”

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Originally published on Advisor.ca

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