October 2, 2016
Part 3 in a series
The first in this three-part series dealt with laudatory comments bestowed by Premier Wynne on Finance Minister Charles Sousa, but now I will simply look at one unachievable demand.
This article has nothing to do with the energy sector but I had to comment on a section of the Mandate Letter the Premier issued to the Finance Minister — it is completely out of touch with reality.
In the section under the subheading, “Delivering on the Balanced Budget Plan” there is one instruction that will require many magic tricks from Minister Sousa: “Lowering the net debt-to-GDP ratio to its pre-recession level of 27 per cent.”NB
The Province provides information disclosing our GDP growth along with our climbing debt levels and recently the Premier took an occasion to brag how Ontario reputedly “posted higher real GDP growth in the first quarter of 2016 than Canada, the U.S. and all other G7 countries. The province’s real GDP grew by 0.8 per cent in the quarter, or a 3.0 per cent annualized rate.” The braggadocio, however, needs to be examined in relation to the Premier’s direction to Minister Sousa.
The Ontario Finance Authority (OFINA) posted the Province’s debt information indicating that, as of March 31, 2016, publicly held debt was $313.4 billion. OFINA also included a chart showing Ontario’s debt-to-GDP ratio was 39.5%.
Using the foregoing data it is easy to discern at that point in time, Ontario’s Gross Domestic Product (GDP) was approximately $794 billion. Extrapolating the foregoing information and using it to calculate how challenged Minister Sousa will be to reduce that ratio to the pre-recession level is also an easy task. If the books were balanced as of March 31, 2016 and the debt level remained at $313.4 billion for the future, the GDP required to meet Premier Wynne’s 27% target would need to grow by $367 billion. That’s a 46% increase from its current level.
In the current global economy the Premier’s challenge is impossible to achieve in a reasonable timeframe.
Looking at a Royal Bank of Canada September 2016 report it becomes obvious Minister Sousa is destined to fail miserably in achieving the Premier’s target. The RBC report indicates Ontario’s GDP is forecast to grow at a rate of 2.7% in 2016 and 2.4% in 2017. This anticipated growth is a far cry from the 46% increase the Premier expects her Finance Minister to achieve.
The foregoing should remind everyone of George Smitherman’s 2009 forecast that the Green Energy and Green Economy Act would only increase electricity prices by 1% per annum. The Premier failed to see the electricity crisis arrive until her party lost a by-election and she was booed at a plowing match when she mentioned hydro rates in her speech.
It appears the ability to forecast the future is a major flaw in the current government in Ontario so we should expect this mandated one to Minister Sousa by the Premier is simply another unrealistic one.
Premier Wynne and Minister Sousa should prepare themselves for additional booing that may soon come from credit rating agencies.
NB: Ontario’s debt-to-GDP ratio has never been as high as it currently is. The Bob Rae NDP government of the early 1990s had to deal with high inflation and a recession that cut the GDP by 3.2%