Government Debt: Ontario vs. California

Inasmuch as readers of this blog typically follow developments in both the United States and Canada, I thought it might be instructive to share the main results of a new study I co-authored for the Fraser Institute (a free-market CA vs ON debtCanadian economic policy think tank). Specifically, the study compares the government debt loads of the province of Ontario versus the state of California. Readers may be surprised to learn–I know I was!–that on any metric we choose, Ontario’s debt is much higher. This is ironic, because for many Canadians (as well as people in the United States) California epitomizes a big-spending “liberal” government.

As the graphic illustrates, total gross bonded debt is $144.8 billion in California, compared to a whopping $267.5 billion for Ontario. (These data refer to Fiscal Year 2011/12, the latest for which California’s numbers were available on some of the criteria.) Yet since Ontario is so much smaller than California, the simple total understates the discrepancy. In terms of the economy (state and provincial), California’s debt is 7.6%, while Ontario’s is 40.9%. Another way of gauging the burden is that California’s state government devotes about 3% of its revenues to servicing the debt, while Ontario’s provincial government must devote more than triple that.

The report surveys the history of each government to explain how they each got into their current predicaments. The report also provides a general explanation–accessible to the lay reader–as to why citizens should be wary of growing indebtedness, beyond the obvious principled objection to government spending programs per se. Finally, the report walks through the theory and historical evidence for reforms that cut spending, rather than increase taxes, in order to solve the looming debt crisis.

7 Responses to “Government Debt: Ontario vs. California”

  1. Ohhh Henry says:

    I heard a headline on the radio recently that Ontario wants to create an "OPP" (Ontario pension plan) with forced contributions. Allegedly because Ontarians "don't save enough", but reading between the lines I suppose that they're expecting to have difficulty borrowing money from the traditional financial markets (due to the vast accumulated debt) and they now want to raise money through a "pension plan". No doubt they will manage your "savings" by lending them to themselves and to provincial crown corporations. This will effectively make it a gigantic political slush fund but will of course be described as "investing in ourselves".

    • AndyH says:

      This is the intent. Then when Ontario has a crisis these pensions funds can be raided and emptied… erm, I mean borrowed from… Argentina can consult on how to do it. Pension funds for teachers and public sector employees will be emptied first, and then they will raid the private sector pensions.

      My advice, hide as much income as possible and keep it far far away from any government managed pension fund!

  2. Frank Zeleniuk says:

    Keep it down, you guys. I'm trying to sleep!

  3. Patrick Barron says:

    As an American, I am shocked to learn this. We Americans have been led to believe that Canada, apart from its horrendous national health fiasco, has initiated many free market reforms which have benefited the country and placed it on a much sounder financial basis. The entire world has gone mad.

    • Redmond says:

      That was back in the 1990s and at the Federal level. Those positive changes filtered down to the provinces to an extent after that, but the provinces have largely been fiscal basket cases for the last 10 years or so. Even Alberta, with oil over $100/bbl was in the hole!

      The Feds haven't been much better.

  4. Sarah says:

    I am Canadian and the people of Canada are even more in a state of denial then the rest of the world. They have absolutely no clue what is coming. A friend of mine was bragging that his 2 story home in Alberta just went up 110k to 630k. He was proud that his house was 'worth' so much. Didn't care his taxes are now at $6000 per year, and was an absolute deer in the headlights when I told him his house would go back be low 250k. Canadians are clueless.
    Learn your Canadian and natural rights.
    deanclifford.info

  5. Russ says:

    Excellent study although I have to say I'm not surprised. Canada's fiscal situation is even more precarious than the US's – when you include debt from all three levels of government Canada's total debt to GDP is not much different from the US. Just consider that Quebec's provincial debt is almost the same as Ontario's – http://www.iedm.org/27-quebec-debt-clock.

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