Ontario at risk to interest rate hike: Fraser Institute
Ontario Finance Minister Charles Sousa acknowledges applause in the legislature, including that of Premier Kathleen Wynne. (Toronto Sun file photo)
Ontario is so deeply in debt that any rise in interest rates could vaporize plans for a balanced budget in 2017-18, a new Fraser Institute report says.
“A return of interest rates to more normal levels would increase the proportion of revenues spent on interest payments, colourfully known as the ‘interest bite,’ jeopardizing the promises of governments to achieve balanced budgets,” the report says. “Some governments are more vulnerable than others, particularly highly-indebted provinces such as Ontario and Quebec.”
The government of Ontario has accumulated close to $300 billion in net debt.
Estimating the Impact of Higher Interest Rates on the Cost of Servicing Debt, to be released Wednesday, looks at two different scenarios for servicing that debt and the possible impact on the Kathleen Wynne government’s promise to balance the books by 2017-18.
Kelsey Ingram, a spokesman for Finance Minister Charles Sousa, said in an e-mail Tuesday that private-sector economists are forecasting the province’s growth will outpace the nation.
“While we continually monitor the Bank of Canada’s interest rate decisions — be it a decrease, increase or hold — our government’s number one priority is to grow the economy and create jobs for Ontarians,” Ingram said. “And that fiscal plan is working.
“We will continue implementing our balanced plan to build a strong economy that creates good, high-paying jobs for Ontarians, while controlling our spending and maximizing our revenue potential,” she said.
SCARY SCENARIO 1
- Interest rates rise to 3.5% (2016-17), 4.5% (2017-18 to 2019-20).
Result: Ontario’s deficit grows by $264 million (2016-17), no balanced budget in 2017-18, cost of servicing debt grows by $498 million (2019-20).
SCARY SCENARIO 2
- Interest rates rise to 4.5% (2016-17), 5% (2017-18 to 2019-20).
Result: Ontario’s deficit grows by $616 million (2016-17), balanced budget forecast for 2017-18 turns into an $857-million deficit, cost of servicing Ontario’s debt grows by almost $1.2 billion (2019-20).