More debt and poorer for it: Ontario is the new Quebec
Quebec’s economy and public finances have long been compared to Ontario’s and over the past few years, it actually caught up with Ontario — but this is not a case of two winners.
The narrowing of the gap between the two provinces less reflects Quebec’s good performance than Ontario’s gradual decline. Simply put, Ontario has followed the old Quebec model for over a decade now, and is more in debt and poorer for it.
As one sign of Ontario’s relative underperformance, it has received equalization payments since 2009, a weakness also demonstrated by Quebec’s addiction to equalization payments over decades.
Other comparisons show the same imitate-Quebec trend.
Quebec’s program spending per capita was higher than Ontario’s in 2002-03, but today, the Ontario government spends more ($8,765 vs. $8,042). Whereas per person program spending in Quebec increased by 42 per cent in nominal terms in the intervening period, it increased by almost 63 per cent in Ontario (with inflation for the period being 26 per cent).
Relative to the size of their respective economies, Ontario is also “catching up” on program spending, and is on track to surpass Quebec by 2023. In Quebec, program spending relative to GDP rose from 16.9 per cent in 2002-03 to 17.6 per cent by 2015-16, a 0.7-percentage-point increase. Ontario’s increase in the same period was three percentage points (from 13.2 per cent to 16.2 per cent).
Ontario’s ramp-up in program spending contributed to Ontario’s net public debt per capita almost doubling since 2002‑03, with total debt increasing by $163.5 billion compared to Quebec’s $91.5 billion increase. (Per capita, the growth in Ontario’s debt was slightly ahead of Quebec’s growth.) Both provinces are getting ever-deeper in debt, with Ontario again tracking Quebec ever-closer.
And what “solution” does a typical Quebec government revert to when trying to deal with rising government spending and ballooning interest payments? A tax hike.
That too is what Ontario governments have done in recent years. Total provincial government revenues in Quebec rose from 18.5 per cent of GDP in 2002-03 to 19.6 per cent by 2015-16, a 1.1-percentage-point increase. In Ontario, the increase, from 15.1 per cent to 16.9 per cent, was 1.8‑percentage-points.
Some might imagine that Ontario’s higher spending “bought” desirable outcomes such as higher economic growth or more jobs. However, Ontario has lagged the national average on both economic growth and job creation.
The slow economic decline of Ontario hits residents in their wallets. Between 2002 and 2014, total median family income grew by 43.2 per cent in Quebec (about the same as the Canadian average of 43.4 per cent). Ontario’s family income grew by only 32.2 per cent, not much higher than the cumulative inflation rate. All real gains in income resulted from additional government transfers, which increased faster than the national average.
The sad summary: Ontario has become a long-term equalization recipient, the province runs massive deficits, it raised taxes time and again, its income and employment growth record is poor, and Ontario’s credit rating has been sinking along with its fiscal and economic record. Once the economic powerhouse of Canada, Ontario’s government has in recent years imitated the policies that placed Quebecers at a fiscal and economic disadvantage for decades — which they are nowhere near to reversing in any substantive way. The lesson: Following the failed Quebec model is a not a policy recipe for Ontario’s future success.
Mark Milke is an independent policy analyst and Youri Chassin is Economist and Research Director at the MEI. They are the co-authors of "Is Ontario the New Quebec?" The views reflected in this op-ed are their own.