Yesterday’s money into tomorrow’s assets
More than 3,500 Infrastructure projects across Ontario are newly-complete, still under construction, or awaiting construction start, part of a multi-decade $190 billion plan to renew essential assets, supporting an average 125,000 jobs each year through the end of the 2020s. Nearly all were planned and started during the recovery, and financed with debt capital.
Province-wide, Ontario has redeveloped (and continues to improve) its electricity generation and transmission system. Ontario-wide, some $50 billion has already been spent giving Ontario reliable, clean, affordable, safe and domestic electricity for more than the next two generations to come.
See what Ontario’s borrowed capital build, is building and will shortly build in Mississauga and Brampton. Click or touch here.
Debt-financed projects and investment spurred a renaissance in advanced manufacturing, pharmaceuticals and life sciences, especially in Meadowvale. The financing to put it all together has brought the GTA to a financial-sector par with London, UK. After Hollywood and New York, the GTA is the 3rd largest film and entertainment hub on the continent. Ontario’s clean energy and environmental industry has grown from near nothing to a high-value, export-oriented industry employing 50,000 people today. GO service to northwest Mississauga has more than doubled in 15 years.
Build now or postpone until later?
During the 1970s and 1980s, Ontario invested very little, often nearly nothing, in renewing roads, bridges, electricity, hospitals, transit, schools, universities and public facilities. At the turn-of-the-century, there was a big backlog of catch-up work to do.
Borrowing to renew essential bricks-and-mortar means that the costs of what people will use for upwards of half a century are locked-in at yesterday’s prices, and financed over their lifetime at interest rates close to zero. This means that the children and grandchildren of today’s adults will benefit from the wisdom of their parents building them the facilities yesterday they will use as they grow and mature tomorrow, and they will pay for it as they use it. Tomorrow’s costs are thus not dropped completely on today’s users, and tomorrow’s users pay their share of long-term assets as they use them during their lifetimes.
Failing to borrow today (as many U.S. states have done) to build what society will use today and for two generations leads to an infrastructure rather than a financial deficit. It means higher costs tomorrow for new, renewed and replacement infrastructure that must be built at tomorrow’s prices and financed at higher interest rates.
Is Ontario burdening future generations with debt? No. The Province is blessing them with up-to-date assets such as schools, hospitals, roads, public transit, electricity, community facilities, recreation and child care facilities and the other bricks-and-mortar things that everyone uses daily.
To grasp the impact of not borrowing during the last decade, when capital was cheap, labour was available, and the economic impact of the projects kept people working and the Ontario economy growing, see the American Society of Civil Engineers ominous 2017 Infrastructure Report Card. It gives the United States an overall grade of D+, and by 2025, estimates that America will lose: $3.9 trillion in GDP; $7 trillion in business; and 2.5 million jobs for lack of the type of infrastructure Ontario built during the decade since the recession.
Concludes the report on its estimated $2 trillion USA infrastructure backlog: “Congress and the states must invest an additional $206 billion each year.” Ontario has done that, and continues to invest in essential public infrastructure.
The truth about what Ontario owes
- The effective rate of interest on Ontario’s debt was 7.2% fifteen years ago. Today it is 3.5%;
- The large majority of Ontario’s debt is in Canadian dollars, and interest is paid to Canadians;
- Ontario’s net-debt-to-GDP ratio peaked at 39% during the recession rate, and is today 37% and falling. Most other nations have rates much greater than Ontario’s and theirs are nearly all rising.
- Sweden: 41%;
- South Korea: 46%;
- Mexico: 50%;
- Israel: 62%;
- Germany: 69%;
- USA: 73%;
- Austria: 86%;
- UK: 92%;
- France: 97%;
- Spain: 99%.
- The average Canadian household’s ratio of debt-to-household income is 161% and rising. Ontario borrowed prudently, invested wisely, grew its economy, and is easily able to finance its public debt in an economy whose GDP has doubled in the last 15 years, and is today at more than $860 billion, headed for North America’s next ‘trillion-dollar economy.’ Ontario can easily afford to carry its ‘mortgage;’
- Ontario’s borrowing has locked in low interest rates over the long term on bricks-and-mortar assets whose price is now fixed for the long-term. Short- and medium-term fluctuations in interest rates will not cause debt service costs to suddenly jump. Ontario bond issues sell out in full, almost immediately;
- Investment using debt capital has made Ontario the strongest economy in North America; created 814,000 net new jobs since 2008-09, and our northwest Mississauga corner of the Province is the strongest part of the strongest economy in North America.
As your MPP, I was part of those discussions on how to get Ontario through the recession to this turning point, where our deficit has turned into a 2018-19 surplus. I am proud of how well those decisions have worked out, proud of what our Province and our cities have built together with Ontario’s investments; and I would be a part of making those long-term infrastructure investment choices, in those recession circumstances, again.
Why go back to borrowing?
Government borrowing when businesses were not spending was the best way out of the recession. Now that businesses are spending – and profitable – again, should government redirect its surpluses to debt reduction?
There is an argument to make for that. There is, however, a stronger argument from the Ontarians who got through the recession, but don’t feel as if they’ve got further ahead in the process. When, they ask, will it be ‘our turn?’ Governments the world over have lost their legitimacy when they have failed to bring their citizens along with them through the recovery to share the better times.
This was Ontario’s choice: who’s first in line? Should it be the large number of Ontario residents who don’t feel as if their household is better off now that the recession is over; or the banks, large companies and financial institutions who made out very, very well in the past decade as Ontario progressed.
Austerity is a global failure as an economic strategy. It’s a seductive idea that never works. Click or touch to read why.
The Province chose to make life more affordable for the large majority of Ontarians at the bottom and in the middle of the economic scale. In essence, Ontario is investing in the people who will use the concrete, glass and steel infrastructure built during the last 12 years. It involves three years of borrowing for the programs in the 2018-19 Ontario Budget, and three more years to get back to a balanced budget. The Province has got back to balance from structural deficits twice before and will do so, on schedule, again.
What benefits will come from the next few years of borrowing?
- Pre-School Child Care
- Child care is one of the services whose price has gone up sharply in recent years. Affordable child care can get a working parent back into the work force sooner. The Budget proposes making preschool child care free for children aged two-and-a-half until they are eligible for kindergarten, saving a family with one child $17,000, on average, building on the savings families get from full-day kindergarten.
- More Child Care Spaces:
- The Budget proposes adding more than 100,000 child care spaces so more families can have more choice for high-quality, affordable child care — and offering additional financial support to families with subsidies for approximately 60 per cent of all new spaces.
- Drug and Dental Costs:
- The Budget proposes a new Ontario Drug and Dental Program, reimbursing 80 per cent, up to a maximum of $400 per single person, $600 per couple and $700 for a family of four with two children, of eligible prescription drug and dental expenses each year, for those without workplace health benefits or not covered by OHIP+ or other government programs. This directly helps people with home-based businesses, are self-employed, or who work on contract
- Prescription Coverage for Seniors:
- Budget measures would make prescriptions completely free for everyone 65 and over through OHIP+, ensuring that no senior citizen goes without necessary drugs. By eliminating the Ontario Drug Benefit annual deductible and co-pay, this saves the average Ontario senior $240 per year.
- Helping Seniors Age at Home:
- Home is where most people want to be as they age. A proposed new Seniors’ Healthy Home Program recognizes the costs associated with older seniors living at home. It would provide a benefit of up to $750 annually for eligible households, led by seniors 75 and over, to help them live independently, and offset the costs of maintaining their homes.
- Higher Minimum Wage:
- With the 2018 rise in the minimum wage to $14 per hour, low-wage Ontarians got back to where their purchasing power was in 1977. Beginning in 2019, they will move forward a bit with a minimum wage of $15 per hour. This benefits nearly one in six workers in Ontario.
- Helping Students Afford Post-Secondary Education:
- The cost of post-secondary education has climbed all over the world. In 2017, Ontario made college and university tuition free for more than 225,000 students of all ages. Free or low tuition is available for students from low- and middle-income families. Tuition is free for those earning up to $90,000, and students from families who earn up to $175,000 are also eligible for some financial aid. The Budget would make it easier for students from middle-income families or those who are married to qualify for OSAP and get more financial assistance, starting in fall 2018
- Easing Financial Burdens on Students:
- Textbook costs can be exorbitant. The Budget proposes saving more than 5,000 students more than $520,000 by providing free online textbooks and educational resources through the Ontario Open Textbooks Initiative.