Canadian Manufacturing

Ontario debt outpacing “Rust Belt” despite stronger economy

Restructuring in province's manufacturing sector no excuse, study says

TORONTO—Despite a faster-growing, stronger economy, Ontario has racked up more government debt than the nearby “Rust Belt” states in the U.S., a new Fraser Institute study says.

The study compares the economic and fiscal performance of Ontario and Quebec with Indiana, Michigan, Ohio, Pennsylvania and Illinois between 1999 and 2013.

“Since the 2008 recession, Ontario has consistently recorded large budget deficits, ballooning the province’s already enormous debt. Some policymakers blame forces beyond Ontario’s control yet seem to ignore the fiscal irresponsibility at Queen’s Park,” said Niels Veldhuis, president of the Fraser Institute and co-author of the study.

Between 1999 and 2013, with an annual average GDP growth rate of 1.9 per cent, Ontario outperformed every Rust Belt state, the study found. By comparison, Michigan’s dismal economy actually shrank by 0.2 per cent.

On the job front, during that same 14-year period, Ontario outperformed all Rust Belt states with private-sector employment growth of 1.2 per cent – doubling the average annual rate in Pennsylvania, which had the highest rate of job growth in the Rust Belt.

And yet, despite its comparative economic strength, Ontario amassed far more government debt than every single Rust Belt state. As of 2011-12, Ontario’s debt was 36 per cent of the province’s GDP. Every Rust Belt state, by comparison, ended the 14-year period with 5 per cent or less in government debt.

Policymakers in Ontario often blame the province’s poor fiscal performance on external forces such as a fluctuating Canadian dollar and global restructuring in manufacturing. But according to the study, some Rust Belt states maintain larger manufacturing sectors than Ontario, and subsequently are more sensitive to changes in the manufacturing sector.

“If the changing nature of global manufacturing could explain the debt and deficits in Ontario, then we’d see similar problems in the Rust Belt, but we don’t,” said Jason Clemens, study co-author and Fraser Institute vice-president.

In reality, Ontario’s fiscal problems stem mainly from poor policy at Queen’s Park.

For example, during the 14-year period, average government spending as a share of GDP in Ontario of 17 per cent was higher than any Rust Belt state, dwarfing government 10.2 per cent spending in Illinois and 11.5 per cent spending in Indiana.

“Despite the global shakeup in manufacturing, Rust Belt states have largely balanced their books. The red ink in Ontario stems from bad policy, and there are lessons to be learned from the Rust Belt,” Clemens said.

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