Martin Regg Cohn: Ontario’s PC government has changed its tune on hiking our debt. Don’t expect the same on raising taxes

It took a Progressive Conservative government and a pandemic to push Ontario’s debt beyond $400 billion.

Now it’s barrelling toward $500 billion, which translates into half a trillion dollars — plus or minus. That adds up to the biggest debt for any “subsovereign” entity on the planet.

Is our province in over its proverbial head?

Finance Minister Rod Phillips shakes his head: “No.”

Not to worry, Phillips says reassuringly in the middle of the cavernous Toronto Star newsroom, now nearly empty in mid-pandemic. He is and the newspaper’s senior leadership, and he is on the spot — even if socially distanced.

In opposition, his Tories pointed accusing fingers over Ontario’s rising repayment burden. Now, in power, their fingerprints are all over that debt.

It can now be said that the Tories are doing the right thing — not the right wing thing. Borrowing big is risky, but doing less would be reckless.

At what point does Ontario’s debt load reach the point of no return?

The rate of return for the province’s infrastructure investments has never been higher, because : 1.6 per cent a year, according to his . Phillips is correct that in the worst of times, there has never been a better time to borrow — and lock in for the long term.

Ontario is not an over-leveraged private firm, nor an overstretched household. The province is deeply diversified, endowed with valuable natural resources, rich human resources and unrivalled competitive advantages — geographic and governmental.

True, the province is not a nation. Hence the old bugaboo about our so-called “subsovereign” status, about which it is often said that we have borrowed more money than any comparable subnational jurisdiction on earth.

But what does that mean in the real world?

Yes, Ontario is uniquely indebted. But it is also uniquely endowed and uniquely positioned — a province unlike any other, by virtue of its population but also its economic heft and industrial base. Other provinces have not been so lucky of late, running out of runway when investors balked at their public debt offerings.

Hence the recurring spectre of the debt wall that haunts every government, not least the NDP government of the early 1990s: What if Wall Street or Bay Street stops buying our bonds because they deem our debt not a good bet?

A provincial treasurer cannot allow himself to discuss such delicate matters in public, so Phillips opts for discretion over speculation. Suffice to say there are countless reasons that the bond markets cannot now resist buying a half-trillion dollars in Ontario debt.

Perhaps the real answer is that no other jurisdiction fits our subsovereign description, both in terms of debt obligations but also governing obligations. American states are restricted in their borrowings, which is why our province is more indebted than any of them, and thus different by definition.

American governments also have less onerous responsibilities, notably in health care — OHIP delivers universal coverage that no U.S. state offers, yielding savings to employers who aren’t saddled with costly private health plans. Comparing us to overseas jurisdictions is equally pointless because we are incomparably well situated, given our proximity to American markets and a stable currency.

There’s another reason bond markets and credit rating agencies like Ontario’s debt, but which the finance minister is also loath to discuss publicly. Just as it’s too risky for Phillips to rattle the bond markets over our debt, it’s also too dangerous for him to discuss dreaded tax increases.

The reason our debt keeps ballooning is that our taxes aren’t keeping pace. Put another way, the better way to get a grip on our spiralling debt isn’t to cut spending on services — already the lowest per capita in Canada — but raise taxes to catch up with other provinces, such as Quebec.

The question is not merely ideological but fiscal. Credit rating agencies can see for themselves that Ontario has a strong tax base to bail itself out — if not now, later; if not mid-pandemic, perhaps post-pandemic.

Ontarians will eventually have to level with themselves about the delusion that we can continue to pay low taxes and low hydro rates while bankrolling rising costs and growing investments that keep us competitive. Perhaps that’s why Phillips has quietly ignored his party’s pledge in the last election to lower hydro rates by a further 12 per cent.

Promise made, promise kept — on hold.

As it is, the treasury is already bleeding billions of dollars to pay for hydro subsidies dreamed up by the last Liberal government to ratchet down costs for ratepayers on the backs of taxpayers (egged on by the Tories in opposition, echoed by the NDP). In this month’s budget, Phillips opted to lower hydro rates further — but only for commercial customers, not for ordinary taxpayers who will be footing the bill.

The finance minister is betting lower electricity costs will attract more industrial investment, which in turn broadens the rate base. But taking on yet more debt to pay endless electricity bills is a gamble.

Phillips has a sleight of hand up his sleeve. He is not only borrowing other people’s money in record quantities, he is also spending other people’s money in vast quantities — courtesy of federal cash flow that has reached record heights.

Ontario still won’t say how much, but it’s a question I put to the finance department on budget day, and again Friday to Phillips in the Toronto Star newsroom. As ever, he pledged full transparency.

Promise made, promise kept — on hold. We’ll keep asking.

Martin Regg Cohn is a Toronto-based columnist covering Ontario politics for the Star. Follow him on Twitter: