Interactive: Provincial deficits and debt

Why Alberta and Ontario have the highest probability of defaulting in the next 30 years

(Frank Gunn/CP)

Saskatchewan Finance Minister Ken Krawetz presents the province’s 2013-2014 budget tomorrow — and he’ll be the only one among his counterparts to inaugurate the new fiscal year with a surplus. Everywhere else it’s red ink, as lower-than-expected revenues have added resource-rich provinces like Alberta and Newfoundland to the list of long-time big spenders such as Ontario and Quebec. As Maclean’s argues in our guide to the federal budget, the state of provincial coffers matters just as much as that of Ottawa’s finances. Excessive government debt will stifle economic growth regardless of whether its stashed in local or central government balance sheets and if a province’s fiscal situation should become unsustainable — although that’s not in the cards in the near future — it’ll likely be up to federal government to foot the bill for a bailout.

That’s why we’ve created this interactive graphic of provincial balance sheets. As you can see, although Alberta was the worst offender in terms of the discrepancy between how big the government predicted the deficit was going to be in fiscal 2013 ($882 million) and how big it expects it to be now ($3.9 billion), it is still the only province without net debt (that is the accumulated total of annual deficits, which, in turn, result from the government spending more than it generates in revenues every year). Conversely, Ontario, which has by far the largest deficit and debt, managed at least to keep its fiscal shortfall below what it said it would be in its 2012 budget, at nearly $12 billion rather than nearly $15 billion). Canada’s most populous province also looks in considerably better shape than Quebec when one looks at debt-to-GDP ratios, a gauge of how sustainable the fiscal burden is.

How can it be then that Alberta features as the province with the highest probability of defaulting in 30 years and Quebec as the least likely? The numbers are based on a forecast from Marc Joffe, a former senior director at Moody’s Analytics, who looked at long-term provincial fiscal trends in a paper for the MacDonald-Laurier Institute. He figures Alberta has been running large deficits, is vulnerable to price swings in the commodities markets (like, hmmm, this year) and has a population that’ll age more rapidly than in other provinces. Quebec, by contrast, is fairly immune to resource-price volatility and its senior ranks are relatively small. That said, such long-term forecasts are rarely accurate — still, the trends Joffe highlights are  food for thought.

INSTRUCTIONS:

Hover over each province to view more information. Click on “exclude” in the pop-up windows to view a graphic without a certain province (you might wish to view the deficit forecast chart without Ontario, for example, whose fiscal shortfall is so large it dwarfs everyone else’s). Conversely, “keep only” allows you to isolate data for a single province. Click the circular arrow at the bottom of the two chart groups to refresh.

MAP: You can zoom-in by double-clicking on the map. To grab and move the map, press SHIFT and click. Click on the “home” symbol to restore the original settings.

Have fun!

This interactive graphic is best viewed in Firefox, Safari or Chrome.


*Note: Deficit and debt numbers are based on the latest available data and might not be strictly comparable due to accounting and reporting differences between provinces. Default risk forecasts are from “Provincial Solvency and Federal Obligations,” Marc Joffe, MacDonald-Laurier Institute, October 2012.

 




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Interactive: Provincial deficits and debt

  1. The risk of default in 30 years chart is garbage data. It has Alberta with an 84% chance of defaulting on it’s debt of….$9B net positive? Did they just assume each province’s debt was going to grow at the 2012-2013 deficit delta rate for 30 years?

  2. Curious, but how does excessive government debt stifle economic growth?

    Do business owners look at the government’s books and go, “Oh man.. the government here owes billions. Obviously this’d be a lousy place for a donut shop..”

    • One short answer: if public debt becomes too big compared to the size of the economy, the government starts to crowd out private borrowers and too much of the available capital goes to bankrolling the fiscal shortfall rather than financing business investment

      • So basically a level of debt so high that the gov’t has to provide bond rates comparable to market rates?

        Or in other words, so absolutely far away from reality in Canada today that speaking of it is simply scaremongering?

        • The other short answer is that government debt can exceed the ability of the people to pay the debt via taxes. (See: Greece, Portugal, Spain, Cyprus, etc.) This happens when governments attempt to reduce spending on what are seen as entitlements when tax increases fail to generate increases in revenue.
          High debt does not necessarily equal high taxes now, but it does equal high taxes at some point in the future. High taxes mean reduced net returns, and everyone can move to where their tax burden is lowest. A guy making $25/hr and paying net 25% tax is almost $1200/year ahead of the guy making $28/hr at 35% net tax rate. This goes for business, too. Over-taxation stifles business development and growth, and like everything else, the price of government has an upper limit. Just as people will only pay “X” amount of dollars for a given product, they will only pay “X” amount of their hard-earned dollars for government. Try and tax past a certain point, and revenues will actually fall, as California has painfully learned recently.
          By raising taxes on “the wealthy” past a certain point, the state has seen a dramatic drop in net tax receipts from the very income group they were hoping would provide billions.
          Meanwhile, in Alberta where personal income taxes are low, per capita income tax receipts are the highest in the nation. Anyone with half a brain knows a hard-core marketing principle- If the price is too low, you’re leaving money on the table. But, if the price is too high, you won’t sell anything. The problem is that there are more mating pairs of Bigfoot in Clearwater County than there are people in all the governments in all the land who grasp that pricing government too high will lead to a drop in government revenue.
          Every. Single. Time.

          • “High debt does not necessarily equal high taxes now, but it does equal high taxes at some point in the future.”

            So your argument is that when the CPC says they can grow us out of the debt without raising taxes, they’re lying to us?

          • Quite frankly, yes. The Conservatives, instead of taking the intellectual, moral, and factually based high ground in 2008 and 2009, instead yielded to the push for more government spending in the face of falling revenues. The biggest push for that came from the very people who now criticize the feds for running up a debt that they pushed them to run up.
            Show me someone who still believes in Keynesian theory, and I’ll show you someone who knows most of the numbers up to 54, and has memorized at least 22 or 23 letters of the alphabet.
            Had they cut back dramatically on spending, and reduced personal taxes accordingly, we’d all be better off.

    • The money the government spends on debt interest comes from taxpayers, and the increased tax burden on taxpayers will stifle economic growth.

      • So you too think that the CPC is lying when they say our economy can grow us out of deficit without raising taxes. Gotcha.

    • It allows government to spend money on things that are not supportable by the economy. Sometimes the economy grows to match costs, but most times it ends up in either a political situation or fiscal pressure where borrowing at those levels is untenable and we end up in situations like the 90′s.

      The political will required to bring the fiscal situation into balance is non existent, governments can get elected by promising something for nothing. The only thing that straightens things out is a fiscal crisis of some sort.

      And yes the Conservatives were blithering idiots to deficit spend. The response from almost everyone, in Europe, Asia, the US, was to spend huge amounts of borrowed money in an attempt to get the economy back as it was pre 2008. It didn’t work and we are seeing fiscal tightening.

  3. 30 years?? Because nothing will change in 30 years??

    Can’t make forecasts like that anymore.

    You know, at one point Mulroney said ‘the debt is eating us alive’ and that ‘what we needed to do is outgrow it.’

    And so he signed the FTA, which in turn became NAFTA

    We ended up with no deficit, in fact we had a surplus….and we were paying down the debt at a great rate…..but most importantly, we were growing.

    Harp/Nero could do the same thing if he’d stop farting about with petty cutbacks like the census, and research stations and the gun registry etc

    And he’s got a far better chance than Mulroney did….the EU, China, India……!

    • How quickly we forget.paul Martin under the liberals reduced the deficit and actually created surpluses paying down the debt.when the conservatives got back in we got back into deficit budgets once again and of course increasing debt

      • Yeah…best FinMin we ever had.

        Then we got HarpCo

  4. Great interactive graphic. I can easy follow Ontario’s economy and its Liberal debt right into the toilet.

  5. I guess people cant complain about newfoundland anymore, they have one of the best credits in canada!!

  6. Interestinlgy, the provinces with little immigration have the highest credit ratings, after the west coast!

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