It’s now widely known that Ontario faces substantial fiscal challenges. With a forecasted budget deficit this year of more than $14 billion and a debt-to-GDP ratio hovering near an all-time high, Ontario’s debt burden is one of the most important problems facing the province. Indeed, Premier Ford identified the deficit as one of his government’s three most important goals for the new year.

And action is long overdue. Ontario’s government already spends more than $1 billion every month on debt interest—money unavailable for other important purposes. Due to continued debt accumulation and rising interest rates, that amount is forecasted to increase more than one-third over the next four years unless policy changes are made.

How did things get so bad? To begin answering this question we must go back in time nearly 30 years to the recession Ontario of the early-1990s. The government of the day under Premier Bob Rae chose to tackle the recession through fiscal stimulus, cranking up spending as government revenue was contracting, leading to big budget deficits and rapid run-up in debt.

Then, in the middle of the 1990s, Ontario went through meaningful fiscal consolidations under Premier Mike Harris, which slowed the pace of nominal debt accumulation and caused the provincial debt-to-GDP ratio, a key indicator of the sustainability of government debt levels, to start falling.

The province ran up so much debt in the early 1990s, however, that when the next recession struck in 2008/09, the province went in with a much higher level of debt than in the early-’90s. The government of the day under Dalton McGuinty chose a similar fiscal strategy as Premier Rae, substantially ramping up provincial spending, contributing to rapid increases in the budget deficit. Ontario’s debt load climbed up to approximately 40 per cent of the size of the overall economy, higher than it had been under Premier Rae.

Unlike the debt run-up of the early 1990s though, the run-up following 2008/09 was not followed by a sufficient fiscal consolidation to essentially stop debt accumulation and start the debt-to-GDP trajectory on a downward trajectory. Instead, the province has continued to rack up debt and has essentially seen no progress on its debt-to-GDP ratio.

As a result, if Ontario goes into recession again any time soon, the province will enter the recession with much more debt than in 2008/09—the result would almost certainly be that , once again, Ontario’s debt-to-GDP ratio would climb up even more, reaching new historic highs and placing a larger burden on taxpayers now and in the future in the form of increased debt interest payments.

In short, rapid run-ups in the debt-to-GDP ratio during recessions, which have not been offset by commensurate reductions during brighter periods of the business cycle, have characterized Ontario’s recent fiscal history.

As a result, Ontario’s debt trajectory has been decidedly upward. Ten years removed from the 2008/09 recession, the province has made no progress in reducing its debt-to-GDP ratio, and with some warning signs of a potential global economic slowdown on the horizon, this problematic pattern may continue unless the Ford government makes good on its promise to address the problem with real solutions.