The Ontario government
delivered its Fall 2018 Economic Statement and the end result was not as dire
as anticipated. From a revised deficit
of $15 billion dollars just weeks ago, the Ford government has now brought
the deficit down to $14.5 billion – not the fiscal Armageddon many would have
expected. Indeed, some might argue that
the fiscal statement was positively underwhelming given that there was not as
significant a dent in the deficit as the rhetoric suggested, there was no
timetable for balancing the budget, nothing about how to deal with a large net
debt and the fact that the net debt is now $347 – up from an amount that was itself revised upwards to $338 billion from $323 billion only a
few weeks ago.
Part of what is
happening here is that the provincial government is facing a much larger fiscal
challenge than it probably even itself realized. The Ford government has promised to tackle
the deficit and restore Ontario’s public finances. It also wants to enact more tax relief (for example the LIFT credit for lower income workers) and
wants to spend money on the promises it made – including infrastructure such as
long term care beds. At the same time,
Ontario’s economy is expected to slow – eroding revenue growth – while interest
rates are creeping upwards adding to debt service costs.
So, moving from its
financial commission review 11 weeks ago, revenues are now projected to be $2.7
billion dollars lower going from $150.9 to $148.2 billion. This is the result of the cancellation of cap
and trade – which for 2018-19 is a $1.5 billion revenue hit – as well as a
projected slowdown in land transfer tax and corporate income tax revenue. This is accompanied by a decline in spending
by $3.1 billion as expenditures go from $165.8 to $162.8 billion with much of this involving cancellation of previous government initiatives. As a result of spending dropping just a bit
more than revenue, the deficit is reduced $500 million from $15 to $14.5 billion.
A glance at spending
by ministry showed that most ministry functions are still up from 2017-18, including
health and education. Ministries that
are seeing drops include the Attorney General, Economic Development, Government
and Consumer Services, Indigenous Affairs, Municipal Affairs and Housing and
Tourism. There does not appear to have
been a major hit to any of the major transfer partners. Infrastructure spending also is still on
track and may be a factor in the increase in the estimate of the net debt to
$347 billion.
So, the long and short
of it is that this is really a place holder fiscal statement. There is really no significant dent in the
deficit, no time table for balancing the budget and the net debt is higher than
what was projected just 11 weeks ago. If
the Ford Government is sincere about reducing the deficit, it probably needs
more time to develop and implement a strategy that "will require difficult decisions" and will tackle it in the
spring 2019 budget. Until then, we wait.