Finance Minister Bethlenfalvy released Ontario’s fall 2023 fiscal and economic update and a perusal of the numbers tells a number of stories. First, the province is expecting the economy to slow down with consequent effects on its revenues though the current outlook for the current fiscal year 2023-24 shows tax revenues up just over 3 percent while 2024-25 and 2025-26 are currently projected at growth of 3.3 and 6.1 percent respectively. Indeed, the period from 2022-23 to 2024-26 is expecting to see total revenues up 14 percent. Over the same period total program spending is expected to rise by 8.5 percent, debt interest by 22.6 percent and total expenditure will be up by 9.4 percent.
Thus, revenues are projected to grow faster than expenditures but the gap between revenues and expenditures will persist until 2025-26 when a small surplus of 500 million dollars is forecast. However, given spending that year includes a reserve of $2 billion set aside, it is likely the surplus that year will be much bigger. An economic slowdown notwithstanding, the province appears to want to keep a deficit on the books for as long as possible no doubt in part as a cautionary measure given economic uncertainty but also to quell demands for more public spending. And as for economic uncertainty, employment is expected to grow each year until 2026 and the unemployment rate at its highest will reach 6.6 percent before declining to 5.8 percent by 2026. Hardly the recessions and downturns of yesteryear.
However, two items did catch my eye. First, for 2023-24, the net public debt is expected to take a bit of a leap to $416 billion. From 2018-19 to 2023-24, the net debt will have grown from $338 billion to $416 billion, an increase of 78 billion dollars or 23 percent. However, deficits over that same period only sum to $42 billion. In other words, an amount over and above the sum of accumulated deficits of $36 billion has been added to the net debt. While this is of course likely the result of current government accounting practices that book capital and infrastructure expenditures separately from the operating expenditures, it is nevertheless a sizeable increase to see.
More seriously, is the following. If one takes past, current, and projected nominal GDP for Ontario, factors in inflation using the CPI as well as assumes population growth going forward at the medium Finance Ministry scenario of 250,000 people a year (about 1.7 percent), one gets a picture of real per capita GDP in Ontario that suggests that by 2025, real per capita GDP will be no higher than it was in 2017. If one looks at the accompanying figure, despite ebbs and flows (with a particularly large ones circa the pandemic) as well as the early 1990s) real per capita GDP growth has been noticeably slower since about 2000. The average annual growth rate in real per capita GDP from 1960 to 1999 averaged 2.1 percent while from 2000 to what is projected by 2025 the growth rate is 0.5 percent.
You can blame some of this on population growing more
quickly over the last few years, but the real culprit is that productivity
growth in Ontario is lack lustre. The long-term
effects of productivity decline have begun to manifest themselves in our
standard of living. Real per capita GDP
in 2022 in $2020 is $64,170. If since
2000, real per capita GDP had grown at the average annual rate from 1960 to
1999, in 2022 it would be about $86,000 – that is a difference in output of
nearly $22,000 per Ontarian. It is not
apparent that this stark difference has sunk in yet across political and policy
circles in Ontario. We have foregone a lot of output given our productivity decline and in the absence of a shift, that amount will only continue to grow.