Ontario’s Finances: A Quick Review of the November 6th Fiscal Statement

The 2019 Ontario Fall Economic and Fiscal statement was delivered by finance minister Rod Phillips today and the basic message is that the deficit is down from the 2019 budget projection but spending on government priorities is up - notably in health and education.  Compared to last spring, this is a “good news” statement and the outcome of a process of retreat that has marked the Ford Government over the last six months given the outcry from a number of directions that restored among other things, funding for autism programs and a new French language university. 

Revenue growth is greater than anticipated, given Ontario’s booming economy and this has allowed for a smaller deficit as well as more spending.  The deficit is now projected to be $9 billion which is down from the original budget estimate of $10.3 billion – but based on interim numbers had already come down to $9.3 billion. 

Based on the interim numbers since the budget, spending is up from $163.4 billion to $164.8 billion (which incidentally includes a $1 billion reserve) billion but revenues are up $154.2 billion to $155.761 billion.  Revenues are basically about $1.5 billion dollars more than anticipated while total spending including the reserve has gone up by about $1.4 billion.  So, the deficit is lower than what was both in the budget and in the interim update but at $9 billion, it is still the largest deficit since 2014-15 when it stood at $11.268 billion.  Moreover, it is expected to decline to $6.7 billion in 2020-21 and $5.4 billion by 2021-22. As a result, the net debt will rise though the net debt to GDP ratio will stay flat at about 40 percent.  Nevertheless, the net debt but is expected to be $353.7 billion – up from $338.5 billion in 2018-19.

So, based on the 2018-19 numbers, by 2021-22, revenues will have grown by $11.7 billion – an increase of 7.6 percent - while total expenditures will grow by $9.7 billion – an increase of 6 percent.  So, the plan is essentially to slow expenditure growth and wait for revenues to catch up which is a traditional approach used by Ontario governments before this one.  Revenues in 2019-20 are definitely up with CIT revenue $936 million higher and PIT $525 million higher than anticipated.  As well, if the government holds the line on further spending, the reserve will likely be applied to the bottom line allowing the 2019-20 deficit to come in at closer to $8 billion. 

Nevertheless, despite all the cries of austerity, it would appear that its business as usual in Ontario given the “grow your way out of deficits” approach that is being used – again.

 

Ontario 2018 Economic Outlook and Fiscal Review: Commentary

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.