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.