Northern Economist 2.0

Showing posts with label ontario. Show all posts
Showing posts with label ontario. Show all posts

Thursday, 23 May 2019

The Big Challenges Addressing Ontario’s Deficit & Debt Problem

The last couple of days have seen two reports – one by Statistics Canada and one by the Ontario Financial Accountability Office – which taken together provide the best picture yet as to why Ontario faces a big fiscal challenge in resolving its deficit and debt issues.  First, the Financial Accountability Office (FAO) in its Spring 2019 Economic and Budget Outlook under its baseline projection projects that Ontario’s budget deficit decreases from $11.7 billion in 2018-19 to $7.3 billion in 2020-21 and improves rapidly over the following three years, reaching balance in 2022-23 and a relatively large surplus of $6.4 billion by 2023-24.  

Yet, the FAO notes that the 2019 Ontario Budget projects smaller deficits over the next two years due to the government’s more optimistic outlook for revenue growth.  However, beginning in 2021-22, the 2019 budget incorporates provisions for unannounced revenue reductions and spending measures. This would lead to higher deficits and add to Ontario’s debt. The Province should still achieve a balanced budget by 2023-24, due to its plan to significantly restrain the growth in program spending.  The 2019 budget will see program spending grow at just 1 percent annually over the next five years bringing per capita government spending from $10,494 in 2018-19 to $9,391 – a decrease of 10.5 percent.  Per capita government spending in Ontario is already the lowest in the country and this additional decline would widen the gap even more.

So why is Ontario unable to provide provincial government program spending closer to the national average? The answer to that lies in another report by Statistics Canada titled Income Growth per Capita in the Provinces since 1950 which examines GDP per capita and real GDI per capita over a 66-year period to provide insight on which provinces experienced the most growth over the course of this period, and how this affected per capita income levels across provinces.  The news for Ontario is pretty grim in terms of economic growth rates.  Whereas in 1950, Ontario had the highest GDP per capita of the ten provinces – followed by British Columbia and Alberta – by 2016 it was down to 4thplace with Alberta, Saskatchewan and Newfoundland and Labrador in the top three positions.  More startling is the growth rate of per capita income – which places Ontario at the bottom of all the provinces over this period (See figure).

So, Ontario in a sense over the last 50 years has spent beyond its means in an effort to keep up with the other provinces in terms of the provision of public services but that has still not been enough.  It now has the lowest per capita spending of the ten provinces, the largest provincial total public debt, the second highest per capita public debt, and is engaged in an effort to balance its budget which will widen the program spending gap further with the other provinces.  Now some may point to the factor here as a revenue problem driven by the unwillingness of Ontario to raise taxes.  Ontario indeed has the lowest total revenue per capita among the ten provinces but it has the third highest per capita tax revenue – after Quebec and Newfoundland.  Ontario’s relatively higher per capita tax revenue is offset by lower revenues from resource royalties, federal transfers as well as all other revenues when compared to other provinces.  No, it is not a tax revenue problem.

The problem is three-fold: First, Ontario has had a weaker economic growth rate relative to the other provinces and needs to boost its productivity and economy to grow faster thereby expanding its tax base.  Second, Ontario has not had has a resource sector boom that has enabled provinces like Alberta and Saskatchewan to leap ahead in terms of income and ultimately government spending and nor is it likely to get one from northern Ontario resources anytime soon given the slow pace of development.  Third, as a result of its strong tax base - all things considered – Ontario is still a source of federal government revenue and ultimately transfers to other parts of the country which allow those regions to maintain a higher level of spending.  While balancing the budget by 2022-23 will resolve Ontario’s fiscal situation, it remains that the long-term pressures driving its fiscal imbalance are still there.  

Wednesday, 1 May 2019

Thunder Bay's Municipal Tax-Ratio Challenge

One of the items at the Monday April 29th Thunder Bay City Council meeting was a discussion on tax policy and a move to bring it more in line with provincial requirements.  Namely, the province has property tax ratio thresholds and in order to meet them there needed to be a reduction in non-residential tax ratios as follows: Industrial ratio from 2.925444 to 2.63, Multi-residential from 2.422438 to 2.0, and Commercial from 2.137932 to 1.98.  This has been a process that has been underway since 1998 and partly as a result the share of the tax levy paid by residential ratepayers has been rising over time while that of non-residential has been declining. 

In Thunder Bay at present, nearly two-thirds of the tax levy is borne by residential ratepayers while the other third is non-residential or essentially business property taxation. In 1990, it was about a 50/50 split. It should be noted that the City of Thunder Bay’s financial statements now report taxation revenue without dividing it into residential and non-residential as used to be the case only a few years ago.  To get that information, one now has to go onto the government of Ontario website and access the Financial Information Returns provided by municipalities which can be quite a daunting task.  This lack of transparency on the part of the City of Thunder Bay in reporting these important numbers more directly is a disappointment.

Of course, municipal public finance can be a pretty arcane and complex issue– even for an economist - and the discussion the other evening was actually more spirited and informative than usual, all other things given.  Administration affirmed that the tax levy this year would remain the same and the changes to the residential burden would be phased in but in the end based on the short segment I observed they did not successfully allay the concerns of councilors that residential taxes could rise even if the tax levy stayed the same.  Indeed, the emphasis that the tax levy is going to remain the same this year did not deal with the concern that taxes for residential will rise more than they otherwise might in future.  How can this be?

Friday, 26 April 2019

Ontario Budget 2019: Some Spending Details

Well, the dust is settling from the April 11th 2019 Ontario provincial government budget and it is time to spend a little more time looking at some of the details in spending.  There are many stories in the media about assorted cuts coming down the pipeline, but it remains that overall spending is up and projected to continue rising though at a much lower rate.  Indeed, as discussed in my previous post, total spending is expected to rise from $162.5 billion in 2018/19 to reach $164.4 billion representing an overall increase in spending of 0.6 percent. This of course is a much lower growth rate in spending than was the case under the previous government.

What is more interesting is what a more detailed analysis by ministry expense category reveals.  Approximately two-thirds of ministry expense categories are expected to decrease while one-third have actually experienced an increase. Table 1 lists the ministry expenses by ranked percentage increases whereas Table 2 does it by ranked expenditure decreases. Increases in spending range from 550 percent for the Treasury Board Secretariat Capital Contingency Fund to 0.5 percent for the Training, Colleges and University Base Budget. Despite what may seem to be very large increases for the Treasury Board Secretariat they are on amounts that represent less than one percent of total spending. With respect to the Treasury Board Secretariat, the government also notes that: “The Province has put in place a prudent Operating and Capital Contingency Fund housed in the Treasury Board Secretariat. This fund is the main driver of the increase in the Ministry’s 2019–20 budget, in addition to an increase in employee pension benefits paid.” (Ontario 2019 Budget, p. 298).  Other increase of note also include Infrastructure (Base) (261%), Total Transportation (10.9 %) and Interest on the Debt (6.4%).

It should be noted that Health and Long-Term Care and Education (Primary & Secondary) together represent in 2019/20 a total of $95 billion or about 60 percent of the spending total.  While there are changes within both these categories underway designed to create efficiencies it remains that Education is going to grow by 2.6 percent and Health by 2.2 percent.  It is fairly simply math to realize that if categories representing 60 percent of government spending are going to grow by over 2 percent when total spending is growing by 0.6 percent, then there are going to have to be reductions in many other categories which account for the other 40 percent of spending.

Here the list is much larger (therefore two tables) and some of the percentage increases also larger.  Reductions range from -0.4 percent for the base budget of Municipal Affairs and Housing to -67.1 percent for Natural Resources and Forestry Emergency Forest Fire Fighting.  However, the total budget for Natural Resources and Forestry is declining by -19 percent while the base budget is declining by -3.2 percent.  While the Total Budget for Training, Colleges and Universities is declining by -6.1 percent, its base budget is actually growing by 0.5 percent while the student assistance component is declining by -33 percent.

To its credit, the provincial government has embarked on what appears to be a pretty substantial review and restructuring of government spending in all categories.  Within expenditure categories it is choosing what to increase – albeit at a lower rate than in the past – and what to substantially reduce.  Some categories have been hit immediately with some large reductions.  Some of these reductions include the winding up of one-time funding and therefore appear quite large for the coming year which is why a comparison of base budget rather than overall totals might be more appropriate.  However, the ultimate aim appears to be a substantial restructuring with priorities being selected.  It would appear the priority is to deal with the province’s fiscal situation while ensuring that overall budgetary cuts do not occur particularly in the key areas of health and education.  Indeed, all things considered, the transfer partners in the municipalities, universities, schools and hospital sectors (MUSH) have gotten off relatively lightly.  This naturally means larger declines in the remaining 40 percent of government spending. It cannot realistically be otherwise.

Thursday, 7 February 2019

Regional Employment Update: Ontario Regions and the North

Ontario’s economy has increasingly become a tale of two regions – the GTA and everyone else.  It is worth doing a quick review and update of regional employment numbers (data from Statistics Canada) that provide some additional insight on the past and the most recent distribution of regional employment.  In 2001, employment in Ontario was 5.921 million jobs and over the period 2001 to 2018 it rose by 22 percent to reach 7.242 million jobs.  Figure 1 plots the growth rate of Ontario employment as well as for the five major regions from 2001 to 2018 as well as for the sub-periods of 2001 to 2010 and 2010 to 2018. 

In terms of overall growth rates, employment expanded the most in the GTA, which saw an increase between 2001 and 2018 of nearly 32 percent.  Indeed, the GTA’s share of Ontario employment during this period went from 45 percent to 48 percent.  The next largest increase was for the area immediately adjacent to the GTA – central Ontario - comprising of Muskoka and the Kawarthas, Kitchener-Waterloo-Barrie and Hamilton Niagara.  It saw growth of nearly 23 percent in employment and its share of Ontario’s employment remained constant at about 23 percent of the total between 2001 and 2018.

The next highest growth rates were for Eastern Ontario and the Southwest respectively at 17 and 5 percent each.  However, this employment growth was not enough for both of these regions to hold their own in terms of employment shares.  While Eastern Ontario maintained its 13 percent share of total employment between 2001 and 2018, the Southwest saw a decline from 13 to 11 percent.   


And then there is the north which saw employment drop by 1 percent between 2001 and 2018 from 358,000 to 354,000 and its employment share of the provincial total drop from 6 percent to 5 percent.  Of course, this trend is nothing new, but such an update is another reminder that despite a plethora of studies and government pronouncements over time - including the Northern Ontario Growth plan -  there has not been a reversal of northern Ontario’s economic fortunes.  Figures 2 and 3 break employment over time in the Northeast and the Northwest.  The Northeast reached its peak employment circa 2008 and has since generally trended down.  The Northwest peaked in 2003 and has trended down since though there has been a slight rebound since 2015.

And there you have it - again.

Thursday, 15 November 2018

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.

Friday, 29 June 2018

New Ontario Government and Cabinet Sworn In

Ontario now has a new provincial government with Doug Ford sworn in as Premier this morning and a new trimmed down cabinet of 20 members.  It would appear that Premier Ford has decided to make good use of the talent on his team and embrace a team of rivals approach to his cabinet with key positions for those he ran against to gain the party leadership.  First and foremost, Christine Elliot is Deputy Premier and in charge of the important health portfolio.  Caroline Mulroney is Attorney General and interim leader Vic Fedeli is in charge of the Finance portfolio.  This is certainly an astute set of choices and bodes well for what will be a large set of challenges not the least of which will include dealing with the province’s finances.  

And contrary to what might have been feared as a lack of interest in post-secondary issues, Premier Ford has not merged Training, Colleges and Universities with Education but instead given it its own minister – Merrilee Fullerton – who has a background as a physician.  Also keep an eye on Monte McNaughton in the vital infrastructure portfolio.  Interestingly, Premier Ford will also be Ontario’s federal diplomat in chief given that he is retaining the intergovernmental affairs portfolio for himself.  He will be directly making Ontario’s case when it comes to transfer payments and working with the federal government.

In terms of northern Ontario representation in cabinet, we are well represented with two northern Ontario members.  Kenora’s Greg Rickford is in charge of the all important energy portfolio as well as northern and indigenous affairs with his appointment as Minister of Energy, Northern Development and Mines, and Minister of Indigenous Affairs.  This is alot and will be hard work but will give him the scope to be a key player in northern Ontario energy, resource and economic issues given the importance of First Nations in developing the Ring of Fire.  And of course, there is Vic Fedeli from North Bay who probably has the most important and challenging job dealing with the province’s finances.  Personally, I cannot think of a better person for the job given his years of work and interest on provincial finance matters.

So, there you have it.  We have been sent a new government.  Once again, the drama begins.

Friday, 8 June 2018

Ontario: The Road Ahead

Ontario has elected a new majority government and Doug Ford is Premier Designate of Ontario.  In the end, Ontario voters have voted out the Liberals and opted for a major change in government.  Congratulations to Mr. Ford and his team on their election victory and a thank you to all candidates in this election who chose to run and campaign.  Political life is a challenge and one cannot say enough about how important it is to have people willing to run for office and serve the public interest.  In the end, any democracy is only as effective as the people who are willing to participate whether as candidates or voters.

It is the day after and as of this morning the PCs hold 76 seats with 40.6 percent of the popular vote. Their share of the popular vote was in the end higher than the polls predicted.  The NDP hold 40 seats with 33.7 percent of the popular vote and the Liberals are down to 7 seats with 19.3 percent of the popular vote.  The Liberal collapse has reduced them to virtual islands of support - three seats in the GTA, three in Ottawa and 1 in northern Ontario.  The Green Party has also managed a positive showing electing 1 – their leader – in Guelph with 4.6 percent of the vote.  It is a majority government and for those concerned about uncertainty, a minority government would have created more uncertainty than a majority government.  Any concerns about uncertainty with respect to policy direction are now entirely in the hands of the new elected government.

With respect to northern Ontario, the region has diverse representation that includes members of the governing party as well as opposition voices to air issues and concerns.  The elected PC members are also spread across the north and include Greg Rickford (Kenora-Rainy River), Vic Fedeli (Nipissing), Norm Miller (Parry Sound-Muskoka) and Ross Romano (Sault Ste. Marie).  As mentioned in an earlier post, these are good and effective members of the incoming team with proven talent and the north will be well served by them.  Indeed, there is also cabinet material among them. Vic Fedeli is in my opinion a leading candidate for the finance portfolio while Norm Miller and Gred Rickford would make good ministers in portfolios such as northern development, natural resources and transportation.

In terms of the road ahead, the next few weeks will provide some indication of what the actual direction of the new government will be.  While many have criticized the lack of specifics of the PC campaign, it should also be noted that as a campaign strategy, presenting fewer targets for criticism can also be effective.  However, the campaign is over, and after the new government and cabinet is sworn in one can expect quick movement on a few high-profile platform items such as immediate lowering of the gasoline tax in order to demonstrate action on promises made.  However, longer term action will require more methodical work not least of which will be a budget and direction on the province's finances. 

With respect to the province's finances, as a start, I would suggest an expenditure growth target of 2+1 (2% inflation and 1% population growth) which would allow provincial expenditures to grow slower than historical revenue growth rates thus bringing the budget into balance sooner rather than later.  I would also urge  the establishment of a new independent capital expenditure review process to help better assess the approval of the capital projects which have been adding to the provincial debt.  I of course as always have a few other ideas and they are available here in more detailed format. I am also looking forward to how things are going to shape up also when it comes to initiatives for northern economic development.

So, there you have it.  The election is over and there will now be a few days in which to reflect on what has happened and why, but ultimately there is a province to run and a northern Ontario economy to build.  We have been sent a new government and despite the slings and arrows and acrimony of any election campaign, hope is always greatest at the outset of any new government’s mandate.  While there are concerns about the new government being a “wild ride”, one should always remember that as important as a party leader is, under our system of government the premier is in the end simply first among equals. 

Saturday, 2 June 2018

What Should Northern Ontario Voters Do?

With a few days left before the June 7th provincial election, northern Ontario voters face important choices and consequences.  The governing Liberals appear headed for defeat if one is to believe the evolving poll trackers.  Indeed, Premier Wynne has acknowledged the election is lost.  This means that come June 8th there will be a new government with consequences for the region in terms of public policy.  Public policy is of importance to the region given government’s role in health, education and transportation, the dependence of the region on government employment for economic sustenance and the stalled regional economy, which has seen little net employment growth compared to the rest of the province.

The Liberals have been in power since 2003 and their tenure encompasses the forest sector crisis and the stalled Ring of Fire.  On the one hand, the forest sector crisis was a function of a rising Canadian dollar, aging private pulp mills and increased competition from abroad.  On the other hand, the increase in electricity rates did not help.  As for the Ring of Fire, in the end it is not going anywhere until chromite prices rise no matter how much is spent on infrastructure.  The Liberal government’s short-term response to northern development was increased government spending in the region via assorted projects and initiatives including highway work.   The long-term response was the 25-year northern Ontario growth plan – which it must be noted actually predates the Wynne government.  Interestingly enough, to date the growth plan has not been accompanied by significant results and more to the point, there has been no mention of it during the current campaign.  Make of that what you wish.  However, given Premier Wynne has acknowledged the election is lost, thought must also be given to ensuring the region has some representation in any new government that is formed.

The NDP has surged in the polls since the election was called and their policies in health, pharma care, education, rent control and hydro seem mainly to be extensions of what the Liberals have been campaigning on.  For a region dependent on government job creation, an NDP government would be business as usual but with a more ideological bent away from market-based solutions to the region’s issues.  If one wants to differentiate the two parties when it comes to northern policies, one would have to say a key difference is that the pleasant Andrea Horwath is presently more popular than Kathleen Wynne.  However, when the rest of the team accompanying Horwath is examined more closely one wonders about the depth of talent available to serve in portfolios like northern development, natural resources and health not to mention finance.  Most of her team seems drawn from public sector, labor union, non-profit and social activism sectors.  Even the usually ubiquitous lawyers that dot politics are relatively scarce. Aside from a short–term continuation of government spending, the long-term economic benefits of an NDP government for northern Ontario are uncertain despite the claim of change for the better.

Just as uncertain are what the benefits of a Doug Ford government would be for northern Ontario given the lack of a detailed and  clearly articulated northern platform.  Natural resource revenue sharing has been promised as well as a jump start to the Ring of Fire but as noted earlier, the price of chromite is not going anywhere soon.  If the desire is simply for policy change, that would certainly be provided by a Conservative government more so than by the NDP but that change given traditional conservative values, is likely to not support the current orientation of the region towards public sector dependency.  On the other hand, given that we have been subjected to activist government economic development policies for several decades, it may be time for a different approach.  Moreover, whatever one might think of Doug Ford, it remains that his team would include some proven talent when it comes to northern Ontario – Greg Rickford, Norm Miller and Vic Fedeli come to mind.  Further reflection should also be given to the prospect that based on the distribution of votes, poll trackers are suggesting a high probability of a Doug Ford administration.

So what is a northern Ontario voter to do?  Good question.  Think about the region and its economy and the direction you think it should go.   Think about what the benefits and cost of each party and their policies might be to you and your families and friends.  Then make your decision and go vote.  None of the above is really not an option.  One must make a choice from the options available. On June 8th, the sun will still rise.  The northern Ontario economy will still face challenges and they will need to be tackled no matter who forms the government. That is the only certainty.

Friday, 18 May 2018

Ontario's Political Future: Yours to Discover

Ontario’s election may very well be decided over the next few days as Ontarians pause to take in the long weekend and use it to step back and ruminate over the political future of the province.  One of the most recent polls reveals that the PCs are poised to form a majority government with 40 percent support.  However, what is also interesting is that over the last little while this poll shows that Liberal support has plummeted to 22 percent while NDP support has soared to 35 percent.  All this suggests that there is still a certain amount of volatility amongst the voters as we head into the home stretch of campaigning into the June 7th election.

So, what do Ontarians want?  On the one hand, the recent policy initiatives of the Ontario Liberals are popular across a large swath of Ontarians especially in the larger urban centers.  Investments in transit and infrastructure, the raising of the minimum wage, rent control, more health spending and a general activist government approach to social and economic policy seem to be what many Ontarians want.  Indeed, these policies are much like those the NDP is advocating and if one combines the Liberal and NDP totals it is obvious that 55 percent of Ontarians seem to want some type of centre-left approach to government and the economy.

It seems that many Ontarians want Liberal-NDP type policies but seem tired of having them implemented by the Liberals and particularly by Premier Wynne.  Kathleen Wynne is undoubtedly the most capable of the three leaders in terms of her handling of issues and her analysis and discussion of policy issues.  Yet, she is also quite driven and intensely focused with a sort of self-absorbed messianic zeal that can be interpreted as exclusionary to alternate opinions. The Liberals have been governing since 2003 and Ontarians who like centre-left policies and would like to see a change in government are likely to shift to the NDP – hence the Andrea Horwath-NDP surge.

As for the PCs, their policy platform has been less clear and it is difficult to see if they really are driven by conservative values and policies or are now simply a change party driven by the personality of their leader.  Doug Ford has a much larger appeal than urban elites in the Toronto-Ottawa corridor would have expected and his support is also diverse.  However, to date the policies and changes the PCs might bring to government have not been as clearly articulated as those of the other two leaders.  Much of the campaign is really a populist drive for change with a rhetoric directed at the “little guy” to contrast with perceptions of the Liberals as elitist. 

Put another way, you know what you are going to get if the Liberals form the government – more of the same.  If the NDP form the government, it will be essentially the same policies but more so and with a new leader.  In terms of fiscal management, there will be a very elastic budget constraint for years to come from either the Liberals or the NDP.  Yet it should also be noted that, to date none of the three leaders seem particularly concerned about the state of the province’s finances and one does not see the province’s debt abiding anytime under either Wynne, Horwath or Ford.

If the PCs form the government, it is not so clear what you are getting in terms of policy approaches to social and economic policy as well as fiscal management.  One might assume that as PCs, there will be an emphasis on deregulation or more efficient government but this is not clearly apparent to me.  There have been a number of promised tax cut announcements but this is not the same as a coherent tax reform strategy.  Yet, making it clearer might also coalesce support more strongly around one of the two centre-left options.  At this point, the PCs appeal cuts across a wide socio-economic range and perhaps their strategy is to promise change but not get too specific and split the left.

So, what is an Ontarian to do this long weekend as they think about the province’s future?  It should be to think long and hard about the direction of the province in terms what is the coherent big picture vision of the economy and the province’s finances these three main party leaders are offering.  To date, the campaign has focused on disjointed announcements of spending and programs designed to target key ridings or voter demographics. The money to pay for all of this is not a concern.  Ontarians of course deserve much more than this but are unlikely to get it.  All three leaders seem to believe that elections campaigns are not the time to articulate coherent economic and fiscal visions.

Saturday, 24 March 2018

Big Numbers, The Public Finances and Salary Lists

Well, in what has become almost a form of annual homage to Gilbert and Sullivan, Ontario released its public sector salary list yesterday and there are a lot of "victims" on this year's little list - 131,741 to be precise.  The number has grown steadily since the list was first published in 1996 with 4,576 names on the list and since the $100,000 threshold remains the same without any inflation adjustment, twenty years of salary progression has increased the number of names above the threshold.  Indeed, if you adjust for inflation, the threshold today would be about $150,000 and about 85 percent of names currently on the list would be eliminated bringing it down to about 20,000 which still is nearly a quadrupling of numbers since 1996.

However, there is a reluctance to adjust the threshold to account for inflation and as the Premier of Ontario herself has noted, the people of the province have a right to know what public servants are earning because after all $100,000 is still a significant amount of money to the "vast majority" of Ontario residents. This is a somewhat curious statement given what seems the Premier's lack of concern about other big numbers when it comes to Ontario's public finances.  For example, the provincial net debt is at about $312 billion which is indeed a significant amount of money as is the nearly $12 billion dollars annually required to service it.

Perhaps the problem is the difficulty many have in dealing with numbers that are so large that they are outside their daily experience.  After all, most people deal with numbers in the thousands when it comes to salaries and annual living expenses rather than billions.  What is needed here is perhaps some type of currency conversion mechanism that translates these large numbers into something the public can more easily grasp.

So, how many "Listers" at a threshold of $100,000 would make up  the Ontario public debt? That number comes out to 3,120,000 - which is still a very large number - and represents just under half of total employment in Ontario which is at about 7 million people.  However, a number in the millions is still very large.  Ontario this week will deliver a budget and the expectation is that the deficit may reach $8 billion.  How many "Listers" would make up an $8 billion deficit? Well, 80,000 which is a much more manageable number but as a number still higher than the median income of Canadians.  How many Presidents and CEOs of the Independent Electricity System Operator fit into the net public debt? About 416,000.  Ministers of Northern Development and Mines? You can get 1.89 million of those.  But I digress...

It remains that the list is needed as an indicator of public sector spending as well as to provide transparency as to what the public sector spends notwithstanding what has become an exercise in showmanship without any effort to gain some additional insight and understanding about public sector spending.  Indeed, the fixation on the large numbers in the annual release masks the fact that there should be some serious concerns expressed about how the list is constructed, transparency and indeed what it tells us about people and what they are paid and how that information is used.

First, while the "List" was supposed to be an accountability device that would somehow restrain the growth of public sector salaries it remains that it has not.  Indeed, I would venture that making the salaries public has actually provided a basis of individual comparison that has resulted in driving salaries up in the broader public sector not just in Ontario but across the country.  You don't hear about private sector salaries being driven up in part because that information is usually considered proprietary or confidential and its absence hinders the ability of individuals to make comparisons and decide they deserve more and make use of it to negotiate a higher salary.

Second, the list is inequitable because it separates public servants based on an arbitrary threshold that was selected because at the time it seemed like a big, round number - $100,000.  However, for true accountability, all public sector salaries should be reported.  There should be two lists released every year - a public sector salary disclosure list with those making over $100,000 and another with those making under $100,000.  Yes, the list would be very very large but that would be the point.  There are a large number of broader public sector workers and public  sector spending in Ontario is not just driven by the 131,741 people making over $100,000 but also by the over 1 million people in the broader public sector making under $100,000.  Would it be an invasion of the privacy of those individuals making a more modest income of say $80,000.  Well, what do you think releasing a list of the salaries of someone making $100,000 actually is in a town with only 100,000 or 5,000 people?  We don't all have the relative anonymity of living in the GTA.

Third, the list also needs to be expanded to truly reflect the spending of public sector money on compensation. A case in point, universities must report all of their employees making over $100,000 because they are a public sector agency but it remains that universities in Ontario today only directly get between 40 and 50 percent of their funding from the Ontario taxpayer. The rest is own source revenue generation and tuition and while you can argue that many Ontario students get loans or even free tuition from the taxpayer that still does not sum up the public sector funding share to 100 percent.  University professors do not get 100 percent of their salaries from the Ontario taxpayer and yet 100 percent of their salary is reported.  On the other hand, physicians who are nearly 100 percent taxpayer funded are not on the list (unless they are directly salaried or employed by a public agency) because they are independent contractors.  Two points here: 1) a taxpayer dollar is a taxpayer dollar no matter how it is spent and 2) I'm surprised universities have not been more enterprising in redefining how their faculty are paid thereby removing large numbers of them from the list.

So, there you have it.  I think the list released under the Public Sector Salary Disclosure Act is important and part of the mechanism of accountability and democracy in government.  However, by focusing only on salaried employees of public sector agencies and government making over $100,000 a year misses the point as to how large the public sector actually is when it comes to employment and the spending of taxpayer dollars.  The list should be expanded.  As the song goes, the task of filling in the names I'd rather leave to you.

Sunday, 11 March 2018

Toursim and Travel in Ontario: A Target for Northern Ontario Tourism

My last post was on border crossings into northwestern Ontario at Pigeon River and Rainy River.  This type of data has always interested me because my academic career began approximately when the Canadian cross-border shopping frenzy of the late 1980s and early 1990s took place. In 1980, Canadians made 22.1 million same day auto trips to the United States and this rose to 25.2 million in 1985 and hit 53.2 million in 1990.  As the graph below shows, the peak was in 1991 at close to 59 million trips before a decline set in and today the numbers are not even half that peak at 21.5 million for 2017. These trips by Canadians to the United States were a tourism flow into the US and a function of exchange rates, income, and relative prices of goods.  

What is also interesting when examining travel flows is province level numbers for the number of tourism visits, their origin, as well as the spending amounts.  The figure below plots total visits to Ontario from1998 to 2015 based on data from Ontario’s Ministry of Culture, Tourism and Sport which in turn is based on Statistics Canada travel survey data.  Total tourism visits in Ontario in 1998 were 129,646,000 and in 2015 they were 141,902,000.  The average annual growth rate of total trips was 0.6 percent - which does not seem that high. The average annual growth rate of trips in Ontario originating from Ontario was 1.7 percent, compared to 1.1 percent from the rest of Canada, 1.6 percent for overseas trips and -5.3 percent for the United States.  Ontario has been its own best growing tourism market accounting for 71 percent of visits in 1998 and 85 percent in 2015. The biggest decline has been in American visitors which over the period fell from 23 percent to 8 percent.

When total spending by these visitors is examined in the chart below, it suggests that spending has grown faster than the number of visitors particularly for overseas visitors to Ontario.  Indeed, spending by Ontarians visiting within Ontario grew at an annual average of 3.7 percent, that by other Canadians 3.7 percent, Americans -1.2 percent and overseas visitors by 6.9 percent.  Indeed, overseas visitors have definitely been punching above their weight when it comes to their spending on tourism visits to Ontario indicating that this is definitely an area where Ontario might wish to direct its marketing activities.  Spending by overseas visitors to Ontario surpassed that of Americans in 2013 and in 2015 was 50 percent higher. 


How important is this tourism visitor spending to Ontario’s economy-approximately 2 percent of Ontario’s GDP – but is has not changed much over the period 1998 to 2015.  It has not been growing as a share of GDP given that during this period there has been a decline in American spending that has counteracted the rise in spending by overseas and Canadian travelers.  

When it comes to marketing tourism in northern Ontario, the above data suggests two main targets for our energy: the rest of Ontario and the overseas market.  For the time being, the American market appears to have sunk into decline.

Thursday, 1 February 2018

Ontario's Fiscal Paradox

My latest on Ontario's public finances...

Ontario has wrapped up its 2018 pre-budget public consultations as it prepares to deliver its next provincial budget. Ontario Finance Minister Charles Sousa confirmed in the fall fiscal statement that Ontario’s 2018 budget will be balanced, as will budgets over the next two years. However, the average Ontarian may be confused by the fact that despite a future of projected balanced budgets, the provincial net debt will continue to increase.

Indeed, recent years have seen the provincial debt grow by amounts exceeding that year’s deficit. For example, in fiscal year 2014-15, Ontario’s budgetary deficit was $10.315 billion but the net debt rose by $17.386 billion. In 2015-16, the deficit was $3.515 billion but $10.796 billion was added to the net debt. In 2016-17, the deficit was $0.991 billion but $6.276 billion was added to the net debt.
So how can this happen? See here for the rest of the post on the Fraser Blog...

Monday, 1 January 2018

Looking Ahead to 2018

Well, it is the New Year and as always it is a time of reflection and looking ahead to see what the New Year might bring for Canada, Ontario, northern Ontario and naturally The Most Serene Kingdom of Thunder Bay where there is always optimism. Of course, 2017 has been a pretty tumultuous year but 2018 is also looking turbulent given the changes poised to take effect as well as events around the globe. However, on the bright side, the global economy is expected to do reasonably well according to Goldman Sachs or then perhaps not if you listen to Morgan Stanley. At least, Canada will not be Venezuela which FocusEconomics expects to be 2018’s most miserable economy though Canada is expected to be in the top ten for nominal GDP.  



Nevertheless, this year will certainly be a test of the aspiring nature of current economic policy in Ottawa and Queen’s Park.  At the top of the list, the United States will dramatically lower business and personal tax rates effective January 1st.  The last time this happened in the 1980s, Canada countered with the federal tax reforms that lowered rates and broadened the rates.  This time, no such response appears to be coming despite the fact the federal business tax rate in the United States is expected to fall from 35 to 21 percent.  A saving grace is that new US corporate tax rates will match rather than fall below Canadian ones.

If the US economy booms in the wake of its tax cuts, Canada might be expected to benefit from increased trade.  Yet, federal economic leadership is adrift on the trade front given the United States is playing hardball on NAFTA and talks with China and the Asia Pacific are stalled.  The aspirational tone of current trade talks is not bearing fruit given Chinese and American reactions. Indeed, the possibility is high that Trump will pull the plug on NAFTA early in the New Year.

On the plus side, we can take solace in the fact that while the United States is playing hardball on trade, Donald Trump considers Justin Trudeau a “friend”.  One can only imagine our trade talks with the Americans if Donald Trump was dealing with enemies. Perhaps we can look forward to a visit to Canada by President Trump in 2018.

At the federal level, we can also take cheer in the most recent Federal Department of Finance’s long-term projections (a few days before Christmas when no one is paying attention) that the federal budget is now expected to be balanced by 2045 compared to the 2050s as forecast in last year’s long-term forecast.  Given the international situation with North Korea, the United States, Russia, China, and the Mid-East, the world should last so long.  Where is Lester Pearson when you need him?

Added to all this are expected increases in interest rates for 2018 and the tightening of mortgage rules with a new stress test. The stress test will effectively function like an increase in the interest rate for home buyers without the added stress of implementing an actual increase for the Bank of Canada. These changes are anticipated to have a depressive effect on Canadian housing markets especially outside of Toronto and Vancouver.  As for Toronto and Vancouver, being in an economic world of their own, they should only slowdown a bit.

Things are marginally better when moving into Ontario. Ontario’s economy has done relatively well in 2017 though NAFTA talks are inevitably keeping Premier Wynne awake at nights. While Ontario is expected to balance its operating budget, debt will continue to grow based on the forecast capital spending ranging from public transit to high speed rail. Yet, it is also not a done deal that Ontario’s era of deficits is over given what appears to be a ramping up of spending with implications for the future.  Moreover, the increase in the minimum wage and other regulatory changes that are being phased in with respect to employment standards, scheduling, and overtime mark the debut of a massive experiment.  How much change can employers absorb before throwing up their hands and scaling down their operations?

Ontario is also on track to a June election and many of the progressive initiatives of the current Wynne government are designed outflank the NDP given the Conservatives under Patrick Brown have sailed into the centre of the political spectrum with their policies.   The Wynne government’s policies are aspirations for a more socially just Ontario with less weight placed on trade-off between equity and efficiency.  Along with the guaranteed annual income experiment, there is also a new youth pharma care program.  

In the end, all three political parties in Ontario appear to be placing themselves along a centre-left alignment meaning that Ontarians can expect government spending and debt to maintain their current trajectories no matter who wins.   

Of course, more government spending will be seen as good news for northern Ontario given the economic dependence on government. While the resource sector saw some marginal improvements in 2017, the development of the Ring of Fire still appears to be quite distant though 2018 being an election year one can expect to see a number of positive inspiring announcements with respect to its future.  As well, it will be interesting to see if there is any mention of the “success” of the Northern Ontario Growth Plan in the next provincial election campaign.  Any mention of the 25 year plan to boost the economy of northern Ontario that started in 2011 will likely mention the wonderful things yet to come - after all, we have yet to reach the halfway mark.

As for Thunder Bay, its economic engine is government activity as the core sector with subsequent commercial and retail activity an economic multiple of this core.  It is a recipe for stability that works given that the city’s economy has been static in terms of employment for several decades.  Rising public sector salaries and incomes provides a base for municipal taxation and further local public-sector employment and the process will continue until the flow of public money is constricted – which does not appear to be any time soon.

Why tamper with perceived success? This means the current batch of local politicians – provincial and municipal – will all be re-elected come June and October and everyone will go back to sleep.  The northern Ontario economy and Thunder Bay in particular have become a sort of economic Brigadoon – an isolated sleepy region coming magically to robust economic life every 100 years. 

Yet, despite the evidence of slow economic and employment growth from Statistics Canada and the Conference Board, its boosters have often maintained that Thunder Bay is one of the fastest growing cities in Canada and with some of the lowest unemployment rates in the country.  That the low unemployment rates in Thunder Bay's case also mean the labour force has been shrinking faster than employment is apparently not seen as a cause for concern. 

I suppose it depends on what indicators you wish to measure growth with and your interpretation of the evidence. I guess who am I to argue with Thunder Bay’s ruling political class when it comes to the interpretation of economic arguments and indicators. In the end, their attitude towards and understanding of economists is best summarized by the line once made by one city politician:"You want to listen to economists? They record history. They don't make history."

Given the last real boom period in northern Ontario was the resource commodity and baby booms of the 1950s and 1960s, we can expect the regional economy to again awaken circa  2050 – roughly the same time the federal budget is expected to balance again.  By then, perhaps the federal government will carry the public sector spending ball for northern Ontario and give the provincial government and municipalities a rest.

Happy New Year and may God save us all.