Well, the Ford Government’s first budget is out. Detailed analysis of
the new fiscal numbers takes time but for now, some quick preliminary thoughts
on what I think will ultimately be a positively received budget by the Ontario
public despite the criticisms that will be leveled by both the right and
left of center critics. This positive public reception is
not just because of popular new measures in alcohol, gaming and cannabis – such as
earlier starts to establishments - that will facilitate consumption.
The right will argue that the move towards fiscal balance is not
occurring fast enough. Moreover,
Ontario’s debt pile is projected to grow past $343 billion to reach $360
billion with an accompanying increase in debt service costs. Meanwhile, the left will emphasize any harm
to services from reductions needed to find public sector efficiencies. Indeed,
the lead up to this budget has seen some particularly vociferous commentary
about the “storm” coming to Ontario and the "apocalyptic" cuts coming to public
services.
Yet, many middle of the road Ontarians may probably find this to be a
reasonable budget that is less harsh than many expected. After all,
spending is still going to be up slightly next year – from $162.5 billion to $163.4
billion and then to $165.6 billion the year after. With signs the economy may be slowing down,
the government is certainly not keen to worsen any potential downturn with a
slash and burn budget. However, the next
four years may also be one of the most transformative periods in recent Ontario
public finance if the government succeeds in implementing its vision to better
manage Ontario’s public sector while maintaining services.
The Ford government is expected to end 2018-19 with an $11.7 billion deficit
and is bringing in the 2019-20 fiscal year with a $9.3 billion deficit with
plans to balance the budget by 2023-24. With respect to fiscal progress, the
Ford government could have balanced the budget in about three years if it had
decided to freeze nominal spending for a couple of years. Instead, it is planning to allow total
spending to grow at about one percent annually which is still very restrictive
relative to the projected increases of the last Liberal budget. Spending in Ontario is being placed on a much
lower growth trajectory so that over time it will eventually match
revenues. Given that compensation is a
big part of public sector spending in Ontario, the one percent number is a
signal of what wage increases can be expected in the public sector.
After inflation, real spending in Ontario will nevertheless decline and
therefore there will need to be choices made on where greater reductions and
efficiencies will occur. However, some of those efficiencies will be used to
fund new initiatives whether they be dental care for seniors, a new child
daycare tax credit, opening new long-term care beds on a faster schedule,
investments in public transit, and ultimately even some tax relief down the
road.
More specifically, despite creating a new single health agency and
optimizing productivity, over the medium-term health sector spending is still expected
to grow an average of 1.6% annually to 2021-22. Education is expected to grow
1.2 percent annually. On the other hand,
post-secondary education and training is expected to decrease at 1% annually
and while justice, and children and social services, will each decline at about
2% annually.
In terms of efficiencies, aspects of the government plan are going to
take shape via coming expert panels and task forces. Education is a key area
with changes in class sizes the first step that was taken. A task force to find efficiencies in how the
four systems operate will inevitably lead to suggestions for more coordination of
procurement and spending across school boards, standardization of pay scales
and perhaps even some type of consolidation of facilities in declining
enrollment areas as well as administrative and management functions that
preserve the distinctive nature of each system.
Then there is post-secondary education where the budget has communicated
a desire to tie college and university funding more to performance
outcomes. The key issue here is what
those performance outcomes are going to be. Along with graduation rates and
employment success, one might expect to see research output and measures of
commercialization success or community outcomes as additional measures. However, Ontario’s post-secondary sector
especially at the university level is quite diverse and constructing a
one-size-fits all set of measures will be politically challenging given the
regional role many universities play.
However, where the government will garner more sympathy from the public is
with respect to its position on trying to do something about aging university
faculty who can continue working past 65 and earn a salary and if still working
after age 71 also collect a pension. However, university pensions are not like
school teacher pensions – there is no province wide university pension system
but each university has its own so again there is no easy one-size-fits-all
solution. The government will at minimum
need to separate its thinking with respect to those universities with plans
that are defined benefit-where the employer bears the risk - from those that
are defined contribution – where the employee bears the risk.
And then there is health care, Ontario’s largest single budgetary
expenditure. Health care in Canada has been
looking for transformative change for years and the inevitable result has been
more and more spending. The slowdown in
growth rates of the last few years may ultimately prove to be temporary, driven
in part by a slowdown in new drug products and postponement of capital spending.
With a pledge to end hallway medicine and increase the number of long-term care
beds, combined with an aging population and the arrival of new high demand
pharmaceutical products, any savings found by true transformative change in
Ontario will be rapidly eaten up by other spending. This will be the area of greatest challenge.
So, there you have it. This
budget has a lot of plans for change by implementing reforms and best practices
and innovation but for the moment they are just plans. Politics is the art of the possible and the
next couple of years will reveal what is possible and what is not. Much hinges on how the economy performs, and
especially whether we go into a small recession. If the economy does better than expected and
revenues are buoyant, the government will be able to shrink the deficit more
than expected and spend more money. Angst generated for media purposes and twitter universe rants aside, I think a sizeable silent chunk of the
Ontario population will give the provincial government the benefit of the doubt
for now.
