Wynne government continues to rely on cash from Ottawa

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Appeared in the Ottawa Sun, January 10, 2018
Wynne government continues to rely on cash from Ottawa

Last spring, Ontario Finance Minister Charles Sousa tabled a balanced budget, the province’s first since 2007/08. The Wynne government frequently points to this projection as evidence that it’s managing public finances effectively.

However, there are many reasons to treat such claims with skepticism. For starters, many analysts (including Ontario’s auditor general) have called the government’s accounting techniques into question, arguing proper accounting would show continued deficits.

Others, including the government’s Financial Accountability Office, warn that without additional policy changes to reduce spending (or raise taxes), Ontario will likely slip back into deficits.

And there are still more reasons to be concerned about the health of Ontario’s finances.

Among the most important and under-discussed concerns is that to shrink the deficit in recent years the Wynne government has relied heavily on large annual increases in transfer payments from the federal government.

Despite constant tension between the McGuinty/Wynne governments and the Harper government in Ottawa during the latter’s time in office, in reality, federal transfer payments to Ontario have grown briskly in recent years.

Specifically, in 2009/10, the federal government sent $14.3 billion in major transfers to Ontario. This number has steadily swelled and will reach $21.1 billion this year—that’s a nominal increase of 48 per cent in eight years. And that’s a far faster increase than what would be necessary to offset inflation and population growth and far faster than provincial economic growth.

In fact, holding all else constant, if the growth of federal transfers to Ontario had been in line with either of these economic indicators, the province would still face a significant deficit today. In short, rapid growth in transfer payments is an important and frequently overlooked reason for Ontario’s recent deficit reduction.

One reason that overall transfers to Ontario are up is that the province has, since 2009/10, received equalization payments. To simplify slightly, equalization is a federal program that gives money to lower-income provinces to help them fund public services. Ontario became eligible for the program for the first time in history in 2009/10 and has remained eligible since.

Equalization payments to Ontario peaked at $3.3 billion in 2012/13 and have come down gradually, but they remain a source of revenue. This year, the government is receiving $1.4 billion through the equalization program. In total, the province has received $18 billion in equalization since 2009. Again, without this historically unprecedented help from Ottawa, the recent run-up in Ontario’s debt would have been even worse.

Recently, the federal department of finance revealed equalization payments for 2018/19, confirming Ontario will indeed continue to receive payments. In other words, the province will retain its status as a lower-income “have-not” province relying on equalization payments to help fund programs for another year.

And yet, the Wynne government frequently points to its balanced budget projections as proof of its successful approach to public finances. In fact, the province went a full decade between balanced budgets, triggering a huge run-up in debt. And even then, the government has needed a lot of help—from both questionable accounting methods and a big increase in federal transfers—to finally present a balanced budget.

Simply put, the notion that a notionally balanced budget means Ontario’s finances have been restored to health simply does not withstand scrutiny.