Ontario budget—more spending, more debt
This afternoon, Ontario’s Finance Minister Charles Sousa delivered the provincial government budget for fiscal year 2017/18. Headlines will likely focus on the government’s first balanced operating budget in a decade.
A deeper look at the numbers, however, shows that the province’s fiscal problems are far from solved. In short, this budget does not successfully address the substantial fiscal challenges facing Ontario.
Here are a few of the most important facts emerging from this year’s provincial budget.
Significant spending growth is back in vogue
Provincial program spending for 2017/18 is expected to increase by 4.8 per cent compared to the previous year. That’s a far faster rate of annual spending growth than has prevailed in the last three years (2.2 per cent, on average).
It’s also a marked increase over what had previously been planned for this year. This year’s spending level ($129.5 billion) is also now forecasted to be about $5 billion more than what was planned in last year’s budget ($124.1 billion). What a difference a year makes. This suggests the government has abandoned any semblance of spending restraint.
More debt—in fact, lots more debt
While the government forecasts balanced operating budgets for the next few years, it stills plans to add billions each year in new debt as a result of capital spending ($11.4 billion each year, on average). In fact, Ontario’s debt is expected to rise by a total of approximately $34 billion over the next three years. In short, the world’s most indebted sub-national government plans to dig even deeper into debt in the coming years.
As the provincial government keeps adding more debt, Ontarians will have to pay more and more interest. In 2017/18, interest on Ontario’s debt is expected to cost taxpayers a staggering $11.6 billion, or approximately $1 billion per month. The more money Ontarians must pay to service growing debt, the more tax dollars are not being spent on health care, education, tax relief and other important priorities
The path to reducing Ontario’s debt as a share of the economy is long and risky
The Wynne government has repeatedly stated the objective of bringing the province’s debt-to-GDP ratio—a key metric measuring the burden of a government’s debt relative to the resources available in the economy to sustain that debt—down from its current level (37.5 per cent) to pre-recession levels (27 per cent).
However, we have repeatedly pointed out that the government has failed to deliver a timeline and detailed plan to get there. Today’s budget partially responded, presenting a timeline for returning the province’s debt-to-GDP ratio to pre-recession levels. However, this won’t happen for another 12 years—by 2029/30.
We commend the government for at least presenting a timeline. But there are still major concerns.
First, the plan calls for almost no reduction in the debt-to-GDP ratio during the current fiscal plan. In fact, the government projects that, between 2016/17 and 2019/20, the ratio will fall by just 0.6 percentage points. That’s a tortoise like pace of just 0.2 percentage points annually.
The pace picks up in the later years of the government’s timeline. But of course, detailed plans on revenue and spending aren’t available that far into the future. So Ontarians are left wondering how such a target will actually be met.
Finally, a lot can happen in the next dozen years that could derail these plans including another recession. That’s why a credible and transparent plan to reduce the debt burden much more quickly would have been welcome news for Ontarians, and for the credit rating agencies that have downgraded Ontario’s credit in recent years.
Contrary to the political spin, Ontario’s balanced operating budget is not the most important story in today’s budget. Far more important are the province’s decisions to ramp up spending and add to the province’s debt load in the years ahead.
Unfortunately, these choices have made it more challenging for the government to deliver a realistic plan to restore the health of provincial finances in a timely manner. The cost of these decisions will be borne by current taxpayers and also by future generations of Ontarians.