Commentary

November 02, 2023

Ford government increases deficit and fails to deliver long-awaited tax reductions

EST. READ TIME 4 MIN.
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On Thursday, the Ford government released its Fall Economic Statement, which updates Ontario’s provincial finances presented in this year’s budget plan. The government projects a larger-than-expected $5.6 billion deficit this year mainly due to its plan to continue increasing program spending beyond what was forecasted in Budget 2023.

Prior to the fiscal update, Ontario’s spring budget projected program expenses of $190.6 billion in 2023/24. Given this level of spending, the province was on track to record a budget deficit of $1.3 billion for 2023/24, before returning to surpluses of $0.2 billion in 2024/25 and $4.5 billion in 2025/26.

Instead of staying on track and working towards a balanced budget this year, the Ford government has once again opted to increase program spending and failed to keep its promise to meaningfully reduce taxes for Ontarians. This government has continually displayed little to no concern for spending restraint. During his tenure, Premier Doug Ford has overseen higher average annual per-person spending (adjusted for inflation) than his Liberal predecessor—Kathleen Wynne.

Since 2019, the province has run an operating deficit in every year except 2021/22. In that year, Ontario and many other provinces experienced higher-than-anticipated revenues, allowing them to run a surplus. Again, rather than capitalize on this windfall and put the province in a position to sustain surpluses moving forward, the Ford government chose to increase program spending and return the province to a deficit in the following year.

Similarly, in its fall fiscal update, the Ford government again elected to increase program spending for items such as the province’s new Infrastructure Bank. Projections indicate program spending will reach $193.0 billion this year—an increase of $2.3 billion from the budget tabled in March. Moreover, annual program spending is expected to continue increasing and reach $202.3 billion by 2025/26. Instead of showing restraint, the government is wiping out potential balanced budgets in 2023 and 2024, while eliminating roughly $4.0 billion from an expected surplus in 2025.

Of course, the province is still accumulating significant debt. Ontario projects net debt as a share of the economy will be higher than anticipated in 2023/24 (38.4 per cent) and increase again the following year to equal 39.1 per cent. In total, the province expects to add $48.7 billion in net debt over a three-year period.

All of this borrowing comes with costs. In 2023 alone, the government will spend more than $1 billion per month on debt interest charges. This is money unavailable for public services or potential tax relief.

Budgetary surpluses would have offered a good launching point had the government planned to fulfill its long-overdue promise of tax reductions. On the campaign trail in 2018, then-candidate Ford said “I am going to put money back in their pockets.” As premier, he’s failed to deliver any meaningful tax relief.

While the province removed the provincial portion of the HST on new purpose-built rental housing, and extended its gasoline and fuel tax cuts until mid-2024, Ontario still maintains relatively high personal and business tax rates, which are economically harmful because they make it difficult to compete with other jurisdictions and attract and retain entrepreneurs, businessowners and professionals.

Reducing these taxes would help spur economic activity in the province, which would improve living standards for Ontarians through job creation and increased wages. And recent polling data suggests the vast majority of Ontarians believe the average family should pay less in taxes as a share of their income.

Not only would tax reductions improve economic growth, they’d also help reduce costs for families—as research shows taxes are the single largest expense facing the average Canadian family.

Based on projections presented in the fall update, the province needs policy that can improve economic growth. Per-person GDP (adjusted for inflation), a rough measure of income, is expected to decline from $56,678 in 2022 to $51,488 in 2025. A decline in GDP per person indicates that living standards for Ontarians are actually falling, even if the size of the economy is increasing.

Adding another entry into an unfortunate track record of broken promises, the Ford government has once again foregone spending restraint and failed to deliver long-awaited tax reductions.

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