‘Mini-budget’ an early test of Ford government resolve
This week, Ontario Finance Minister Vic Fedeli will table his government’s fall economic statement—an update on provincial government finances—which is expected to be a “mini-budget,” meaning it will also include changes to tax policy and spending plans.
Since taking office, Premier Ford’s government has repeatedly underscored the province’s fiscal problems, noting a large budget deficit. But recognizing a big challenge is one thing; addressing it is another. This week’s mini-budget will provide an early indication of how committed this government is to slaying the deficit dragon.
Of course, one fiscal update won’t solve the big problems that are more than a decade in the making, but the mini-budget allows the government to show Ontarians (and investors) that the new government takes debt accumulation seriously.
So what would it take for the government to send this important signal?
In short, it must present a realistic specific timeline for eliminating the deficit quickly. Ideally, it will also show a “path to zero” based on decisive and immediate spending reforms rather than a slow path based on holding spending essentially flat and hoping for revenues to catch up. An active approach to deficit-reduction would represent a marked departure from the previous government’s failed “wait and hope” approach and help calm investor fears about the health of provincial finances.
For example, provincial government revenue is expected to increase by approximately $5 billion next year. If the government finds savings for the rest of this year and next year to bring 2019/20 spending down by $5 billion from current 2018/19 projections, that would be sufficient to eliminate two-thirds of the province’s $15 billion deficit. This would be an important first step towards fiscal stability and make the prospect of a balanced budget in 2020/21 appear feasible and, in fact, likely for investors.
Of course, reducing nominal spending by $5 billion year-over-year isn’t easy given population growth, population aging and inflation. But nobody said climbing out of Ontario’s fiscal hole would be easy. What’s more, this scale of spending reduction (approximately 3 per cent of all spending) is closely aligned with what the Ford campaign repeatedly said on the campaign trail—it identify efficiencies to make the government leaner without reducing the quality of public services. Opponents scoffed at the idea that this could be done. We’re now coming close to finding out who was right and who was wrong.
For many years, now-Minister Fedeli indicated that he understands the severity of Ontario’s fiscal challenges. In opposition, however, he was not in a position to do much about it other than draw attention to the issue. That all changes Thursday when he’s responsible for presenting his government’s first mini-budget.
It’s therefore an important day in the life of this new government and, indeed, an important day for all Ontarians, given how important fixing the province’s broken finances is for the well-being of present and future Ontarians.