Yesterday, Ontario Finance Minister Charles Sousa delivered the province’s 2014 fall economic statement. The stories that got the most pickup centred around decreased revenue projections, increased contraband tobacco enforcement and businesses paying their fair share of taxes.
We wanted to take a different approach to the analysis. See below for the duelling perspectives of a pessimist and an optimist regarding the state of the province’s finances.
1. The deficit is going up, not down.
For 2014-2015 the budgetary shortfall is forecast to be $12.5 billion, unchanged from both the first budget in May and the second budget in July—but, that is $2 billion higher than last year’s deficit and $3.3 billion higher than the previous year. That is to say, the deficit has grown by 35 per cent over the last couple of years.
2. The fiscal plan is more aggressive than Mike Harris’.
The government is proposing four more years of approximately one-per-cent growth in program spending, for a total of eight years (i.e. 2010-2017). This kind of sustained prudence is unprecedented. Mike Harris, for example, after reducing spending early in his first mandate, increased program spending at rates greater than the current government is proposing to do every year when he was premier.
3. “Crackdowns” on illegal tobacco are not new.
The last four budgets touted crackdowns on illegal tobacco as a means of raising additional revenue.
4. Big reforms can help, but not with the deficit.
The potential reforms to government business enterprises—specifically the LCBO, Hydro One and OPG, as well as The Beer Store—are perhaps the boldest fiscal measures in the fall economic statement. But any monies realized through these reforms will fund infrastructure investments, and thus cannot contribute to reducing the deficit.
5. The story is one of more, not less.
The word “increase” appears in the document five times more than the word “reduce.”
1. The government’s commitment to balancing the budget by 2017-18 is firm.
Deb Matthews has been named as a stand-alone minister of the treasury board—now the most powerful minister in this current cabinet—whose one and only job is to ensure that the fiscal targets will be met. And, if revenue projections and expense mitigation aren’t enough, the government has confirmed in this economic update that it, “will consider other tools, as necessary, to balance the budget by 2017-18.” You may not like how the targets are met, but the commitment to the targets cannot be in question.
2. Jobs are being created and unemployment is down.
At the end of the day, “jobs” is the “end” in the means to an end when it comes to the government’s focus on the economy. And the government is achieving that end. The unemployment rate has declined from the recessionary high of 9.4 per cent in June 2009 to 6.5 per cent in October 2014—the lowest unemployment rate since the recession hit in 2008. Ontario has added 551,300 jobs since June 2009, eliminating the 265,800 job loss during the recession. The majority of the jobs added are in the private sector and full-time. Employment is now 4.3 per cent or 285,500 above the pre-recession peak.
3. The government has overachieved on its fiscal targets since the recession.
The best predictor of future behaviour is past behaviour—and the numbers don’t lie. Each year since the recession, the government has exceeded its deficit targets and, as a result, the accumulated deficit is $25 billion lower than what it would have been otherwise.
4. We repeat: The best predictor of future behaviour…
Ontario has consistently had the lowest per-capita program spending among all Canadian provinces. From 2009-2010 to 2013-2014, program spending in Ontario as a percentage of GDP has seen a 1.3 per cent reduction. This was no small feat, and helps support the government’s claim that it has the capacity to meet its average annual program spending growth target of 0.8 per cent between now and 2018.
5. Current global and U.S. economic trends are actually good for Ontario’s economy.
The rest of the country may not appreciate it, but for Ontario, a decline in both oil prices and the value of the Canadian dollar are good for Ontario’s economy. These two factors improve Ontario’s competitive position as an exporting and manufacturing province, and will result in even stronger economic growth for the province.
And, in the spirit of true optimism: one more…
6. The long view and asset review.
Any revenue gained from the review of Ontario’s assets will go towards investments in infrastructure and transit versus the deficit. Ed Clark, former CEO of TD Bank and current chair of the Premier’s advisory council on government assets is clear that, “the new infrastructure assets may greatly benefit Ontarians and add enormous value to the provincial economy.” The government is taking the long view and ensuring any investments it makes are strategic and will support the growth of Ontario’s economy.