On February 25, 2016, Charles Sousa delivered the Ontario Government’s Budget. After nearly a decade of deficits, and a near doubling of the provincial debt, the Government remains on track to balance the books in 2017-2018. We reviewed the Budget documents and distilled it down to five key observations.
- The big picture is taking shape
Kathleen Wynne continues to implement her bold, progressive vision for Ontario. While managing the challenging fiscal situation she inherited (more on that below) she continues to set policy and invest dollars in key initiatives that define her values and those of the government she leads.
With huge reform to student assistance announced in this budget, in addition to funding for autism services, an increase to Ontario Works and the Ontario Disability Support Program, funding to fight homelessness and the new Long Term Strategy to End Violence Against Aboriginal Women, this is a strong progressive budget. As Premier Wynne’s social agenda evolves and grows, this budget goes to great lengths to shape Ontario in her image: as a province that prioritizes support for vulnerable populations. These social initiatives, with reform to student assistance at the forefront, complement a well-established narrative around climate change and retirement security.
- The small picture is more muddled
When we look at the province’s finances up close, things get a little more complicated. An activist government has effectively held program spending flat for several years—unprecedented sustained fiscal restraint. Revenue from divesting a portion of Hydro One is included as new revenue. Revenue from the new cap and trade system is forecasted to be $1.9 billion annually. While many anticipated that this additional revenue would be central to meeting ambitious deficit reduction targets—and a projected balance date of 2017-18—the budget document pledges that these funds will be used exclusively for “green projects.” Without a clear definition of what constitutes a “green project,” we can assume that this money will be key to meeting infrastructure funding commitments.
A political party whose campaign was bolstered by large union contributions and third-party advertising has a fiscal plan based on restraining (relatively) the compensation of those unions. A small increase to hospital operating funding, of $345 million, is an important symbol after years of no increase but will do little to significantly improve the quality of care or alleviate ongoing labour challenges for health-care employers.
The budget document notes that this cycle represents a peak in debt to GDP ratio, at 39.6 per cent in 2015-16, and anticipates that it will decline when the budget returns to balance.
- Infrastructure is a very popular topic
Many voices are calling for significant investments in infrastructure: all levels of governments, business groups, economists and media. Some view the new transit, health-care facilities, university buildings, electricity generation and so on as the primary objective. Others believe, per John Maynard Keynes, that the fiscal stimulus caused by additional infrastructure investment will spur a flagging economy.
Regardless of the rationale, infrastructure is all the rage.
So what does Budget 2016 say? First of all, the level of infrastructure spending, $160 billion over 12 years, is significant. In fact, Budget 2016 includes an additional $3 billion increase over funding announced in the 2015 Fall Economic Statement.
Nevertheless, several key new projects were announced that reflect the $3 billion in newly announced infrastructure dollars. These include funds for GO Transit, HOT and HOV lanes, expansion to the Ontario Community Infrastructure Fund and the Connecting Links Program, a $50-million investment in health-care sector capital projects, a new ferry in Amherst, and post-secondary capital investment projects at La Cite college and Confederate College.
- A dramatic shift in the Ontario Government’s view in Ottawa
After a close reading of several recent Ontario Budgets, we have determined that Premier Wynne is far more supportive of Prime Minister Trudeau than his predecessor! After years of excoriating the lack of “partnership” (read: money and support for her policy program), the government’s tone has changed. The chapter of budget that had previously been dedicated to all the ills associated with the Harper regime now extolls the benefits of collaboration, celebrating “Recent Progress on Shared Priorities.” In fact, the 2016 Ontario budget goes so far as to set out “Principles to Guide the Next Phase of Federal-Provincial Collaboration.” Although there will be challenges, there are a number of policy areas—climate change, retirement savings, infrastructure investment, Aboriginal issues, pharmacare—where the federal and provincial governments can and will work closely with one another.
One interesting point of divergence between Trudeau and Wynne is fiscal policy. After years of deficit spending, Ontario is on track to balance the books. Minister Sousa and Premier Wynne have been consistent that the right direction for Ontario now is to balance the books. Conversely, the federal government is about to run significant and sustained deficits after a period of balanced budgets. Obviously the political context is important (Wynne’s government has been in power for 13 years and Trudeau’s government for only a few months). But their respective points of view on the costs and benefits of deficits and the fiscal policy choices the two governments are making are very different.
- There were a few surprises
Having pre-released details on the cap and trade program, beverage alcohol sales, funding to combat domestic violence against indigenous women among other things, Minister Sousa did have a couple of new things to share in his speech.
The headline-piece of the budget will certainly be the wholesale reform to the way students access post-secondary education. Given the scale of these changes, it is impressive that this initiative did not leak publicly ahead of the budget. The new Ontario Student Grant will make college or university tuition free for families with household incomes of $50,000 or less, and will also include grants for students from families with incomes of less than $83,000. This is in addition to increased access to OSAP, and a change in the way grants are delivered: unlike previously, grants will now be available up front.
Smaller surprises include free shingles vaccines for seniors, a small increase to the co-pay drug costs for seniors (from $6.11 to $7.11) and an elimination of Drive Clean fees. Taxes on wine will increase by 7 per cent over four years, and tobacco taxes will rise by $3 a carton.