Rosy economic outlook and fiscal balance allow pivot back to activist roots in Ontario Budget 2017

With the next provincial election just over a year away, Ontario Finance Minister, Charles Sousa, introduced the 2017 Ontario Budget, A Stronger, Healthier Ontario, on April 27th and with it, effectively launched the Liberals’ re-election bid.

A balanced budget and favourable economic outlook for the province of Ontario has enabled the government to deliver a good news budget aimed at addressing poor approval ratings and negative news stories. In so doing, the Liberals have chosen to return to the Premier’s roots, doubling down on her brand as governing from the activist centre with a corresponding focus on health and education.

Economic and Fiscal Outlook

In presenting the province’s first balanced budget in the decade since the global recession, the Wynne government delivers on a commitment originally set by her predecessor, Dalton McGuinty, eliminating a deficit that reached its height of $19 billion in 2009. Buoyed by strong revenue growth due to relatively high growth in the province’s real GDP, Budget 2017 projects very modest surpluses in each of the coming three years. Over the 2017-2020 period, the government projects an average real GDP growth of 2.1 per cent in the province, allowing for increased spending especially in the areas of health, education, and social services.

Budget 2017 paints a rosy picture of Ontario’s recovery since the global recession—something the Wynne Liberals will trumpet in next year’s election campaign. The province has created nearly 700,000 new jobs since the recession, with 78 per cent of those jobs in above-average wage professions, and 73 per cent in the private sector. The province’s unemployment rate in March 2017 was down to 6.4 per cent. In the period 2014-2016, Ontario’s recovery not only out-paced the rest of Canada, but also the rest of the G7 economies.

The province continues to have a relatively high debt-to-GDP ratio—at 37.8 per cent—though Budget 2017 lays out a goal of returning to pre-recession levels (~27 per cent) by 2029-30. In the province’s first post-recession budget in 2010, the government projected that it would spend 11.3 cents on debt interest for every dollar of spending; that number is now 3.1 cents lower—at 8.2 cents on the dollar— than it has been over the past 25 years. While the province’s debt continues to rise, this increase is made up of capital investment in assets, or what the government terms “good debt.”

Budget 2017 sees no change to tax rates for either individuals or corporations. The federal-provincial combined corporate income tax rate remains at 26.5 per cent, a number that is competitive in Canada and internationally; it is significantly lower than all US states, lower than the average of the Canadian provinces, and competitive with the OECD average. Even in a budget light on tax measures, the “sin taxes” are a good place to look for an increase, and this Liberal budget does just that, with an approximate $2/carton tax increase on cigarettes.

The top-five areas of spending growth in Budget 2017 include:

  • Health Care: 3.3 per cent annually (on average) between 2015-2020 to address increases for hospitals, reduced surgical wait-times, a new pharmacare program for children and youth, drug plan pressures, and increased home care and mental health investment.
  • Education: 2.8 per cent annually (on average) between 2015-2020 to account for enrolment growth and child care investments.
  • Children’s and social services: 2.7 per cent annually (on average) between 2015-2020 from increased spending on social assistance, developmental services, autism supports, and child welfare system transformation.
  • Post-secondary: 2.5 per cent annually (on average) between 2015-2020 due to spending on Highly Skilled Workforce initiatives and infrastructure investments.
  • Other programs: 2.9 per cent annually (on average) between 2015-2020 from hydro cost relief, climate change initiatives, and investment in transit.

Budget Highlights

Health

  • Investment in Ontario’s hospitals – increased operating funding for all Ontario public hospitals with an additional $518 million or three per cent increase to the sector as well as capital investment. The operating funding increase means no hospital in Ontario will see a funding boost of less than two per cent.
  • Launch of OHIP+: Children and Youth Pharmacare ­– universal drug coverage for all children and youth aged 24 and under, effective January 1, 2018. It will cover the cost of all medicines covered by the Ontario Drug Benefit Program with no deductible or co-payment.
  • Proposed amendments to the Ontario Drug Benefit Act that, if passed, would enable the government to adjust pharmacy payments and would support its work with the pharmacy sector since 2015 to obtain greater value for money. These actions would align with previous initiatives the government has undertaken to reduce drug costs, and allow the Province to invest more in new drug coverage for Ontarians.
  • Ontario Dementia Strategy – more than $100 million over three years to support people with dementia and those who care for them through better coordinated and enhanced services.
  • Expanding or enhancing scope of practice for health professionals in order to improve patient choice in primary care and timely access to care.
  • Mental health investment – an additional $74 million over three years to provide faster access to mental health services, including new supportive housing units and structured psychotherapy.
  • Additional funding to address wait times to see a specialized care provider and to address wait times for key services such as foot, knee, hip and cataract surgeries.

Infrastructure

  • Budget 2017 implements a “stay the course” approach on infrastructure policy and this year’s budget confirms the province’s commitments to the Long Term Infrastructure Plan as well as Metrolinx’s “Big Move” initiative.
  • One significant initiative is a previously-announced commitment to double the allotment of gas tax funding to municipalities, one made by the Wynne government in February to satisfy voters in the vote rich 905 region who opposed a potential toll on the DVP and Gardiner Express Way in Toronto.
  • An updated long-term infrastructure plan, which is expected to be released later in 2017, commits the province to spending an addition $156 billion on infrastructure projects over the next 10 years.
    • A large portion of this budget will be allotted to the development of transit infrastructure in the 416 and Golden Horseshoe. $56 billion dollars over the next ten years will be invested in public transit, which includes the development of light rail transit projects in Hamilton, Waterloo, Mississauga, Brampton, and Ottawa as well as the provincial portion of SmartTrack.
    • A large portion of this funding will also be spent on the GO transit system, quadrupling its capacity from 1,500 trips a week to 6,000 trips a week by 2024.
    • Another $26 billion will be invested in the development and repair of highways along the 400 series, and in northern Ontario.
    • An allotment of funds is also earmarked to complete an environmental assessment on the issue of high-speed rail in the Toronto-Kitchener-London-Windsor corridor.

Education

  • Education investment features prominently in this budget. The government has committed to investing an additional $6.4 billion dollars in the province’s education system over three years, addressing a number of contentious issues faced by the government on the education file related to afterschool care, the quality of the math curriculum, affordability, and school closures.
  • The allotment will include funding for the creation of new Early Years Child Care Family Centres, providing affordable, licensed childcare for 100,000 children under the age of six. It will also continue the implementation of Full Day Kindergarten (FDK), and cap class sizes at 30.
  • At the elementary school level, the government seeks to reduce class sizes below the current level of 25, expanding afterschool care, and introducing a 60-minute per day allotment to focus on effective instruction in math.
  • For students between the ages of 13-18 in high school, the government will invest in improving mathematics and financial literacy, and include provisions to make the transition from high-school to university easier with the introduction of dual credit programs.
  • The government will make it easier for college students to afford a post-secondary education, and position them well for job placement after graduation.
  • The government’s previously announced changes to the OSAP program are now in effect, ensuring that 210,000 students receive free tuition.
  • Budget 2017 also introduces the Career Kick-Start Program (CKP). Through the CKP, the province will create 40,000 new work-related learning opportunities—in partnership with employers—for students and recent graduates.
  • Finally, in a move to make a strong effort in taking the wind out of the opposition sails on the issue of school closures, the government has committed $16 billion over the next ten years to build, or retrofit, existing schools.

Hydro

  • Energy and hydro affordability is perhaps the most contentious political issue of Wynne’s current mandate. Public opinion research by H+K in March 2017 certainly indicated that the issue is important to three quarters of the people who live in this province. For the better part of 2016, and early into 2017, the government faced considerable criticism for mismanaging the energy file, and driving up hydro rates as a result. The issue had a considerable effect on the government’s popularity and its political fortunes. Wynne’s approval rating dropped to record-low levels (one poll had her approval rate at only 9 per cent), and by-elections that should have been easily in hand, were lost.
  • The highlight of the budget’s energy program is the fulfillment of the Premier’s commitment to reduce hydro rates by an average of 25%. This relief is targeted on the average household, farm, and small business, and is expected to take effect July 1, 2017.
  • The plan also includes relief for businesses, large and small. The government will expand the Industrial Conservation Initiative (ICI) by reducing the threshold from one megawatt to 500 kilowatts for targeted sectors including greenhouses.
  • These measure come in as an addition to a commitment that will see the elimination of the Debt Retirement Charge for commercial and industrial users as of April 1, 2018.
  • Another important change to the energy file is the province’s $100 million investment in natural gas. The program will attempt to deliver affordable energy into underserviced rural, northern, and indigenous communities.
  • Additionally, the government has decided to scrap the Drive Clean Program. The politically contentious program will be no longer be required during the resale of light-duty vehicles, such as most cars, vans, SUVs and light trucks.
  • One final point of interest on the energy file is the province’s continued support for politically contentious issues such as the development of green energy infrastructure, and the sale of Hydro One. Green energy contracts, and the sell-off of 60 per cent of Hydro One, have been used as a political tool by the opposition to explain soaring hydro costs. Despite this fact, the budget also highlights the government’s commitment to green energy technologies by committing to the release of a new Long Term Energy Plan in 2017.

Measures to Make Life More Affordable

  • Reducing household electricity bills on average by 25 per cent, starting this summer. Approximately 500,000 small businesses and farms also to benefit.
  • Introduction of a Fair Housing Plan to increase affordability for both buyers and renters and to support stability in the housing market.
  • Helping 100,000 more children access affordable, quality licensed childcare by creating new licensed spaces and subsidies for 60 per cent of these spaces;
  • Support for caregivers including creation of Ontario Caregiver Tax Credit and the addition of $20 million more in 2017 for respite care.

Appeal to Ontarians

To understand Ontarians’ top priorities for the provincial government, H+K undertook public opinion research in March 2017. Budget 2017 not only appealed to the Liberals traditional bases of support but also touched on issues important to most Ontarians.

*H+K Strategies conducted a province-wide survey of Ontarians. This survey focused on the public’s perception of the Ontario government’s performance, especially around budget related issues. In total 815 Ontarians were surveyed, between the dates of March 10 – 13, 2017 (an associated margin of error for a randomly selected sample of this size would be ±3.43%, 19 times out of 20). During data analysis post-stratification weights were applied to the sample (according to 2011 census population parameters) in order to account for any discrepancies in collection from natural provincial proportions. The final result is a statistically relevant set of data which can be used for inferring the opinions of the general Ontario public.

Opposition Response

The opposition parties also took the opportunity to use the budget as a means to rally their base and demonstrate that their respective parties are best suited to succeed the Liberals in 2018.

The Patrick Brown PCs came out with a strong economic and fiscal message, to help cast doubt on the Liberals’ efforts to balance the budget. It is suggested that “An Artificial Balance”, as the PCs called it, actually hides a $5-billion operational deficit that is a result of “cash grabs, unauthorized pension assets, and one-time revenues.” Brown went on to say that life is harder under the Liberal government, and “today’s budget is more proof that Ontario families will have to pay more and get less…they (the Liberals) have doubled the debt in just 14 years, and Ontario is worse off as a result.” Over the next year, we can expect to see the Liberals and PCs will continue to face-off on pocket book issues, such as hydro, as both parties work to broaden their support among fiscally focused centrists who have yet to make up their mind on who should form the next government in 2018.

The progressive measures in this budget are a clear indication that the Liberals are trying to shore up support in the NDP’s backyard. NDP Leader Andrea Horwath, having released her party’s Pharmacare plan earlier this week, criticized the government’s initiative as a “Back of the Napkin Idea” and one that “doesn’t even come close to undoing the damage Kathleen Wynne and her Liberals have done over the last 14 years.” Issues, such as socialized medicine, typically play well among the NDP base, and Horwath’s statement draws a clear line in the sand that the Pharmacare issue will be a battle line between the Liberals and the NDP to win the hearts and minds of voters on the left. In an attempt to reaffirm her position as a champion of working people, Horwath went on to criticize the Liberals for not including a $15/hour minimum wage, a promise she plans to deliver on, if her party is elected in 2018.

What does this mean for you?  It’s a popularity contest!

With this Budget, the 2018 provincial election campaign is on. The Liberal government’s first balanced budget since 2008 has given Premier Wynne the power and the leeway to begin spending in earnest on the kind of programs that appeal to the Liberal base—hence the focus on expanded health coverage, education investments, and transit. With announcements earlier in the month on hydro relief and housing changes, the Liberals cleared the deck so they could spend Budget Day focused on initiatives like OHIP+: Children and Youth Pharmacare, hospital funding, and childcare investments that have the most appeal to traditional Liberal supporters.

The days of “tough decisions” and “strong medicine” are over—at least until after the next election. Expect positions and policy-making over the next year—by all three parties—to focus on appealing to constituents whose support they need to win on election day. For the Liberals, with their dwindling poll numbers, it means doing all they can to hold on to their base, and remind their voters from the last election why they gave the party their trust. For Patrick Brown’s PC Party, his majority-territory poll numbers will make them even more risk-averse as they look to avoid alienating potential swing voters. And for Andrea Horwath’s NDP, with polling numbers that put them in second place ahead of the Liberals, expect more policy announcements like the Pharmacare plan unveiled at their Toronto convention last week—policies that make their hardcore base happy, but that also seek to pick off some of the left-leaning GTA voters who went firmly for Kathleen Wynne in the 2014 election.

As voters and stakeholders, it will be important to understand where your issues fit in this political calculus. And it’s more important than ever to truly understand what motivates government decision-making in this politically charged context. Gone are the days when effective public affairs and government relations were simply about making the right phone call. One year out from an election, it’s very much a popularity contest and therefore, an effective public affairs campaign will mean demonstrating to government, in a real way, that the public—their voters—are squarely on your side.