Please find below our analysis of the 2015 Ontario budget. Our review is occasionally interrupted by the government’s Progressive Conscience and its Fiscal Conscience. We do not know how this happened, so please pardon the interruptions.
The 2015 provincial budget confirms the policy and political priorities for the Ontario Liberals that were previewed in the 2014 election. The Premier has taken the approach, and has said as much in recent announcements, that she is going to use her time with a majority government to take big, bold action on the issues she feels need to be addressed. In short, she refuses to tell her grandchildren that she ‘did nothing’ when she had the chance to make a difference on issues of importance.
To that end, major budget initiatives like the sale of 60 per cent of Hydro One [Progressive Conscience: No!], changes to beer sales and a new cap and trade system [Progressive Conscience: Yes!], were all announced prior to the budget.
The government reiterated today that it is on track to eliminate the deficit—which was $10.9 billion in 2014-2015 and is forecast to be $8.5 billion—by 2017-2018. [Fiscal Conscience: Slightly uncomfortable fact: The deficit has gone UP by almost 20 per cent over the last two years.] The government is banking on holding spending almost flat over the next three years, although in actual fact this means a small reduction in overall program spending [Progressive Conscience: Wait. What?] and a moderate increase in debt servicing costs.
The government met its belt-tightening goal this year [Fiscal Conscience: Nice!] but the real challenges will be in the next two years when the targets get larger and the number of pain-free opportunities for spending reduction gets smaller. [Progressive Conscience: Uh-oh.]
Having said all of this, Finance Minister Charles Sousa’s budget does not feel like an austerity budget. [Fiscal Conscience: Boo.] [Progressive Conscience: Hurrah!] Instead, there is renewed focus on investment in government priorities such as transit infrastructure, economic development, poverty reduction and health care. [Progressive Conscience: Amen!]
As is always the case, there is a full section in the Ontario budget dedicated to the federal government. With less new funding for Ontario in this week’s federal budget than was hoped for, Premier Wynne will need to keep looking for other partners, like Quebec Premier Phillipe Couillard, or a potential new prime minister [Progressive Conscience: fingers crossed] in the fall, to join with her on issues such as pensions, equalization, the Ring of Fire and infrastructure.
Jobs and the economy
This budget has a strong focus on investments in jobs and the economy with infrastructure as the centrepiece (see below). Beyond the focus on infrastructure are economic investments in the skilled trades, youth employment, an expanded jobs and prosperity fund, support for industrial electricity costs and ongoing regulatory burden reduction.
Program Review, Renewal and Transformation (PRRT), New Revenue Tools
Program Review, Renewal and Transformation (PRRT) is the new name for the government’s chopping block—and the goal for this past year was to find $250 million in efficiencies. That goal increases to $500 million per year over the next three years, and it’s clear by the kind of small-fry cuts outlined in this budget (narrowing eligibility for film production tax credits, consolidating underutilized school space) that the government may have to go after the big fish in the coming years. [Fiscal Conscience: But what will we cut?] [Progressive Conscience: Good point. What will we cut?] Strategically, governments often make the big cuts in year one of their mandate, a sign that perhaps this government is counting on [Fiscal Conscience: “hoping for”] a growing Ontario economy to carry the heavy load in future years.
There were no additional details regarding the government’s sale of assets (beer and Hydro One) however the government is taking action in other areas to increase revenues for its coffers. Some of these initiatives include: continued efforts on tax evasion in the underground economy, selling off various other real estate assets and incremental increases to existing user fees.
Investing in infrastructure is the signature piece of this budget with the province declaring that the days of under-investing in infrastructure are over and that that province is “making the largest investment in infrastructure in the province’s history—more than $130 billion over 10 years.” [Fiscal Conscience: This is actually really good.] The government’s main infrastructure priorities remain transit and transportation, including $31.5 billion over 10 years of dedicated funding for Moving Ontario Forward, which itself includes an additional $2.6 billion as a result of increased revenue projections from asset sales. Other infrastructure highlights including education ($11 billion), post-secondary repairs ($900 million) and health and social infrastructure ($11 billion) are dwarfed by the focus on transit and transportation.
The budget was quiet on the big-ticket items for health care, such as physician payments, pharmaceuticals and hospital costs—choosing instead to focus on program-related investments that provide direct services to Ontarians. Highlights included:
- Increasing home-care funding by five per cent per year over the next three years ($750 million)
- Investing $138 million over three years for mental health and addiction services
- Contributing to the costs of one IVF cycle per patient
- Considering allowing pharmacists to provide travel vaccines in pharmacies
Health care is projected to consume 42 per cent ($50.8 billion) of total program spending in 2015-2016, 1.2 per cent more than the 2014 budget. The government expects to hold the health budget to an average 1.9 per cent increase overall between 2013-14 and 2017-18.
The difficult choices the government will be required to take to hold health spending relatively flat remain largely unclear. But they will no doubt occur. All we know now is that the province is looking for efficiencies in the Ontario Drug Benefit Program, reductions in costs for brand and generic drugs and cuts in the area of lab tests and assistive devices.
Ontario Retirement Pension Plan (ORPP)
The ORPP remains a flagship priority for this government [Progressive Conscience: yeah it is!]—it warranted its own press release with this budget. The new announcement here is that Ontario is introducing legislation to establish the ORPP Administration Corporation, the arms-length body that would be responsible for administering the ORPP, and that an interim board will be put in place when the legislation passes to oversee implementation. The government is clearly waiting to see if the federal election results (e.g. a Liberal-led government that will expand the CPP) will let them off the hook for this plan. [Progressive Conscience: Kathleen Wynne ❤ Justin Trudeau (maybe even Thomas Mulcair)]
What does budget 2015 mean?
Ontario faces a number of enormous challenges: a still sluggish global economy, an aging population, large and growing debt and significant infrastructure challenges. Premier Wynne’s job is not an easy one.
This budget, and the policy announcements that preceded it, include some bold strokes to move Ontario forward. The direction, if not all of the specifics, is consistent with the proposition the Premier put to the people of Ontario in last year’s election to create a more confident, more progressive and fairer Ontario.
There remains not insignificant mystery around how the government can eliminate an $11 billion deficit in two years. In 2012-2013 the deficit was $9 billion. For the current fiscal year the government is forecasting a deficit of $8.5 billion. Much work remains. [Fiscal Conscience: Moody’s, do you care to weigh in?]
This combination of bold policy announcements and a severe and still mostly unclear fiscal correction hold potentially profound implications for businesses and other stakeholders. From grants to public sector compensation to investment opportunities to service delivery reform, the landscape in Ontario just got more interesting (and potentially more profitable or more challenging).