Ontario bets strong economy will keep budget balanced

theglobeandmail.com
By JUSTIN GIOVANNETTI
April 27, 2017

Ontario has balanced its budget for the first time in a decade, pouring billions into health care and other social spending while wagering that a fast-growing economy propped up by strong U.S. demand will keep the province’s books in the black through next year’s election.

Premier Kathleen Wynne has allocated nearly $7-billion in new funding for health care over three years, including increasing hospitals’ operating budgets and providing free prescription drugs for everyone 24 years old and under. This comes on top of an already announced promise to spend $1.4-billion to provide homeowners with relief from rapidly rising electricity rates.

But the new-found largesse, which follows years of austere budgets as the Liberals sought to erase the province’s deficit, comes with no immediate plan to shrink the debt, expected to top $311-billion over the coming year.

Released only 14 months before Ontarians head to the polls, the $141-billion budget will serve as a campaign document for Ms. Wynne and Finance Minister Charles Sousa.

The flow of new spending comes as Ms. Wynne’s approval rating has tumbled close to the single digits in recent months and polls show widespread dissatisfaction with her government.

“This balanced budget writes a new chapter for the people of Ontario,” Mr. Sousa told reporters as he unveiled his budget on Thursday afternoon. Calling the budget “socially progressive,” the Finance Minister praised his work in balancing the books while providing billions in new funding for children, seniors and middle-class voters, all while avoiding any major tax increases.

The budget contains nearly $518-million in new operating funding for the province’s hospitals over the next year, an increase of more than 3 per cent that comes after years of frozen budgets.

The Finance Minister described the additional funding for health care as a “booster shot.” The new youth drug-coverage plan will cost an additional $465-million a year.

Mr. Sousa is vowing that the province’s books will remain balanced until the end of the decade, however that projection is based on forecasts of resilient U.S. demand, strong economic growth and soaring tax revenue.

With U.S. President Donald Trump demanding major changes to NAFTA and Brexit looming in Europe, the province’s forecasts are likely too optimistic, according to Karl Baldauf, vice-president of the Ontario Chamber of Commerce.

“There are reasons to be cautious based on the comments made by Donald Trump. That’s why projecting to be at zero with no deficit and no surplus over the next three years, we see a lot of uncertainty around that,” Mr. Baldauf told The Globe.

Ontario’s soaring housing market is also expected to help pay for new spending, with the land-transfer tax forecast to total $3.1-billion in the next fiscal year, nearly double what it was four years ago.

A 16-point housing plan was unveiled last Thursday to tackle the province’s increasingly unaffordable housing market by levying a new tax on foreign buyers and introducing rent controls.

While Ontario’s independent Financial Accountability Office has challenged the Liberals on whether they could balance the budget without significant tax increases or spending cuts, Mr. Sousa dismissed any suggestion that his budget forecast is too rosy.

“Every year, we’ve been told that we won’t be able to achieve our targets,” he said. “And every year, every single year, we exceed our targets and we surpass expectations.”

Progressive Conservative Leader Patrick Brown accused the Liberals of presenting a “so-called” balanced budget. He said the province’s debt has more than doubled since the Liberals came to power in 2003, but there is no plan in the budget to get it under control.

“The Wynne Liberals are cooking the books a year before the next election,” he said.

The government is putting off reducing the province’s net debt as a percentage of gross domestic product until well into the future.

Ontario has the highest subnational debt in the world. The government has set a target of fiscal year 2030 to reduce the debt ratio to where it was 22 years earlier at the prerecession level of 27 per cent of GDP.

While the debt isn’t high enough to merit a downgrade according to the DBRS ratings agency, Mr. Sousa’s decision to focus on increased spending rather than debt repayment means the province has little fiscal room to respond to an economic shock, according to DBRS assistant vice-president Paul LeBane.

“The big challenge going forward is that their priority seems to be around social programs, but the debt is still elevated and is going to stay elevated for the time being,” Mr. LeBane said.

The province will take in $141.7-billion in revenue over the next fiscal year, up $8.4-billion from the previous year. Expenses, including interest on debt, will climb to $141.1-billion, from $134.8-billion.

The budget won’t patch up the Liberal government’s rocky relationship with Toronto Mayor John Tory. The spending document provides little new money for affordable housing or infrastructure in the province’s largest city.

Mr. Tory will get to cross one item off his wish list: He will be granted the power to levy a tax on hotels that could be extended to short-term rentals, such as those provided by Airbnb.

NDP Leader Andrea Horwath dismissed the budget as a back-of-the-napkin plan that is “meagre and disappointing.” While the budget encroaches on her party’s turf by expanding drug coverage, she criticized it for not being a universal plan.

“This budget doesn’t even come close to undoing the damage Kathleen Wynne and her Liberals have done over the last 14 years,” she said.