Provincial economic outlook: challenges ahead

NRU
July 2, 2014
By Leah Wong

While Premier Kathleen Wynne’s Liberals triumphed over Progressive Conservative leader Tim Hudak’s plan to cut jobs and rein in government spending, the health of the provincial economy remains in question.

Throughout the election both the Liberal and PC parties committed to balancing the provincial budget, just with different timelines. The Liberals plan to balance the budget between 2017 and 2018.

“The Conservatives had a very aggressive plan to do this, but a very unpopular one,” York University Schulich School of Business associate professor Burkard Eberlein told NRU. “It’s not quite clear how the Liberals are going to achieve this, even one year later.”

Though highly unpopular, Hudak’s pitch to reduce the size of the public service by cutting 100,000 jobs showed a large portion of the budget is related to people. While the Liberals have promised to increase the wages of personal support workers, overall government employees have been warned to expect wage freezes - one of the ways the Liberals are looking to rein in spending.

While some economists predict the Liberals will have to make as many job cuts as the PCs were proposing, Eberlein doesn’t think is will be so dramatic.

“It will be packaged in very different ways,” said Eberlein.

Eberlein said the PCs could have said they would work with natural attrition to reduce the size of the public sector over time rather than talking about issuing pink slips to provincial employees.

While it isn’t yet clear what will happen at the provincial level over the next few years, Institute on Municipal Finance and Governance programs and research manager Andre Cote told NRU that the provincial financial situation does create a risk for municipalities.

Infrastructure is a challenging area as the province will need to work its $12-billion infrastructure investment into constrained budgets. Though the pre-election budget showed there will be increased funding for municipalities, including dedicated gas tax money for transit and transportation infrastructure, Cote questions if this can continue as the province’s finances become more constrained.

Cote said the province and municipalities need to look at how to increase municipal capacity to pay for services and infrastructure projects. This could include giving more municipalities access to a wider range of revenue tools, similar to what Toronto has access to through the City of Toronto Act.

“Municipalities are going to have to step up to the plate and raise some of those revenues themselves,” said Cote. Otherwise, municipal leaders will have to work with the province to transform how services are delivered, or transform how business between the levels of government works.