Five things to watch for in Ontario’s budget

Theglobeandmail.com
March 27, 2018
Mat Lundy and Tom Cardoso

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Facing uphill odds in June’s election, the Ontario Liberals will dangle plenty of incentives to prospective voters when it tables the final budget of its mandate on Wednesday.

The government will propose billions of dollars in new spending, some of which has already been announced, including free child care for preschoolers and several health initiatives.

In doing so, the Liberals will abandon a promise of balanced budgets, sending Ontario back into deficit. To many, the fiscal U-turn will be seen as a last-ditch attempt by Premier Kathleen Wynne to curry favour with voters as her party lags in the polls.

Finance Minister Charles Sousa says his party “deliberately” chose to ramp up spending, and that the budget will include “a clear path to track back to balance.”

No doubt, many voters will be watching the budget for this new fiscal timeline. Here are five things to watch on Wednesday.
The deficit and debt

It took the Liberals a decade to bring Ontario’s books back to balance. The coming 2018-19 fiscal year was once slated to stay in the black, as well, but now will run a deficit “that is less than 1 per cent of [gross domestic product],” Mr. Sousa recently said. Based on 2016 GDP figures, such a deficit would run up to $8-billion.

The about-turn has raised some eyebrows. Ontario's economy reeled off impressive growth in 2017, and the province's jobless rate is hovering near a two-decade low -- hardly a climate that would require a return to deficit. Given the "advanced stage of the business cycle," such deficit spending is "unusual," Bank of Montreal chief economist Douglas Porter recently wrote. The C.D. Howe Institute said Ontario’s current fiscal path is "unsustainable" in a new report.

The province’s debt will also be under the microscope. The net debt-to-GDP ratio has declined of late and was projected to hit 37 per cent by 2019-20, down from a peak of nearly 40 per cent. But with new spending on the way, the outlook is liable to change.

The Liberals announced an ambitious proposal on Tuesday: free child care for preschoolers, starting in 2020. The new program, costing $2.2-billion over three years, would provide free licensed care to children from the age of two-and-a-half until kindergarten (between ages four and five). It would cover 125,000 children, the government says, and save families about $17,000 per child annually. Although generally cheaper than infant and toddler care, preschool fees have risen at a faster rate than inflation in most major cities of late, according to an annual study from the Canadian Centre for Policy Alternatives.

As of mid-2017, 45 per cent of Ontario’s population fell inside the proposed age expansion for free pharmacare.

One of the key policies in last year’s budget was OHIP+, a new program that went into effect this year and provides Ontarians aged 24 and under with free prescription drugs. The next budget plans to extend benefits to those aged 65 and up, starting Aug. 1, 2019. At the moment, Ontario’s seniors are eligible for prescription drug coverage through the Ontario Drug Benefit program. Unlike that program, OHIP+ would eliminate deductibles and co-payments for seniors, making more than 4,400 medications “completely free,” the government says.

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In its budget last month, the federal Liberals created an advisory council on implementing a national pharmacare plan. The group is helmed by Eric Hoskins, who left his post as Ontario’s health minister for the role.

Starting in 2012, Ontario managed to curb health-care expenses in the budget by freezing operating funding to hospitals and tightening wages for a four-year period. Those were always short-term solutions, however, and they’re levers the province might not be able to make use of much longer. In a March report on the state of Ontario’s health sector, the Financial Accountability Office, a provincial spending watchdog, warned that the province may soon need to increase health-care spending to avoid reductions in access or quality of health care.

As a result, and in a bid to curb current wait times and overcrowding, last month the Liberals promised $822-million in new funding for the 2018-19 budget. Additionally, the Wynne government has pledged $2.1-billion over the next four years for the province’s mental-health system.

To stoke economic growth and address funding shortfalls that date back to the Mike Harris premiership, the Wynne government in 2014 committed to spending $190-billion on infrastructure through to 2027. Since then, the government has announced more than 4,700 education, health care, transit, recreation, community and other infrastructure projects spread out across the province. This budget will see the allocation of the latest tranche of funds, and specifics on how they’ll be spent. Some details have already been announced by the Liberals, such as the news two weeks ago that $9-billion of federal and provincial funds earmarked for infrastructure will go to Toronto for a slew of transit projects, including the Scarborough subway extension, a downtown subway relief line, a Yonge subway extension, and Mayor John Tory’s “Smart Track” plan. The provincial and federal governments will also kick in funds for upgrades and enhancements to the GO regional transit system.