Ontario heading back into deficit in pre-election budget

Theglobeandmail.com
March 7, 2018
By Justin Giovannetti

It took the Ontario government a decade to balance its budget; now, after a single year of showing a surplus, the province's books are headed back into deficit with promises of new spending before the next election.

Finance Minister Charles Sousa said that Ontario's Liberal government will promise billions in new spending on health care and child care, creating a deficit of up to $8-billion in a pre-election budget that will be tabled on March 28. The spending document will break a key promise by the party to get the province out of red ink.

The deficit comes at a time when Ontario's economic engine has been roaring. The economy grew at its fastest rate in seven years in 2017 and is expected to top 2-per-cent growth this year. Unemployment is also near its lowest level in decades.

"We will be running a deficit, starting next year at less than 1 per cent of GDP. Our budget will have a clear path to track back to balance. But let's be clear, we are making this choice deliberately," Mr. Sousa said to a business crowd in downtown Toronto.

Laying out the priorities he and Premier Kathleen Wynne will focus on when Ontarians head to the polls in early June, Mr. Sousa said the budget would commit new spending on groups that have been left behind as the province have prospered. The budget will help with the cost of child care, long-term care for seniors and elements of the health-care system struggling after years of penny-pinching by the government to get back to balance.

Mr. Sousa said the province was using the good economic times to open the spending taps. "We are choosing to put our strengthened fiscal position to work to address our priorities," he said.

To the opposition, the announcement of a deficit was seen as an attempt to buy votes. The budget is a "final, last-ditch ploy to win the next election," according to Progressive Conservative finance critic Lisa MacLeod.

"After promising a balanced budget for years to come, the Wynne Liberals are already changing their tune and plunging the province back into deficit. They can't be trusted to keep their word," she said.

New Democrat John Vanthof said the deficit promise was the sign of an "old, tired government." Ontario's NDP has yet to release its election platform and Mr. Vanthof would not say whether the party will promise to table a balanced budget.

Ontario's return to deficit comes as the federal government's budget is awash in red ink with billions of dollars' worth of new spending, a predicted deficit of $18.1-billion in the fiscal year starting in April and no timetable for a return to balance. During its 2015 campaign, the federal Liberals had pledged to keep deficits at no more than $10-billion and balance the books by 2019.

The provincial Liberals in Ontario have been focused on slaying the province's deficit since the aftermath of the financial crisis, when economists warned the province would face a ballooning debt unless it significantly curtailed spending. The government commissioned a report from former Toronto-Dominion Bank chief economist Don Drummond in 2012 that called for belt-tightening to return to balance by 2017.

On Wednesday, the Finance Minister could not tell reporters how large the deficit will be or when he expects Ontario's books to be balanced again. The province's last budget in 2017 had predicted that the books would remain balanced through to 2020.

While the province's economy is currently strong, the risk of a collapse in the North American free-trade agreement, the growing presence of Buy American legislation and the promise of tariffs on steel and aluminum by U.S. President Donald Trump has led to predictions of significant economic risks in the future, according to Mr. Sousa.

But the future risk of a recession is a good reason not to run a deficit, according to economist Trevor Tombe at the University of Calgary. "To run a deficit in anticipation of a negative shock is the opposite of what you should be doing," he told The Globe and Mail.

"To properly prepare for negative economic shocks you need to run surpluses to reduce your debt burden. You need to reload your fiscal cannon, so that when the shock occurs, that's when you're forced into a deficit."