With Ontario’s 2016 budget set to land next week, all eyes are on how the province intends to balance the remaining $7.5-billion deficit by the end of next fiscal year. But a brand new report is providing another narrative, in hindsight at just how the provincial deficit ballooned to that amount in the first place and suggesting it might possess a multi-billion surplus instead.
The provincial books will be in the red since the 2008/09 recession, and lots of were sceptical the Liberals could balance through the long-promised 2017/18 deadline. They’re likely to finally hit the black, but not before Ontario’s debt tops $298 billion sometime this year. And a new Fraser Institute report finds it didn’t need to be this way, actually, it argues Ontario might have between a $10 and $15 billion surplus.
How?
If it had held spending growing to inflationary pressures in the last decade.
Prevailing logic has held that decreased revenues throughout the recession, cuts in federal transfers and investments intended to enhance the economy increased the deficit, but Fraser Institute says spending decisions by the Liberal government was the largest contributor.
“The string of deficits in Ontario and the resulting dramatic run-up in provincial debt was avoidable and never the result of factors past the provincial government’s control,” authors Ben Eisen, Charles Lammam and Milagros Palacios write in a bulletin released Thursday.
The authors argue that demands on Ontario’s services grew more slowly than spending. Between 2003 and this year, inflation and population in Ontario grew a combined 2.8 per cent, while nominal GDP grew 3.2 per cent, and government program spending grew typically 4.7 percent over the past decade. The authors in turn argue that, had Ontario kept spending to the stage of GDP growth or even population demands, the 2016 budget would create a major surplus.
“If the province had restrained program spending growth to the rate from the nominal GDP growth since 2003/04, the Ontario government could be projecting a $10.7 billion surplus this fiscal year instead of a $7.5-billion deficit,” the report states. “If program spending had been held towards the pace of inflation plus population growth within the period, the extra in 2015/16 would be even larger, at $15.1 billion.”
The worth of a deficit, however, is incorporated in the eye from the beholder. People who like the big programs the Liberals have built could defend those deficits as necessary. Tuition rebates and the Ontario Child Benefit have helped level the arena for a large number of young people and long-overdue but still modest investments have been made to the welfare system.
And yet, balancing the books is essential not just to how credit rating agencies rank the province, but also to business confidence. In a separate report released on Thursday, the Ontario Chamber of Commerce found that 92 per cent of their members consider balancing the books and tackling the debt a top priority. Interest payments already top $11 billion annually – the third-highest single program spending area behind health care and education and more than the province spends on its entire welfare system.
Its members also express concern on the potential costs from the pending cap-and-trade program, with 32 per cent dreaming about clarity in the budget. Also it calls on government to reinvest that money in programs which help businesses transition to some lower-carbon economy – something already underway with an announcement Wednesday of $100 million in grant money to do just that.
