2018 Ontario Budget

The Top Line

The Liberal Government tabled Budget 2018 in the Ontario Legislative Assembly this afternoon.

The Budget demonstrates that, for the coming election, the Liberal Party is going all in on a bet that voters will prefer large government investments in social services to the reduced spending and lower taxes promised by Doug Ford and the Progressive Conservative Party (PC Party).

Premier Wynne and her team have long branded themselves an ‘activist centre’ government – that is, a government that sees an important role for itself in growing the economy and providing major public services.  They have pitched that approach to voters as the best way to ensure that all Ontarians benefit from economic growth.  However, in order to significantly ramp up spending on new and existing social services, Budget 2018 abandons the commitment to balanced budgets from 2017-18 onwards that the Liberals also committed to as part of that approach.  Notably, the rollout of the vast majority of the proposed new spending is timed to occur after Election 2018 – meaning that the Liberals are positioning the proposed services as conditional on their re-election.

In that sense, the Budget is ultimately a continuation of the strategic jockeying between the parties, which has played out most intensely since Doug Ford assumed leadership of the PC Party, to set the terms of debate for Election 2018.

Doug Ford has used his leadership acceptance speech, media interviews, and several political rallies to deliver a focussed message that the Liberal government spends recklessly and mismanages the public purse.  His talking points on tax cuts and finding efficiencies are purposefully general – no details about service cuts that may upset specific interests groups – and meant to appeal both to fiscal Conservatives and swing voters who are tired of the Liberals and would like reduced taxes.

In response, the Liberal government has highlighted existing social programs and rolled out substantial new social spending, seeking to emphasize for voters the services that they could lose under a belt-tightening government.  Ultimately, the Liberals are trying to force Mr. Ford into the Hobbesian choice of either abandoning his commitments to tax cuts and balanced budgets or specifying which social programs he would eliminate to reduce government spending.  That push and pull will be a key element of the coming election campaign.

A longstanding strategic challenge for the Ontario New Democratic Party (NDP) has been attracting the attention of voters and maintaining a consistent policy platform at a time when the Liberal Party has repeatedly tacked to the left of the political spectrum.  Budget 2018 again shows the Liberals taking several pages – including subsidized preschool and dental care – from the NDP playbook.  To succeed in Election 2018, the NDP will need to reclaim authority on progressive issues – which they will try to do in large part by painting the Liberal Party as insincere and opportunistic – not truly progressive.

Economic Overview

Currently, unemployment is at 5.5 per cent – the lowest rate in seventeen years – and Ontario’s economic growth has exceeded that of all G7 countries since 2014.  Going forward, economic growth is forecasted to slow considerably to 1.8 per cent in 2019 and 1.9 per cent in 2020.  Conservatives will claim that Liberal mismanagement and a high tax burden have held back the economy from being as strong as it could be.

The introductory chapter to Budget 2018 acknowledges that 2 per cent economic growth is good, but not great – something that all the parties will agree on.  The Liberals continue to argue that generous government spending on social services is key to bolstering the economy, which has set them on a public policy collision course with the PC Party, which will say that shrinking the size of government is a key driver of economic growth

In recent years, the Liberal Party has repeatedly suggested that, despite the robust economy, many people in Ontario are struggling to make ends meet, and that government programs should play a key role in helping them to do so.  Budget 2018 is an all-in bet on that message resonating with voters when packaged correctly.  Deficit spending on social services is positioned in budget communications documents as a choice to spend more on “care and opportunity” – the implication being that other parties would cut spending in those rather broad and important areas.  The Liberals will try to make that the key debate of Election 2018.

Fiscal Outlook

The Budget forecasts a surplus of $600 million in 2017-18, before moving into deficit until 2024-25.  The Liberals are portraying those deficits as small and temporary – less than one per cent of GDP and with a path back to balance by 2024-25.  To have success in Election 2018, they will need to convince voters that approach passes as sound fiscal management, particularly as Ford and the PC Party have so far enjoyed success in public polling by preaching a message of balanced budgets.

In the coming years, Budget 2018 projects annual deficits in the order of:

  • 6.7 billion in 2018-19;
  • 6.6 billion in 2019-20;
  • 6.5 billion in 2020-21;
  • 5.6 billion in 2021-22;
  • 4.0 billion in 2022-23;
  • 2.5 billion in 2023-24; and
  • Balance in 2024-25.

Over the same time period, Ontario’s debt-to-GDP ratio will increase from the current 37.1 per cent to a high of 38.9 per cent in 2021-22, before trending downwards again.

Budget 2018 proposes to eliminate the Personal Income Tax (PIT) surtax and make several concurrent adjustments to the PIT brackets and rates.  The upshot of the changes is that individuals making between $92,000 and $220,000 will see their personal income taxes rise.

Budget Breakdown

Economic Development

Budget 2018 defines uncertainty in the international trade environment and rapid technological change as the two biggest economic risks for Ontario.

In that context, the Government proposes a ‘Good Jobs and Growth Plan’ that would allocate $935 million over the next three years to several skills and economic development programs, including support for trades, apprenticeships and postsecondary education, diversifying trade, helping businesses grow and compete, and economic infrastructure.

Beginning March 28, 2018, the Ontario Research and Development Tax Credit and the Ontario Innovation Tax Credit will be enhanced.  An amendment to the Ontario Interactive Digital Media Tax Credit would make more film, television, and internet businesses eligible for the program.

A three-year Women’s Economic Empowerment Strategy would focus on increasing pay transparency, supporting women’s corporate leadership, function as a return-to-work program for mothers, and encourage sharing of caregiving responsibilities between parents.

Social Services

As previewed by last week’s Throne Speech and several subsequent public announcements, a substantial portion of the new spending proposed in Budget 2018 is focused on social services.  Overall, the Budget would invest $20.3 billion over three years in various healthcare, child care, and other social services.  Notable elements of the spending package include:

Healthcare

  • Beginning in the summer of 2019, a new Ontario Drug and Dental Program would reimburse 80 per cent of eligible prescription drug and dental expenses each year, up to a maximum of $400 per single person, $600 per couple, and $700 per family of four with two children. The program would only be available to Ontarians not covered under an employer-provided health and dental care benefits plan.
  • An expansion of the recently-created OHIP+ program to cover eligible prescription drug expenses for those 65 and older.
  • A one-time investment of $822 million in 2018-19 in Ontario’s hospital system.
  • $2.1 billion in spending over four years on mental healthcare and addiction services.

Seniors Care

  • A new Seniors’ Healthy Home Program, funded with $1 billion over three years, beginning in 2019-20, would help seniors continue living in their home.
  • Creating 30,000 new long-term care beds for seniors over the next 10 years – including 5,000 new beds by 2022 – by investing $300 million over the next three years, including $50 million next year.

Childcare

  • $2.2 billion in spending over three years to create new child care programs and reduce the cost of existing services, including, beginning in September 2020, free preschool for children aged two-and-a-half and older, until they are eligible for kindergarten.

Social Assistance

  • Starting in 2018, $1.8 billion in spending on services for adults with developmental disabilities.
  • Increased social assistance benefit payouts of three per cent per year for each of the next three years.

Opposition Reaction

Doug Ford told voters to stay tuned for details of his PC Party’s fiscal plan.  However, he did speak out firmly against the proposed PIT increases, saying that he will not burden the 1.8 million people who would see their taxes increase under Budget 2018 to fund new spending.

Ford is getting nominated in the Etobicoke North riding later tonight.  Watch for him to use that event as a rally to drive extra media coverage of his opposition to the Budget.  The PC Party recognizes that it can take its time in responding substantively to the Budget and publicizing its own fiscal plan, because a PC government would not be tied to any of the new spending initiatives proposed in Budget 2018 – so the majority of them – that will not be in place for the coming fiscal year.

NDP Leader Andrea Horvath questioned the Liberals’ commitment to the social programs announced in Budget 2018, suggesting that the new spending on public services is a cynical and desperate ploy to get votes.  Indeed, how voters perceive the proposed initiatives – as believable or not – may determine if either the NDP or Liberal Party are able to attract a coalition of progressive voters large enough to win Election 2018.

What Comes Next – Countdown to Election 2018

The Legislative Assembly is poised to sit long enough for the Government to pass Budget 2018 in early May.

The progressive measures in the Budget are meant to attract centre-left leaning voters and will be portrayed by the Liberals during the coming campaign as at-risk for elimination by a Conservative government.

By early May, expect the new spending proposals in the Budget to be repackaged into the Liberal Party’s Election 2018 platform.  What today truly demonstrates is that election season is now well underway.