The Top Line
Late this afternoon, the Government of Ontario released its 2019 Budget. Always a key event in the public policy calendar, this year’s budget took on added significance as the first major opportunity for the Ford government to define its economic agenda and put its stamp on Ontario’s financial books.
The backbone of the Budget is an “Ontario Recovery Plan” to return the Provincial budget to surplus and begin reducing the Province’s net debt burden. Beginning with a projected deficit of $11.7 billion and a net debt of almost $360 billion in 2018/19, the Ford government aims to return to a budgetary surplus by 2023/24.
Notably, this is the first time that the still-new Conservative government has put a timeframe on its promise to balance the Provincial budget. The Government appears to be making its fiscal projections with relatively modest assumptions for economic growth and is promising very significant investments in infrastructure starting immediately. It appears that Finance Minister Fedeli is sensibly factoring in some kind of economic slowdown during the Government’s mandate, as would be normal at this stage of a 10-year economic expansion.
In TSA’s Analysis of the 2018 Ontario Fall Economic Statement, we advised that the Ford government looked set to embark on a period of belt-tightening. This has proven true – aside from large investments in infrastructure and healthcare, government spending is constrained in the budget. Taxpayers will have to wait for tax cuts, notably the fulfilment of the Progressive Conservative Party election promise to pass a broad-based middle-class tax cut by the third year of its mandate.
In a strategic attempt to make it difficult for future governments to incur long-running deficits, the Ford government will introduce a Fiscal Sustainability, Transparency, and Accountability Act in the coming weeks. The legislation will bolster public reporting on the Province’s fiscal planning and require the Minister of Finance to include plans for reducing debt burden in every future budget. The Premier and Minister of Finance will forfeit salary if they fail to comply with the Act.
Budget 2019 appears to make the politically savvy move of balancing deficit reduction with infrastructure investments that are supported across the political spectrum. And the cautious economic growth projections leave room for the potential of upside surprises in later years. Meanwhile, the budget lays out plans to significantly liberalize alcohol sales and gambling in Ontario – consumer-focussed measures that should be popular with many Ontarians and could have the knock-on effect of increasing government revenues.
Fiscal Overview
Ontario’s economy experienced high growth from 2016 to 2018, expanding by more than 2% in each of those years. Budget 2019 projects significantly lower growth for the coming six-year fiscal horizon, during which real GDP is projected to grow by 1.4% 2019, 1.6% 2020, and 1.5% in 2021, before nearing 2% again in subsequent years.
Projected government revenues for 2019/20 are $154.2 billion, with projected expenses of $163.4 billion. Thereafter, government revenues are expected to grow by more than $4 billion annually, while government program expenses are planned to increase by only approximately $2 billion per year. That will result in a return to a budget surplus in 2023/24, with government revenues of $175.1 billion and expenses of $173.2 billion in that fiscal year.
In the years leading to a return to balanced budgets, Budget 2019 projects that government revenues will increase by 3%, while program expenses over that period are planned to expand by an average annual rate of just 1%.
Budget Highlights
Red Tape Reduction and Support for Businesses
Red Tape Reduction has been a focus of the Ford government since its first day in office, and was a significant element of the 2018 Ontario Fall Economic Statement. Budget 2019 builds on the pledge in the 2018 Statement to reduce business regulatory burden of 25% by moving up the deadline to 2020 from 2022.
A focus on streamlining services and eliminating bureaucracy runs through Budget 2019. Notably, the budget proposes a ‘Digital First’ approach to government services and administration. Beginning with ServiceOntario’s top 10 transactions, the Government will shift in-person transactions to digital channels.
Budget 2019 further proposes to encourage private sector investment by creating an Ontario Job Creation Investment Incentive that will accelerate the writing off of capital investments – including immediate write-offs for manufacturing machinery and clean energy equipment. The incentive mirrors similar measures in the 2018 Federal Fall Economic Statement and is targeted at increasing the difference between Ontario’s marginal effective tax rate and that of the United States.
Looking forward, the Government is launching a review of the eligibility and criteria for all Provincial business support programs and is embarking on a 10-year plan – called ‘Driving Prosperity’ – to support the auto sector in Ontario. Creation of any new business support programs or reforms to existing programs will be guided by an ‘Open for Jobs Blueprint’ that will be announced later in 2019.
Energy and Electricity
Not surprisingly, Budget 2019 reiterated the Ford government’s opposition to pricing carbon emissions, and to the Federal emissions pricing ‘backstop’ specifically. The Government of Ontario will continue to challenge the backstop at the Supreme Court and plans to “contrast” its climate plan with the Federal government’s carbon price in the coming months.
The Ford government’s emissions performance standards for industries are still in development, but the Budget says that stakeholders should expect the standards to be similar to the system currently in place in Saskatchewan.
Meanwhile, the Government will continue to work with businesses to simplify electricity bills and reduce costs, including taking steps to eliminate the global adjustment refinancing mechanism by November 1, 2019.
Infrastructure
One of the primary areas of spending in the budget is infrastructure, to which the Ford government is allocating $14.7 billion in 2019/20 and approximately $144 billion over the next ten years. That funding will be targeted at building or renovating hospitals and public schools, improving existing rail corridors in Southern Ontario and funding municipal light rail projects, and expanding the City of Toronto’s subway and light rail systems.
Healthcare and Childcare
In the context of Canada’s aging population, successive Ontario governments have acknowledged the importance of controlling the growth of healthcare expenses, but no government has yet managed to meet that challenge. To address this issue, the Ford government will consolidate public health units, digitize and streamline healthcare administration, and redesign the Ontario Drug Benefit Program to limit payouts.
Meanwhile, a new dental program for low-income seniors will provide free dental to single seniors age 65 or older with incomes of $19,300 or less and a new Ontario Childcare Access and Relief from Expense tax credit will grant eligible families up to 75% of their eligible child care expenses. An average family would receive $1,250 and the credit is means-tested, providing more funding for lower-income families, younger children, and children with severe disabilities.
Unlike other departmental expenses laid out in Budget 2019, total expenses for the Ministries of Health and Long-Term Care and of Education are expected to continue to grow at a high rate in the coming years. This is an area in which the Ford government has decided to continue to spend, and how it controls and allocates those costs over the coming years will be a key element of the plan to return to budgetary surplus while maintaining core services.
For the Consumers
Budget 2019 includes a host of measures aimed at decreasing the cost of a variety of essential and non-essential consumer goods and increasing consumer choice in Ontario. These measures are consistent with the Ford government’s “for the people” philosophy, which holds that government should not impose on the daily lives of citizens. Consumer reforms proposed in Budget 2019 include:
- Steps to attempt to reduce the cost of auto insurance, including by amending the Insurance Act to allow for electronic communications, opening up new business models – like pay-as-you-go insurance – and new tools for addressing insurance fraud.
- Reducing red-tape in the community housing system and reforming the Tarion Warranty Corporation for home warranties.
- Liberalizing alcohol laws, including by creating more points of sale and legalizing tailgating.
- Legalizing online gaming and single event sports betting and proposed amendments to the Ticket Sales Act to address scalping.
These measures are all low-cost ways for the Ford government to reduce the size of government and increase competition in the marketplace. Along with the deficit reduction plan that forms the backbone of the Budget, these measures present Ontarians with a very different vision of government than that of the McGuinty/Wynne Liberals – and, indeed, of the current Federal government.
Opposition Reaction
The Official Opposition NDP argued that the Budget cuts services too severely, and noted that planned spending reductions will particularly impact the Ministry of Agriculture Food and Rural Affairs and of Indigenous Affairs. Interim Liberal Party Leader John Fraser said that the Budget doesn’t “get the big stuff right” and focused too much on alcohol policy.
What This Means to You
As the Government works towards eliminating the deficit in the coming years, stakeholders should not expect significant new spending initiatives. The Premier and the Finance Minister have made clear their preference for low-cost measures to encourage economic growth and reducing the role of government.
That approach contrasts strongly to the preceding fourteen years of Liberal governments in Ontario and with the philosophy of the current Federal Liberal government – which is set to campaign for re-election this fall on the basis of deficit spending during a period of economic growth. Indeed, with the Ford government not running for re-election until 2022, stakeholders should expect Ontario Budget 2019 to have a significant impact on the Federal political discourse in the coming months. Premier Ford and Prime Minister Trudeau will continue to clash on policy – in fact, Mr. Ford sets the parameters for some of those coming disagreements by using today’s budget to demand “fairer” Federal-Provincial transfers and increased Federal spending on healthcare. Stay tuned!
