Ford’s deficit-reduction plan reminiscent of Rae, McGuinty, Wynne years

On Thursday, the Ford government tabled its budget for the 2020/21 fiscal year, revealing plans to run some of the largest deficits in Ontario history—not just this year, but in years to come.

For fiscal year 2020/21, the Ford government projects an operating budget deficit of $38.5 billion. Although eye-popping, this number did not surprise many budget watchers, as it’s exactly the same number predicted in the government’s most recent fiscal update in August. For historical context, this deficit is larger than any recorded by Bob Rae’s government, which also faced a steep recession in the early 1990s.

Although this year’s budget deficit was predictable, the government’s fiscal outlook for the next few years will raise some eyebrows. The budget forecasts a $33.1 billion deficit next year and a $28.2 billion deficit the year after that.

That’s a lot of red ink and, of course, the result of three large deficits will be a substantial accumulation of new provincial government debt. By the end of 2022/2023, the recent budget forecasts that debt will be almost half (49.6 per cent) as large as all economic output in the province that year.

Moreover, due to these three large consecutive budget deficits, government interest payments on the debt will continue to grow. More specifically, for fiscal year 2022/23, debt interest costs will reach $13.9 billion—in other words, that’s $13.9 billion that will be unavailable for health care, education, tax relief, etc.

Of course, the Ford government has set this budget in a time of extreme uncertainty. Due to COVID and the related recession, the public health and economic environment that will emerge over the next few years is unknowable. So it’s reasonable to make allowance for that uncertainty.

Nevertheless, the Ford government’s decision not to prioritize deficit-reduction in the years immediately following a recession and a large deficit is reminiscent of the Rae government in the ’90s and the McGuinty/Wynne era in the 2010s when those governments faced steep recessions that contributed to rapidly increasing budget deficits.

Crucially, rather than move quickly to eliminate deficits once their recessions were over, these governments adopted a slow path to deficit-reduction. The result? Ontario’s government debt kept piling up. In fact, the vast majority of Ontario’s current debt was accumulated following the recessions of the early 1990s and the late 2000s. For example, under the McGuinty/Wynne governments, net government debt climbed (in nominal terms) from $169.5 billion in 2008/09 to $338.5 billion in 2018/19.

Simply put, Ontario’s debt growth since the 1990s has been relatively easy to understand. We saw two major recessions, when large deficits emerged, followed by extended periods when successive governments were unable to shrink those deficits quickly. And the province racked up most of its debt—during the recessions themselves—but in the extended post-recession periods when the Rae government in the ’90s and the McGuinty/Wynne governments in the 2010s posted large deficit after large deficit.

The Ford government’s latest budget suggests that history in Ontario may be about to repeat itself.