Balancing the Ontario budget by 2017-18 just a pipe dream

Ontario’s provincial government wants a balanced budget for the 2017-18 fiscal year, and Finance Minister Charles Sousa is adamant that Ontario will reach that goal.

Given the arrival of spring budget season, the most recent Ontario Economic Outlook and Fiscal Review (from November 2014) provides some indication of where Ontario is headed.

According to the review, between 2013-14 and 2017-18, total expenditures (including the reserve) are expected to rise from $126.4 to $134.5 billion - an increase of 6.4 per cent. Meanwhile, revenues are expected to rise from $115.9 to $134.5 billion - an increase of 16 per cent.

For Ontario, the heavy lifting needed to balance the budget was obviously expected to come from the revenue side, with expenditure restraint playing a minor role. Over a four-year period, this translates into average annual expenditure and revenue growth of about 1.6 and 4 per cent respectively. These figures can also help us assess the performance to date. Between the actual results for 2013-14 and the current outlook for 2014-15, are expenditures up by 1.6 per cent or less? Are revenues up by four per cent or more?

Let’s look at the spending picture first. Despite some savings that have apparently been found in terms of program review and year-end savings totalling about $1.3 billion, total expenditures are still up by three per cent - rising from $126.4 to $130.2 billion. If spending continues to grow at three per cent, it will reach $142 billion dollars by 2017-18, substantially above the current budget plan.

Spending has grown at about double the rate needed for Ontario to be on track to meet its deficit target. Across the vast pantheon of ministry expenditure categories, only three have seen a decline: Tourism, Culture and Sport (-7.6 per cent), Natural Resources (-0.9 per cent) and the Attorney General (-2.1 per cent).

The remainder all grew, with rates ranging from a low of 0.6 per cent for Citizenship and Immigration to a high of 83.9 per cent for Infrastructure. Even the Ministry of Government Services will see an increase from $728 million to just over $1 billion in spending - an increase of 31 per cent.

Of course, the key categories are the big-ticket items of Health, Education and Social Services, which together account for two-thirds of provincial government spending. Over the course of a year, Health grew at 2.3 per cent, Education at 5.1 per cent and Social Services at 7.9 per cent. On the expenditure side, it would appear the first year of moving toward a balanced budget by 2017-18 has missed the expenditure growth target by a fair amount.

How about revenues? Between 2013-14 and 2014-15, total revenues rose from $115.9 billion to $118.4 billion - an increase of only 2.1 per cent. Overall, revenues have grown at about half the average rate Ontario needs to meets its goal of a balanced budget by 2017-18.

Despite being committed to balancing its budget, Ontario is still growing its expenditures faster than its revenues. If revenues continue to grow at 2.1 per cent, then by 2017-18 Ontario’s total revenues will be $126 billion. When compared to expenditures of $142 billion that same year, it means the provincial deficit will have actually grown from $10.8 billion in 2013-14 to $16 billion by 2017-18.

Moreover, Ontario is in the curious position of suffering from anemic overall revenue growth even while the burden of some keys taxes has grown rather substantially. Personal income tax revenues are up 8 per cent and provincial sales tax revenue is up 7 per cent. Tobacco tax revenue is up 17 per cent while vehicle and driver registration fees are up 16 per cent. Corporate tax revenues, on the other hand, are down, which is more of a reflection of the poor economy that still marks Ontario.

To sum up, after a year of trying to move Ontario toward a balanced budget by 2017-18, Ontario does not appear to be making meaningful progress.

Expenditures grew at about double and revenues at half the rate needed. Unless the final figures for 2014-15 show some revenue windfalls and/or surprise expenditure restraint, even more work will be required to get on track for the remaining years.

As a result, Ontario will not be balancing its budget by 2017-18, and the additional deficits will bring its net debt to over $320 billion.