Briefing highlights
- Ontario fiscal update on tap
- Just sayin'
- Markets at a glance
- Pound hit by Brexit concerns
- Home sales slip in October
- Callidus loss widens
Election promises exacerbate the fiscal challenge, as does the prospect of slower economic growth and rising interest rates
— Toronto-Dominion Bank
Doug Ford has promises to keep. And challenges if he hopes to keep them. And a bit more time, at least, before he has to stop blaming the Liberals.
All of which means that “what is typically a staid affair will be anything but this time around,” as Toronto-Dominion Bank economists said of today’s Ontario fiscal update.
“An optimist will say that the Ontario economy is still in solid shape,” said Bank of Montreal senior economist Robert Kavcic, noting Statistics Canada reported just last week that economic growth in the province was the best in seven years.
“A pessimist, however, will note that there are challenges when looking further out on the horizon,” he added in a report on what to expect this afternoon.
“Most notably, campaign promises included meaningful personal and corporate income tax relief totaling roughly $4-billion by [fiscal year 2021-22]. If implemented, that would make balancing the budget by such a date difficult even under a rosy economic backdrop.”
Ontario Premier Doug Ford
Here’s where things stand as the Conservatives prepare to release an economic statement that Mr. Kavcic described as “an important one in that it will show businesses and investors where the province is planning to go” as it charts the way forward:
Premier Ford took control of the Ontario Conservatives and swept to a majority government without a hard and fast fiscal outline, ousting Kathleen Wynne’s Liberals.
As is the case with most new governments, the Conservatives blamed the Liberals for what they left behind.
Mr. Ford took it further, establishing an independent commission to probe Ontario’s finances, a smart move in terms of transparency and what’s realistic.
While taking into account certain accounting and pension issues, that commission put the 2018-19 deficit at $15-billion, far fatter than what was projected by the Liberals and representing 1.7 per cent of gross domestic product.
Which puts the focus on what Mr. Ford’s government unveils today.
“Based on our math, the government is facing an enormous fiscal challenge,” said Derek Burleton, TD’s deputy chief economist, and his colleague Rishi Sondhi.
“In order to bring the deficit down over time, gains in revenue need to run faster than spending,” they added in an analysis of “Ontario’s challenging budget math.”
“Yet, revenues will likely be constrained by moderate economic growth and slower increases in federal transfers,” they added.
“At the same time, debt service costs on Ontario’s relatively high debt load are slated to rise. And, the final challenge comes from campaign promises – both on the tax and spending sides – that could run as high as $9-billion annually when fully implemented.”
Mr. Burleton and Mr. Sondhi calculate that the government will actually disclose a current year deficit that’s narrower than what the commission suggested, but a still-hefty $12.5-billion or 1.4 per cent of GDP.
Here’s why:
Economic growth will probably top the “relatively cautious bar” pegged by the commission. At the same time, Mr. Ford will forego some Liberal spending plans that were included in the commission’s estimates, and, indeed, has already done so.
Those cuts will mean $2-billion less in spending this year, the TD economists said, with a further $1-billion in savings as other programs run their course.
But remember Mr. Ford’s campaign promises, such as reducing gas taxes by 10 cents a litre and spending in other areas.
Then there’s the cost of killing the cap-and-trade program, plus other things that suggest a cap-in-hand approach.
There are other measures the Conservatives can take, of course, to tame the deficit. And we may not like them.
“All told, it stands to reason that Ontario’s first priority will be to firm up its fiscal credibility, with the first two years of the mandate likely focused on bringing down the deficit as much as possible,” said BMO’s Mr. Kavcic.
“Depending how the economy evolves, that could mean more meaningful fiscal restraint, and perhaps later/lower tax relief measures.”
Laurentian Bank Securities economist Dominique Lapointe expects Mr. Ford’s government to also put the focus on its recent “Ontario Open for Business” plan. The government could also cut the huge infrastructure program of the Liberals.
“Without questioning the significance that sound public infrastructures have for productivity and safety, prioritizing the most efficient and urgent public transit projects and delaying some others for later would lower borrowing requirements,” Mr. Lapointe said.
There’s also the possibility of pledging to reduce the deficit, and unveiling the details later, perhaps in next spring’s budget, he added.
“From a credibility perspective, the sooner the government gets its fiscal house in order, the better,” Mr. Burleton and Mr. Sondhi said, citing the weight of rising interest rates and slower growth.
“If the government plans to honour its campaign promises, program spending will have to be pared significantly,” they added.
“In turn, the impact of this needs to be dynamically included in economic growth forecasts. Importantly, revenue assumptions used in [the TD] analysis assume reasonably healthy economic growth. Should the economy take a turn for the worse, the government’s job becomes exponentially harder.”
Read more
- Laura Stone, Joe Friesen: Millions sunk into planning for three cancelled Ontario university campuses
- Laura Stone, Shawn McCarthy: Scrapping cap-and-trade will cost Ontario $3-billion in lost revenue: financial watchdog
- Brenda Bouw: Ontario to freeze minimum wage, eliminate mandatory paid sick days
- Why Ontario’s Doug Ford can’t cry poor and wiggle out of his election promises
- Justin Giovannetti: Ontario deficit at $15-billion, not previous government’s $6.7-billion forecast, say PCs
- Adam Randwanski: Doug Ford kicks at the provincial Liberals while they’re down
- Justin Giovannetti: Review calls for Ontario to reduce services, sell off assets
- Justin Giovannetti: Ford to strike committee to investigate Ontario’s fiscal situation
Just sayin'
Should the Ford government decide to delay some tax relief, be nice about it because ...
Source: daysoftheyear.com
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