Announcing this week that Ontario’s deficit came in at $9.2-billion last year, lower than previously projected, Finance Minister Charles Sousa sounded confident about meeting the promise to get back to balanced budgets by 2017-18.
Even as Mr. Sousa strikes a buoyant tone publicly, however, some of his fellow Liberals are arguing behind the scenes that their government needs to push back its deficit-reduction targets.
Among the advocates of altering the timeline put in place by former premier Dalton McGuinty, sources say, are members of Kathleen Wynne’s cabinet as well as some of the senior Liberals from whom she takes advice.
Both Ms. Wynne and Mr. Sousa are said to remain committed to the 2017-18 date in private as well as in public, and an official in the Premier’s office insisted that’s unlikely to change. But the calls to accept larger deficits for longer can be expected to grow louder, as Ontario heads toward a 2014 budget season – and likely run-up to a spring election – that will place the rookie Premier’s policy priorities on a collision course with her province’s fiscal situation.
Sluggish economic growth is forcing the government to downgrade its revenue forecasts, placing more onus on spending cuts for a province that already spends less per capita than any other. To date, the government has exceeded its own expectations in finding savings, but those were partly one-offs from labour deals negotiated or imposed under Mr. McGuinty’s watch. Ms. Wynne appears to have little appetite for going back to war with unions, nor for structural reforms such as shrinking the size of the public service, believing they would further hurt an already troubled provincial economy.
More than just avoiding deep cuts, Ms. Wynne has made clear she thinks new investments in job-creation strategies are needed. Those are supposed to be central to her party’s platform, whenever the election rolls around. But under the current fiscal framework, there’s little money for them.
For all that the Liberals have to this point treated 2017-18 as an article of faith, some of them contend that there would be little political downside to pushing the date back. They maintain that most voters would be hard-pressed to name the current target, or the size of the existing deficit.
While the public might not pay close attention to the consistency of the deficit-reduction plan, the likely response of a much smaller audience goes a long way toward explaining why Ms. Wynne and Mr. Sousa are for now at least holding firm.
As former finance minister Dwight Duncan told anyone who would listen, softening the current plan would likely lead to a downgrade by credit-rating agencies. That could be a striking enough verdict to help the opposition Progressive Conservatives paint the Liberals as incompetent. More importantly, it could cause the government’s borrowing costs to go up, which among other things might negate whatever extra money the government freed up for new spending.
Not wanting to either take that risk or go heavy with austerity, Ms. Wynne appears to be pinning her fiscal aspirations on raising revenues. That might, in part, mean asking businesses to pay more, likely by ending or tightening existing tax credits. But mostly, she seems to hope her investments aimed at job creation, to be fleshed out in the months ahead, will help create enough growth to restock the provincial coffers.
To rely on that plan requires optimism not just that the economic policies will work, but that they will work rather quickly. The Liberals have given themselves a bit of leeway by maintaining higher projected deficits in 2013-14 and 2014-15 than the one in 2012-13. But their plan calls for the shortfall to begin declining steeply in less than two years. And again, that assumes overall spending growth remains very low – which does not seem compatible with what Ms. Wynne wants to do.
No wonder stretching the whole thing out a bit has a certain appeal. Ms. Wynne and Mr. Sousa are doing their best to resist the temptation, but it may grow stronger the closer that next budget gets.Report Typo/Error