Globe and Mail columnist Jeffrey Simpson.The Globe and Mail
The world's most indebted subnational unit – Ontario – will carry on with another year of deficits, despite all kinds of favourable economic circumstances.
Oil and natural gas prices are rock bottom, a boon for Ontario, a consuming province. The Canadian dollar is in the tank, a fillip for exporters. The U.S. economy is growing twice as fast as the Canadian one, which ought to help Ontario.
Revenues flowing from all this good news are expected to grow by $8.4-billion, said Ontario Finance Minister Charles Sousa in his budget Thursday. But spending will rise by $6.7-billion, even though health and education budgets will be restrained. What can't be stopped is the growth in interest payments on Ontario's burgeoning debt.
Nor can the government's habit of subsidizing industries willy-nilly and of tackling climate change by levying a price on carbon but then taking all the new revenue to spend, rather than returning any of it to taxpayers from which it will come.
The anticipated deficit for this year is $4.3-billion, but that figure misstates reality. It reflects a one-time infusion of cash from the sale of 15 per cent of Hydro One. Without it, the government would be further from achieving a balanced budget in 2017-2018, as it has promised.
The $4.3-billion figure also counts on an increase in transfer payments from the federal government, for which no promises have been made. Indeed, the federal Liberal government will be transferring less to the provinces for health care than the previous Conservative government did when the two levels of government negotiated a new health accord. Why? Because the federal Liberals did not promise to increase health transfers by 6 per cent as the Conservatives had been doing.
In the past nine years in Ontario, the Liberals have doubled the provincial debt. The financial recession of 2008-2009, continued slow economic growth and the Liberals' propensity to spend have pushed the debt to $308-billion, the largest of any subnational jurisdiction in the world.
The interest payments on that bigger debt also rose, of course. They now consume more money than the community and social services budget, and far more than the budget for colleges and universities.
These days, Liberals in Ottawa and at Queen's Park prefer to speak less of deficits than debt-to-GDP ratios. Alas, in Ontario that ratio stands at 40 per cent, the highest ever.
But Premier Kathleen Wynne's Liberals have been told by their pollsters – and they believe it in their political bones – that the electorate, or at least the part of the electorate likely to vote Liberal, cares little about the fiscal burden being left to tomorrow's generation by today's deficits and increasing debt. As any Liberal MPP will recount, voters want more, and their party is happy to oblige.
Normally, a provincial budget would be of interest almost entirely to the citizens of that province. But since the federal government is a kind of Toronto-on-the-Rideau, heavily populated by people who worked in the Dalton McGuinty and Wynne provincial Liberal governments, what has happened, and what is happening, at Queen's Park is a likely harbinger for how the Trudeau Liberals will govern.
In one important respect, the Ontario budget is quite different from the federal one, because one item – health care – consumes more than 40 per cent of total provincial spending.
In the past four years, the Wynne government has been holding health-care increases to 2 per cent yearly, after a decade of 7-per-cent annual increases. The brunt of the restraint has fallen on hospitals and on employees. On Thursday, the government gave that sector $1-billion to ease the pain.
At some point, this health-care restraint will have to ease, if for no other reason than population growth, inflation and increases to employees will push spending to at least 4 per cent a year. In theory, some of this increase could be offset by reduced spending on education, given falling enrolments. But the closing of any school and the might of the teachers' unions causes any government to recoil.
As for the universities, they will continue to be squeezed, with transfers to them below the consumer price index and way below the schools' own rate of inflation, which is driven by collective bargaining agreements and pension plans for staff.
More restraint for the big-spending sectors – health, education, universities – lies ahead, but even that restraint will not balance Ontario's budget, so heavy is the increasing debt load.