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Stephen LeClair is senior fellow, C.D. How Institute and former financial accountability officer of Ontario.

Budget 2019 addresses several commitments made by the Ontario government. It presents a plan for a balanced budget, but it is not without risk.

Over the five years to the forecasted balanced budget, expenditures increase at less than half the rate of increase of revenue. Will the balanced budget fiscal plan be achieved through the forecast control of expenditures and growth of revenues? Forecasts do not come with certainty and the budget is no different. Elements of the fiscal plan create significant challenges for the government; elements of the fiscal plan address some risks.

The government estimates an $11.7-billion deficit this fiscal year, down almost $3-billion since last fall’s fiscal update. The budget sees the deficit declining to $10.3-billion by next year and $3.5-billion in 2022-23; a small surplus is expected by 2023-24.

Modest expenditure growth for programs will create calls from the public for an increase in spending. The government has stated that controlled spending will be achieved through efficiencies in, and reallocation of, expenditures. Improving efficiency and reallocation of spending are positive steps. These moves also create a challenge with the control of spending. Often, spending controls in the early years of a government’s mandate are reversed in the latter years as pressure mounts from both those who deliver the services and those who use the services. Not everyone will be happy with efficiencies found and allocations made.

The budget contains significant capital investments, such as in health-care facilities and transit. These investments can provide benefits to both people and businesses. Potential benefits include, among others, improved access to health care, reduced transit times and lower costs for businesses. The challenge for government is capital investments create increases in financing needs and potential operational expense.

The time is right for financing. Canadian and international institutions have recently reduced interest rate growth forecasts as a result of global economic uncertainties. Investing in the near term and using funding from Ottawa and municipal partners is a positive approach. However, there is the risk that interest rates may increase in the medium term, thus increasing the cost of government financing.

The strong revenue growth rate is driven by increases in personal income tax and sales tax revenues. This is surprising given that recent private sector forecasts for nominal gross domestic product have been diminished and the fiscal plan includes different tax benefits.

With respect to economic forecasts, the budget uses projections consistent with recent private sector estimates. Also, business investment tax incentives will support the continued growth of the economy. The incentives provide Ontario businesses relief so that taxes are more in line with the recent changes in the United States. Enabling businesses to quickly write off manufacturing investment will stimulate investment in Ontario. This is much needed as the province’s manufacturing sector has for several years operated close to full capacity.

The increase in personal income tax revenue is reasonable despite the tax incentives in the budget. The increases are consistent with the historical ratios of personal income tax revenues to nominal GDP.

Budget 2019 is a good start. It provides a balanced budget, which is a step toward a needed reduction in net debt. The budget is based on a reasonable economic forecast and emphasizes several of the priorities of the government. However, the lack of information on plans for achieving expenditure efficiencies creates uncertainty about the spending controls. It is a plan with risk.