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The Government of Ontario is counting on a resilient economy to eventually bring the provincial books into balance – seven years from now.

Fresh off of posting the province’s first surplus since before the global financial crisis, Ontario’s Finance Minister Charles Sousa announced a swift return to deficit spending in unveiling the Liberal government’s final pre-election budget on Wednesday.

The plan pushes the next balanced budget in Ontario to 2024-25 – a target date that implicitly relies on the absence of a recession over that time.

That assumption may not be realistic, considering the advanced age of the global economic recovery. According to the economic consensus, the end of the business cycle is now closer than the beginning.

A serious downturn, should one unfold over that time, could expose the province to the risks of running serial deficits, which add to the provincial debt burden and reduce the fiscal firepower available to the government.

Mr. Sousa fairly emphasized that the budget shortfalls are to be modest ones.

Projected deficits for the next three years are between $6-billion and $7-billion, which amounts to 0.8 per cent or less of Ontario’s GDP. By contrast, the budget shortfall in Ontario back in 2009-10 came in at 3.2 per cent of GDP as the provincial government contended with the local effects of the global recession.

That episode demonstrated how a severe downturn can throw government finances into disarray. Not only did Keynesian-style stimulus spending see provincial outflows soar, but the shrinking economy squeezed Ontario’s income statement on the revenue side. In 2008-09, provincial revenues shrank by 6.3 per cent. They declined by another 1.2 per cent the year after.

But the plan outlined in Wednesday’s budget seems to rely on the economy continuing to grow, if at a moderating pace. And the eventual path back to balance relies on rising revenues rather than spending restraint.

The budget outlined $20.3-billion in new money over the next three years on health care, child care, mental health and more. That’s followed by a “recovery plan” that shows the budget shortfall narrowing before returning to balance in 2024-25.

Mr. Sousa said in a press conference that slaying the deficit this time around will not require phasing out any of that new spending.

“Actually, the programs we’re initiating will continue,” Mr. Sousa said. “The plan in the budget talks about the degree of economic growth.”

In other words, the economy will take care of the deficit all by itself.

The Finance Minister was quick to reinforce that the budget is based on conservative growth assumptions. The government’s forecast for real GDP growth averaging 1.9 per cent per year over the next three years is at the lower end of economists’ consensus range.

But even slowing growth represents an expanding economy. A real recession would almost certainly derail the new deficit-elimination plan and extend the target date for balance indefinitely.

Which is precisely why conservative fiscal policy suggests running budget balances or surpluses when the economy is growing, in order to have the strongest possible fiscal position once a recession hits.

Running deficits when the economic conditions don’t necessarily demand them weakens the province’s finances, makes the provincial economy more vulnerable to a serious slowdown and inflates debt levels.

Nearly ten years of deficit spending after the global recession pushed Ontario’s net debt from less than $200-billion in 2009 to $308-billion, as per the current provincial estimate. Next year, that number is forecasted to rise to $325-billion.

Largely as a result of the pace of debt accumulation, Ontario’s credit rating has been downgraded by three debt-rating agencies since 2012.

One of those agencies already hinted at further review of the province’s creditworthiness. “A return to deficit borrowing during a period of economic growth would be inconsistent with [our] current rating expectations,” Fitch Ratings wrote in early March.

The provincial government prefers to portray the debt load relative to the size of the economy. By that measure, debt-to-GDP will begin to rise as a result of the deficits but is expected to remain below its 2014-15 peak of 39.3 per cent, according to budget documents.

But that relative debt burden remaining manageable also depends on the provincial economy continuing to expand, which is far from assured.

Mr. Sousa has repeatedly characterized the return to deficit as “deliberate,” as opposed to the involuntary type that a recession can foist on you. Many economists would say it’s best to avoid the former, so as to better prepare for the latter.

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