Ontario’s Progressive Conservatives are heading down the fiscal path carved out by the federal Liberals, with a leisurely approach to unwinding the debt burden of the pandemic’s economic shock that sidesteps any serious austerity measures.
Despite their very different political brands, Doug Ford’s PCs and Justin Trudeau’s Liberals have laid out remarkably similar plans, in the federal budget three weeks ago, and Ontario’s on Thursday. And the framing of the economic challenge facing Canadians and Ontarians is similar, too.
“It’s time to get things done,” Ontario Finance Minister Peter Bethlenfalvy told reporters of his budget, a dead letter once the provincial election campaign kicks off next week. “It’s time to rebuild Ontario.”
That line could have easily made an appearance in federal Finance Minister Chrystia Freeland’s budget speech, when she said: “So now is the time for us to focus — with smart investments and a clarity of purpose— on growing our economy.”
The speeches by the two finance ministers lean heavily on touting investments, with Ms. Freeland using that word or a derivative 18 times, and Mr. Bethlenfalvy outpacing her with 33 mentions. Each of them refer to the budget deficit just once.
The biggest similarity between the federal Liberals and Ontario Tories is the willingness to spend new revenue almost as fast as it appears, even with still-swollen deficits. In last year’s budget, the Ford government forecast revenue of $160-billion in fiscal 2022-23 and $167-billion the next year. But in the budget released on Thursday, that projected revenue soared to $179.8-billion in fiscal 2023 and $188.2-billion the next year, a two-year increase of $41-billion.
Those extra billions would have been more than enough to wipe out the province’s deficit by fiscal 2023-24. Instead, the Ford government chose to spend nearly two-thirds of its windfall, with a balanced budget not forecast to arrive until 2027-28. The Ontario government says that is still sooner than its earlier forecasts.
On taxation, too, there are parallels between the federal Liberals and Ontario’s Conservative government. There are no broad based reductions in personal income taxes. (The Ontario PCs are promising a temporary cut in fuel excise taxes, a contrast with Ottawa’s increase of fuel charges under carbon pricing.)
Instead, the Ford government is proposing targeted tax relief for low-income earners and credits to help seniors remain in their homes, echoing policies from the federal Liberals. Both governments are boosting tax credits to seniors for renovations to make their homes more accessible. And the Ontario PCs’ plan to boost non-refundable tax credits for low‐income individuals and families mirrors Ottawa’s move last year to increase the Canada Workers Benefit for low-income households.
There’s another thing the federal Liberal and provincial PC fiscal plans have in common – billions of dollars in likely health-care spending that don’t appear in the official statements. For Ottawa, those AWOL dollars relate to demands from the premiers for higher health transfers, and the possible costs of a national pharmacare program.
Ontario has a similar gap and a bit of a fiscal mystery. The Ford government is projecting a sudden slowdown in the growth of health-care spending, starting in the current fiscal year. The health care budget for fiscal 2022-23 is set to rise by 5.9 per cent, but the consumer price index is forecast to hit 4.7 per cent in 2022, meaning that the inflation-adjusted increase for health care is a scant 1.2 per cent, below the rate of increase in Ontario’s population.
There’s a further slowdown in fiscal 2023-24, when the inflation-adjusted increase in health care spending drops to 0.7 per cent. And the next year, health care spending actually declines after accounting for the effect of inflation: The 0.9 per cent nominal boost in the health care budget is far lower than the projected CPI increase of 2.1 per cent. Either that projection is a fantasy, or the Progressive Conservatives are planning on health care spending increases that lag inflation and population growth significantly.
Ontario’s finance ministry did not have a direct response as to why the growth in health care spending falls so sharply in coming years.
Even with those extremely favourable assumptions on health care spending, the Ford government is projecting only a modest decline in Ontario’s debt burden through the middle of the decade, as measured against the size of the province’s economy. Net debt as a percentage of gross domestic product is actually forecast to rise in the current fiscal year, bumping up to 41.4 per cent in fiscal 2023 from 40.7 per cent in fiscal 2022. It takes another five years – at least two elections away – for the ratio to fall below prepandemic levels, and for the budget to return to surplus. And that’s only true if the health care projections are to be believed.
That’s a broadly similar fiscal path to that of the federal government, which is forecasting a gradual decrease in its debt burden, with net debt equivalent to 46.5 per cent of national GDP in fiscal 2022 falling to 41.5 per cent in fiscal 2027. (That is still well above Ottawa’s prepandemic ratio of around 30 per cent, however.)
Despite that languid pace, both the federal and Ontario governments proclaim their adherence to their respective fiscal anchors, notionally meant to constrain the size of deficits, debt and spending. In Ottawa, that goal is vague, merely a stricture that the ratio of net debt to GDP will decline, not increase. Ontario’s goal is more specific, although equally unambitious: Net debt will not exceed 42 per cent of GDP, the government promises. Luckily for Ontario, its debt projections manage to come in just under that mark.
And that is the final area of overlap between the fiscal visions of the federal Liberals and Ontario’s Progressive Conservatives – a fiscal anchor that simply reflects relentless spending growth, rather than constraining it.
Tax and Spend examines the intricacies and oddities of taxation and government spending.
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