The day after Alberta's finance minister announced that his province was headed for a deficit north of $10-billion, and the same week as the federal finance minister said that before spending a cent, his books were already $18-billion in the red, Ontario announced that it's planning on balancing its budget next year, in 2017-18. With a little luck, it might even balance sooner. Welcome, Canada, to a world turned upside down.
Let's review how we got here. Ontario Premier Kathleen Wynne won election in 2014 on a two-handed platform. On the one hand – call it the Liberal hand, which is the one she most wanted voters to remember – her party promised four years of activism, spending and an endless stream of ribbon cuttings, thanks to a massive, decade-long transit infrastructure program. Finance Minister Charles Sousa once described it as a 21st century version of the Last Spike – and it keeps growing, at least on paper. Last year, it was a ten-year, $130-billion project. This year, it's 12-years and $160-billion worth of infrastructure. Next year? Who knows.
But keep your eye on the other hand. It's the one the magician doesn't want you to see. Because on the other hand – call it the Liberals' small-c conservative hand – the Wynne government promised to balance the budget in four years. And for those who bothered to read the fine print, the plan means squeezing the budget envelope. The Liberals never had the stomach to pitch that fact too loudly, and they still don't, but they ran pledging significant spending control. Their plan is to cut real, per capita government spending, year after year, for years. And so far – if you can see past all the flashy activity – they're largely delivering.
Take health care. At roughly $50-billion a year, it's by far the biggest part of every provincial budget, eating up nearly 40 cents on the dollar. Historically, health care spending grew by leaps and bounds, threatening to eat every province's purse. Ontario has over last few years bent the cost curve down. In the budget year just ending, health care spending rose by just 1.6 per cent. And between 2014 and 2018, the Ministry of Health's budget is supposed to grow by an average of just 1.8 per cent a year. That's well below population growth plus inflation, which are closer to 3 per cent. In other words, Ontario is in the middle of several years' worth of per capita cuts to health spending. And this in a province where health spending is already well below the national average.
It's the same story in education. Ontario several years ago introduced full-day kindergarten, a highly visible expansion of the elementary school system, currently costing $1.5-billion a year. But the province's education budget rose by less than 1 per cent last year, and will average 1.2 per cent growth between 2014 and 2018. Again, in after-inflation dollars, that's a cut.
It's a similar story in post-secondary education. The province made a splash by announcing that students from families with incomes of less than $50,000 will receive grants large enough to make tuition free at most colleges and universities. However, this is largely a repackaging of existing programs to support lower-income students. Spending growth at the Ministry of Training, Colleges and Universities will average just 1.1 per cent a year from 2014 to 2018.
Yes, Ontario's deficit looks smaller than it really is because of one-time cash infusions from sources such as the privatization of Hydro One. Yes, Ontario's banking on more cash from Ottawa. And yes, Queen's Park is not feeling the economic chill that's hitting Edmonton. As Alberta wallows in recession, Ontario is enjoying something approaching healthy growth, and the province's tax revenues are rising along with it. But Ontario is mostly getting to balance through spending restraint – though it isn't exactly eager to remind voters of that.
The greatest challenge the Wynne government will have to overcome in the next two years? Itself. The Trudeau government in Ottawa is composed largely of people and ideas drawn from Ontario's Liberals. The centrepiece of its spending program is a massive build-out of infrastructure, just like in Ontario. And it's about to fulfill its vision by opening the taps.
Which leaves the Wynne government facing a choice. It can take advantage of Ottawa's moves, from which it will benefit economically and fiscally, while sticking with its budget plan. Or it can join the spending party. In its heart, it surely wants the latter: Buried in the budget are dreams of an "Innovation SuperCorridor" in Southern Ontario, criss-crossed by high-speed rail (David Collenette, grandfather of the Up Express fiasco, is the province's advisor), connecting green start-ups subsidized by cap-and-trade cash.
Given economic conditions in the country as a whole, plus record low interest rates and Ottawa's low debt-to-GDP ratio, Liberal Ottawa's plan for bigger deficits makes sense. But given Ontario's very different situation – no recession, loads of debt – there's no reason for Queen's Park's Liberals to change course.