How exactly did Ontario Liberals balance the budget? - Macleans.ca
 

How exactly did Ontario Liberals balance the budget?

Kathleen Wynne’s government promised to restore fiscal balance not by raising taxes, but by cutting spending and growing the economy. How’d they do?


 
Ontario Premier Kathleen Wynne speaks about Ontario's Fair Housing Plan during a press conference in Toronto on Thursday, April 20, 2017. (Christopher Katsarov/CP)

Ontario Premier Kathleen Wynne speaks about Ontario’s Fair Housing Plan during a press conference in Toronto on Thursday, April 20, 2017. (Christopher Katsarov/CP)

Three years ago, voters returned Premier Kathleen Wynne to power in Ontario. One of the key issues of the campaign was the state of the province’s finances. A month earlier, the government had presented a budget to the legislature proposing to return to fiscal balance over four years following a long string of post-financial crisis deficits. The opposition claimed more drastic measures were needed and heaped scorn on the left-leaning Liberals’ ability to actually achieve fiscal balance. However, voters decided to give Premier Wynne a chance and now, three years later, we can hold her government to account. How well did they deliver on the promises (and projections) they made?

The chart below tells the story. Back in early 2014, the government projected that in three years’ time, provincial revenues would rise from $115.7 billion in 2013-14 to $129.4 billion in 2016-17, an increase of almost 12 per cent over three years. Expenses, which stood at $127 billion in 2013-14 were projected to rise to $133.5 billion, an increase of slightly more than five per cent over three years. As a result, the projected deficit would decline from $9.2 billion in 2013-14 to $4.1 billion in 2016-17, and then return to a small surplus in the following (election) year.

boothe-chart

Predicting the course of government revenue and spending over three years is no easy matter. Even without policy changes, uncertainty about medium-term economic growth can play havoc with revenues. The need to respond to emergencies or unexpected requirements for spending make predictions even riskier. Working in government’s favour is the ability to adjust from year to year, so that it can change the path of spending if revenues dictate. The Liberal government’s strategy was simple, albeit politically challenging: be tough on spending while allowing revenue to grow with the economy until fiscal balance was restored four years later.

With three years of experience to judge, how did the government do in its projections and promise to restore fiscal balance? As we see in the chart above, revenues came in slightly higher than projected at $133.2 billion for growth over three years of about 15 per cent. Expenses were also higher, albeit by a smaller margin at $134.8 billion for growth of 6.6 per cent. The result was a deficit of $1.5 billion compared with the $4.1 billion projected three years earlier. All indicators point to a return to fiscal balance in 2017-18 as promised back in 2014.

Did the government stick to its strategy to restore fiscal balance? To answer this question we need to look at two statistics: revenue per dollar of GDP (a measure of the aggregate provincial “tax rate”) and program spending per person. Over the period from 2013-14 to 2016-17, revenue per dollar of GDP remained constant at 16.7 per cent. On the program spending side, expenditures per person rose from $8,542 in 2013-14 to $8,853 in 2016-17, an increase of just over one per cent per year (e.g. less than the rate of inflation). Thus, the numbers confirm that the government relied largely on spending restraint and economic growth rather than aggregate tax increases to restore fiscal balance.

READ MORE: Good times are back in Ontario. Wink wink, nudge nudge.

Why is it important for governments to meet their commitments and for citizens to hold them to account for doing so? By being accountable, governments establish credibility, and credibility is a valuable public policy asset. When citizens believe that governments will do what they say, they do not have to wait to see how things turn out before making changes to their own behaviour. Credibility reduces the disruption caused by policy changes and helps citizens to plan their personal affairs. These days, when it is tempting to dismiss everything politicians say as untrustworthy, the credibility built by delivering on fiscal promises helps focus debate on the outcomes of alternative policy choices rather than whether governments will actually follow through on their promises.

The reasons that citizens support one party or another at election time are often complex, and delivering on fiscal promises is only one of the things to consider. That said, the evidence regarding fiscal policy is clear. When it was elected three years ago, the government promised to restore fiscal balance after many years of deficits. Today, Ontario’s finances are back on track.

Paul Boothe is Managing Director of the Trillium Network for Advanced Manufacturing and a Fellow of the Institute for Competitiveness and Prosperity.


 

How exactly did Ontario Liberals balance the budget?

  1. First you complain there’s a deficit…then you complain it’s been paid off!

    Mostly you just like to complain.

    • The debt is not being paid off. There is actually still a deficit adding further to the debt, just that Wynne disguises these additions as as capital investments. What the Ontario Liberals don’t tell you is how their provincial budget has ballooned from $65B/yr to $144B/yr since they took office. This is 3X the rate of economic growth, meaning for every $1 new dollar created in the economy, Wynne sucked $3 from the economy to fund itself! As the economy can’t provide the $3 for every $1 of economic growth, she uses debt to finance the government growth. So it’s not it increases one year and then decreases another. It’s about the out of control government growth and in turn, all the debts and deficits it has been creating.

  2. Deficits aren’t “paid off” (even if you believe this balanced budget)

    • Yes, they are. You just want to complain.

      • Sorry to say, a return to an annual surplus does not constitute a repayment of all previous deficits. It just means the beginning of a reduction of Provincial Debt balances accumulated over the years. The accumulated Provincial Debt balance for as of the last 5 years (Y/E 2012-2016) rose from $235.6 billion to $294.6 billion. So, no ‘payoff’ has taken place. A substantial payoff with continuous surpluses of $2 billion annually would take over 100 years to payoff the debt. Even when considering the Provincial Debt as a percentage of GDP, the numbers aren’t very encouraging. Over the same period above, the results are 36% rising to 39%. Economic recovery (higher GDP) is projecting a reduction in the percentage to 38.6% in this fiscal year, even as the absolute debt level continues to rise. The numbers are sourced from the Province’s department of finance.

        One final sobering shot: Your share of the Provincial Debt is approximately $26,600. Congratulations! If you want to payoff your share, you know what you have to do. Have a nice day.

        • Here’s a flash Einstein……we’ve had a debt since 1867….no matter which party was in power. Sometimes we add to it, sometimes we pay it down.

          Now go watch TV.

          • If you go to page 294 of Ontario’s budget you will find a table that summarizes Ontario’s accumulated debt, Consolidated Financial Tables. This shows a planned increase in net debt from 301.9 billion in the 2016-2017 fiscal year to a projected net debt of 311.9 billion in the 2017-2018 fiscal year. A year over year increase of 10 billion. Please explain to me how adding 10 billion to the debt using the government’s own projections is balancing the budget? Are residents of Ontario this easily mislead?

        • Like I just said….sometimes we add to it, sometimes we pay it down.

          No one is being misled

          • Emily, the Liberals are promoting their 2017-2018 budget as being balanced but if you read the document they are adding 10 billion to the net debt if that is not misleading what is it? You can’t have a balanced budget and a 10 billion dollar deficit at the same time!!

        • A deficit and a debt are two different things. We have either a surplus or a deficit every year. It’s annual.

          We’ve had the debt for 150 years. It goes up and down.

          • Emily if their budget increases the province of Ontario’s debt by 10 billion dollars in the 2017-2018 fiscal period is that not a deficit budget?! Not a matter of the deficit going up or down. Since the Liberals were elected in 2003 the debt has increased every year. They have run a budgetary deficit every year and continue to do so contrary to what is reported in the media!

          • No, it’s a debt, not a deficit.

            Do you count your car payments as grocery spending? Or part of your mortgage?

            We have had a debt for 150 years….and it goes up and down

          • You are wrong to say that the debt goes up and down as in reality, it ONLY GOES UP. The Ontario debt is now over $300B (closer to $330B), which means each Ontario man, woman and child is in debt $22,000 thanks to the provincial Liberals. For a family of 4, that’s $88,000 in debt. On a per-capita basis, this debt is 6X higher than the next most in-debt jurisdiction, California. And California is far richer than Ontario on a per capita basis. When you don’t watch our debt like Wynne’s Ontario, then Greece is the final outcome.

          • The debt has also gone down…..Paul Martin paid off a large amount…..Harp raised it again.

            Ont has had far worse debt…..at one point we borrowed heavily to build the canal system…..then we were swamped with Irish immigrants…….yet we’re still here

            You just like worrying.

  3. Isn’t part of the reason for a balanced budget due to the (partial) sale of Hydro One? If so, then it brings into question the validity of the balanced budget as the sale represents non-recurring income.

    • Doesn’t have to recur.

      • Factoring out non-recurring items (gains and losses) is standard procedure for getting a more complete picture of the finances of an entity. It’s quite obvious that a non-recurring gain is significantly less valuable than a recurring gain, and a non-recurring loss is much less significant than a recurring loss.

        Consequently, *if* the reason Ontario’s budget is balanced is due to a non-recurring gain, then it’s only temporarily balanced and likely to slip into deficit the following year. I.e., selling the silverware to book a one-time balanced budget is nothing to get excited about.

        • LOL like I said first people complain we have a deficit, then they complain we don’t have a deficit……but might have one in future.

          You just like complaining.