A unicorn budget built on delusion and magical math

Where the money will come from for so many lofty new spending commitments isn’t clear, but the Liberals don’t seem bothered


Charles Sousa; Kathleen WynneThere are some telling details in Ontario Liberal’s very political budget, one destined to become the basis of a spring election, about the troubled state of the Ontario economy.

First, there are the overly rosy economic growth projections. The Liberals expect Ontario’s GDP grow rate to double, from 1.3 per cent in 2013 to 2.6 per cent in 2017, bringing with it rising income, new jobs and a balanced budget that will finance billions of new spending promises. Now, compare that with the realities buried in the back of the government’s own economic projections. The province will create 23,000 fewer jobs this year than last year. The resilient housing market, which has fuelled household consumption since the 2009 recession, is expect grind to a halt, with the rate of house price growth falling from 4.7 per cent a year this year to 0.8 next year and beyond. New housing construction, which supports construction jobs, also will fall. The deficit will rise from $11.3 billion this year to $12.5 billion next year (before it somehow magically disappears by 2017.) Debt, meanwhile, will keep rising, pushing the debt-to-GDP ratio above 40 per cent.

Kathleen Wynne’s minority Liberals don’t seem too troubled by this bleak economic reality. They’ve crafted a something-for-everyone budget designed to appeal to left-leaning voters and shift public attention away from an ongoing police investigation into deleted emails in the Premier’s office. There are wage hikes for daycare and personal support workers. There’s $29 billion for roads and public transit, $11 billion for new schools, another $11 billion for hospitals and $500 million for colleges and universities. There’s even $150 million for free tablets and notebook computers in public schools. Then there’s the $2.5 billion “jobs and prosperity” fund—a vaguely defined corporate welfare program aimed at matching the kind of subsidies and incentives that have lured jobs to other provinces and U.S. states. The flagship of the budget is a mandatory, made-in-Ontario retirement pension plan that would require workers to contribute 1.9 per cent of their income, matched by their employers. The program essentially mirrors the Canada Pension Plan, aiming to replace 15 per cent of pre-retirement income and will be headed by Michael Nobrega, the former CEO of the municipal employee pension fund OMERS.

Where the money will come from for all these lofty new spending commitments, isn’t entirely clear. The budget proposes no hikes to sales, gas or property taxes. Taxes are going up for the richest two per cent—the roughly 220,000 people in the province who earn more than $150,000 a year. But even that will earn the province at most $635 million next year. Increases to tobacco and aviation taxes and a reduction in tax deductions for large businesses will bring in another $900 million. The province will raise another $900 million by selling off some real estate, including the headquarters of the Liquor Control Board and the Ontario Power Generation, along with some “non-core assets” in Toronto. Selling its remaining shares in General Motors will bring in another $1 billion. There will be another review of program spending, along with a plan to curb executive compensation in the public sector.

But it’s clear the government has its fingers crossed that much of its new revenue will come from the strengthening global economy and a rebound in exports driven by an improving U.S. housing market and the signing of new federal trade agreements. There’s also a lengthy list of demands for the federal government to boost its transfer payments to Ontario and match the province’s proposed funding for major infrastructure projects. Finance Minister Charles Sousa also made it clear that the province was more than willing to scrap its ambitious plans for an Ontario pension plan if the federal government agreed instead to expand the CPP.

If any of that economic growth fails to materialize, Ontario will make up for it with plans to pile onto its already massive debt load. The budget projects the debt to rise by $42 billion by 2017, to $310 billion. The province’s debt-to-GDP ratio will rise with it, to 40.8 per cent from a low of 26.2 per cent in 2007. That will cement Ontario’s place as the second-most indebted province in Canada after Quebec. Sousa reiterated a pledge to get that ratio back down to 26.7 per cent—but neither he nor the budget documents offer any timeline for that.

net debt-to-GDP Ontario

Granted, the Liberals’ faulty math doesn’t matter much. The scandal-plagued minority government is teetering on the brink of collapse. Its budget is less a roadmap to economic success than a populist election platform aimed mainly at appealing to core voters while trying to cannibalize supporters of the NDP. All of its major new spending announcements were leaked well in advance. There is absolutely no mention of its controversial and politically unpopular green energy plan, which offers generous electricity rates for wind and solar producers, except for a buried reference to 10,000 “clean tech” jobs in Ontario, well below the 50,000 the government had promised.

Progressive Conservative leader Tim Hudak, who had previously pledged to vote down the budget, arrived with a stump speech for something called a “million jobs plan” and spent much of the time dodging questions about Toronto mayor Rob Ford, with scant attention paid to details of the Liberal’s spending plan. NDP leader Andrea Horwath, whose support will make or break the Liberal government, didn’t show up at all, first announcing she wouldn’t attend, then saying she would, then cancelling her appearance and promising to hold a press conference tomorrow morning. She’s clearly under pressure within her party to dump the Liberals while at the same time trying to explain why she can’t support a budget that is tailored-made to her party’s demands. Sousa signalled that his government expects the opposition parties to act quickly, otherwise it might opt to call an election itself telling reporters it was prepared to “take this to the people of Ontario.”

But it’s worth remembering in all of this politicking that Ontario’s economy, once an engine of growth in this country, remains mired in stagnation. The government’s own optimistic projections still forecast several more years of slow growth, trade deficits and lackluster job creation. Not even the most expertly crafted campaign platform can change that depressing reality.

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A unicorn budget built on delusion and magical math

  1. This article is insulting…. To unicorns. No mythical creature deserves comparison to this gawd-awful mess.

    I will give wynne credit for one thing and one thing only, her pension proposal isn’t half bad. Hardly the disaster Hudak wants us to believe. Other than that, this budget is just a continuation of the ongoing fiscal train wreck they’ve been inflicting on this province since they first got in 9 years ago. Why do we continue to put up with this collective self-immolation? Did she cut anything? Does she even care about the deficit?

    • They’ve been in for 11 years now. Not 9. McGuinty first won in 2003. So it’s even worse than what you’re saying. What’s even more remarkable is the massive increase in provincial transfers over this time, yet Ontario has still managed to dig itself deeper into a hole. That’s some accomplishment.

  2. Tsk….that you have to try so hard to knock a govt on it’s 4TH ROUND!

    But then, there’s Hudak….

    • Tsk, that you have to try so hard to defend them.

      • Not a Lib, but they don’t need any defence.

        Like I said….4th round.

        • No defence is possible. They are a disaster.

          • But they’re govt.

            And according to the polls will remain so.

  3. Is there a typo there? 17.7pc debt in 2007? The graph accompanying says that hasn’t been seen since the 90s.

  4. A budget for the 99 percent. Pensions are such frill. And socialized so called public transit. Why waste money on that?
    Can anyone explain why personal support workers in nursing homes should get a raise paid for I guess by the $150,000 plus?
    Job killer right there.
    Changing mom and dad’s diapers. There’s a place to make some cuts, and lower taxes.
    Hudak’s Ontario. Now that will be fun to watch. Hope I live to see it.

    • If those things actually were paid for by the announced tax increases, that would be one thing. But they’re not, as the bloated deficit projection attests to. Hope you live to see that paid down too.

      • Maclean’s economic writers and commenters are not Keynesians.
        The answer to your question is growth, and yes inflation.

        • So Wynne will spend so much that we’ll inflate and grow our way out of deficit? I believe the article already made reference to that when they called it a “unicorn budget”.

  5. ‘Reagan proved deficits don’t matter’

    Dick Cheney said that….and it’s true.

    Deficits come and go over time…..but jobs, education, healthcare…..that’s what’s important.

    • The Bush-Cheney administration was a fiscal disaster from which the US has yet to recover. If you’re that desparate to defend Wynne that you must resort to quotes from the biggest trainwreck Administration to run the Whitehouse since Jimmy Carter, then you’ve defeated your own argument.

    • Probably best to find a quote that supports your argument that doesn’t originate from the Bush-Cheney Administration – the biggest trainwreck to inhabit the Whitehouse since at least Carter.

      • Focus Danny.

        I’m not making an argument. I’m saying that most people don’t care about deficits. They DO care about jobs, health and education.

        Cons told us all this rubish last time….and still McGuinty got in….for a 3rd term!

        So I’m quoting two rightwingers to show not even they worry about deficits.

        • Then you have the miracle Hudak transit plans; levitation by David Copperfield, magic carpets by Rob Ford.
          Digging and building and laying real track and roads? Hey Tim you have to pay for that stuff. Taxes? No. Deficits? No.

          • Hudak has yet to make a single coherent policy proposal that makes a lick of sense. But at least he is concerned about the fiscal health of the province, and just might have the ballz to make some very necessary and very unpleasant decisions.

          • People aren’t likely to vote for ‘unpleasant decisions’ DD….or chain gangs or religious schools or any of the other ‘brilliant’ things Hudak’s crowd has come up with.

            We could always return to the thrilling days of yesteryear with the NDP Rae Days?

            No? Then it’s Lib.

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