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Ontario budget is balanced, but province still in a fiscal straightjacket

April 27, 2017

7-minute read

With the 2017-18 Ontario budget officially tabled, the terms of the June 2018 provincial election have now been set — and it’s both a good and bad news story.

The good news is that Ontario will go into the election with a balanced budget, which opens the door to a post-austerity “activist government” political narrative that contains a few election-worthy proposals.

The government is promising a pharmacare program for children and youth, skills training support to help young people get experience in the labour market, increased spending on health care, as well as recently announced measures to make housing more affordable and to test a basic income pilot.

The bad news is that the provincial government failed to address the gorilla in the room: the need to substantively raise taxes to fund needed improvements to public services after years of austerity-style spending constraints.

While the budget included good news on revenue in the 2017-18 fiscal year — it will grow by 6.4 per cent — revenue growth slows sharply after that. It’s clear that Ontario cannot rely on the growth in existing revenue alone, but this year’s budget isn’t significantly increasing taxes.

You have to get to page 285 in the budget to find a tax increase, and then it’s a higher tobacco tax that is focused on enhancing health rather than raising revenue.

Unless the government changes tactics — or an opposition party steps up to generate new revenue to fund a bold new vision for the province — it means Ontario will remain in a fiscal straightjacket in the years to come.

End of austerity? Not so fast.

The balanced budget is part of the good news aspect of this budget.

Post-recession, the Ontario government has relied heavily on constraining spending as a means to reach its zero deficit goal. As a result, program spending has not kept up with inflation nor population growth. That’s partly how Ontario got to its balanced budget.

This year’s budget projects that total program spending will increase by almost 5 per cent. However, the government will put the brakes back on spending over the next two years, returning to growth rates of 2.2 per cent in 2018-19 and 2.6 per cent in 2019-20.

While that is better than the post-recession austerity years, it is not enough to address the deficit in public services and program spending.

Health care: The big news in health care comes in the form of new pharmaceutical drug coverage for people aged 24 and under and broader drug coverage for seniors.

But given the NDP’s recent announcement that it will go into the next election committing to a full pharmacare plan — one that includes adults between 25-64 — today’s announcement is more like Pharmacare Lite. People who are eligible will benefit significantly, but many adults are excluded.

You get a lot more bang for your buck if you go the universal pharmacare route because there are greater cost efficiencies.

Overall, total health care spending averaged only 2.4 per cent annually between 2011-12 and 2015-16. The government itself has stated in its negotiations with the federal government that underlying health care costs will grow by 5.2 per cent per year. But this year’s provincial budget falls short of closing the funding gap.

While increased health spending averaging 3.3 per cent per year is welcome, it isn’t large enough to compensate for the 0.6 per cent growth that hospitals had to manage between 2011-12 and 2015-16.

Those news stories of overcrowded hospitals will likely remain on the front pages.

Education:  Increasing education spending above 3 per cent for the next two fiscal years is a welcome respite, along with $1.2 billion in increased funding for repairs. But there is a pressing need for a fundamental rethink of how the province funds Ontario’s education system, and that rethink is absent in this budget. 

It has been 15 years since there has been a meaningful review of the education funding formula, which has embedded well-documented shortfalls in support for special education, students at risk, English as a second language, and maintenance of physical plants — for starters. It’s time for a new review.

That said, the government is promising to reduce class sizes and increase resources for capital spending. Is it enough to counterbalance to spate of school closures scheduled for the end of this school year? Unlikely.

Poverty reduction: The Liberal government earned laurels from poverty reduction advocates in 2008 when it promised to reduce child poverty by 25 per cent in five years. And it secured renewed praise when it announced a new five-year commitment to reduce poverty.

Child poverty in Ontario declined by 20 per cent between 2013 and 2014. Good news generated only, in part, by policies such as the Ontario Child Benefit, which helps a lot of low-income families.

However, the inadequacy of social assistance incomes persists. The Income Security Advocacy Centre had called for a billion dollar down payment to increase social assistance incomes by 10 per cent. The 2 per cent social assistance increase announced in this year’s budget falls far short.

There is some good news on this file: the government is increasing the limits on cash and other liquid assets for those receiving social assistance and cash gift exemptions will be higher. It means people won’t have to be forced into destitution before they’re forced into support.

The budget also includes the already announced details of its three-year basic income pilot project, which will benefit 4,000 eligible participants in Hamilton, Thunder Bay, and Lyndsey, Ontario, but the significant gap between social assistance rates and the poverty line persists.

Child Care: Ontario has some of the most expensive child care fees in the country and after this year’s budget, it still will.

The province correctly points to its full-day kindergarten program for helping parents’ ability to take work once their children are old enough to qualify for school. But new investments in child care for infants, toddlers, and pre-schoolers still lag behind demand.

In this budget, the province re-announced its commitment to open up 100,000 child care spaces over five years (first announced in the 2016 throne speech). The province also re-announced its commitment to include fee subsidies for about 60 per cent of these new child care spaces.

But it falls short of what the Ontario Coalition for Better Child Care (OCBCC) has been pushing for: an affordable sliding fee scale for child care spaces. It would make for a good election hook, but it’s absent in this year’s budget promises.

Youth: There are a few welcome measures to address two issues facing Millennials — access to jobs and high student debt. This budget expands the range of supports for skills training and a bridge to work opportunities, though we hope those opportunities come in the form of paid internships.

Building on last year’s budget measures that extended free tuition to some low-income students, this budget also allows university and college grads a little more breathing room before they have to repay their OSAP loans (raising the bar from $25,000 to $35,000). The government also won’t reduce the amount of financial assistance for families with RESP savings. That said, Ontario is home to some of the highest tuition fees in the country and that issue remains unaddressed in this year’s budget.

Changing Workplace Review: While it received special mention in this year’s budget, there was no commitment to introducing legislation this year.

Infrastructure: The government has been strong on infrastructure spending over the past few years. It will be spending $20 billion this fiscal year on public transit infrastructure, highways, capital grants to hospitals and school boards. The commitment to consult on creating a community benefits framework for the province is a positive step. It’s a way to make sure that the jobs created by these infrastructure investments help local people land good jobs.

Affordable housing: Affordable housing announcements were made public prior to this budget. But the budget remains silent on one story that has been dominating the news: the impact of companies like Airbnb that are eating into the housing market, particularly in Toronto, where affordable long-term rental units are hard to find.

The budget addresses the “sharing economy” from an uncritical standpoint. CCPA research reveals many people who work in this segment of the economy struggle to make ends meet and work under precarious circumstances. It also reveals the majority of people would support stronger protections for both workers and consumers. That wasn’t addressed in today’s budget.

Addressing Ontario’s fiscal straightjacket

Meeting the balanced budget goal will get some media attention, and justifiably so.

There is hope that “the deficit made me do it” rationale for spending constraints is behind us, but be prepared for “the balanced budget goal made me do it” rationale in the coming years. Why? Because this budget failed to address Ontario’s chronic revenue problem.

Since the mid-1990s, Ontario politics have been defined by a major tax cut addiction. CCPA Research Associate Hugh Mackenzie estimates the provinces loses out on a cumulative of $19 billion in annual revenue thanks to tax cuts from prior years.

The province also continues to play the boutique tax credit game: it’s offering a tax credit for caregivers and a tax credit for seniors who take public transit. A smarter measure would be to invest in direct supports for those who are being cared for and to invest in more affordable public transit.

In the absence of significant measures to reverse key tax cuts from prior years in this year’s budget, the Ontario government heads into the next provincial election with a fiscal straitjacket.

And since previous elections indicate the opposition parties tend to go into elections accepting the fiscal terms set by the government, expect an election waged on a few wedge issues and a couple of bold ideas.

No big picture, visionary shift is possible without someone addressing the gorilla in the room: Ontario has a revenue problem. Revenue growth between 2 and 3 per cent just isn’t going to cut it.

Given the provincial election is scheduled for June 2018, the province has one more budget in which to address the gorilla in the room. But it will be under political pressure to play safe. In which case, today’s celebration over a balanced budget should be accompanied by this reality check: bold leadership, activist government — these don’t happen without adequate funding commitments.

Sheila Block is a senior economist with the Canadian Centre for Policy Alternatives’ Ontario office (CCPA-Ontario). Trish Hennessy is director of CCPA-Ontario.

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