Ontario’s rosy revenue picture isn’t helping public services

If new revenues go to tax cuts, not public services, we will all pay the price

February 8, 2022

1-minute read

Ontario’s budget picture is looking brighter by the day, but Queen’s Park is cutting spending on public services anyway. That’s the big takeaway from Tuesday's report from the Financial Accountability Office (FAO).

The FAO’s Budget Outlook Update projects that provincial revenues will be higher, and the budget deficit lower, than the government estimated in its November update. The FAO says revenues will be $2.1 billion higher in the year ending March 31, $5.4 billion higher in 2022-23, and $7.6 billion higher in 2023-24.

Spending projections tell another story. In five key sectors—health, education, post-secondary education, children’s and social services, and justice—the FAO estimates that the government will spend $1.4 billion less than needed to pay for current government programs in 2021-22, $3.5 billion too little in 2022-23, and $6.4 billion too little in 2023-24. Health care will be hit hardest.

It's not as if this money is not in the budget. But at present, the province is stockpiling cash in a category simply called “Other.” That category includes spending on real things such as transportation, agriculture, and municipal affairs, but most of the money has not been allocated to any specific spending. The FAO pegs the unallocated money at $1.8 billion in 2021-22, $4.9 billion in 2022-23, and $6.4 billion in 2023-24.

Ontario is a “have” province, but you wouldn’t know it from the way we fund our public services.

As it happens, the latter number is exactly the amount the FAO says will be missing from public services two years from now.

The 2022 Ontario budget is due out next month, and money under “Other” will likely go somewhere. But where? Trying to explain the difference between the government’s revenue projections and its own, the FAO suggested today that the “Fall Economic Statement’s lower revenue outlook could reflect unannounced tax cuts.”

What those cuts might be is unknown, but news reports Tuesday about potential plans to scrap stickers on license plates—at a cost to the treasury of $1 billion—don’t bode well for the public services Ontarians depend on.

For 10 years now, Ontario finance ministers have been boasting that the province spends less per person on public services than any other province. This is true; in 2019, the FAO estimated that Ontario’s program spending was just over $2,000 less, per person, than the average of the other Canadian provinces, and per capita spending has certainly not gone up since then.

The root cause of this low spending is low revenue collection, which comes in at (surprise!) about $2,000 less per person per year than the average of the other provinces. Ontario is a “have” province, but you wouldn’t know it from the way we fund our public services.

From the perspective of government finance, it’s good that the economy is coming back to life and lifting provincial revenues, but if those revenues go to tax cuts, not public services, we will all pay the price.

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