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               How To Grow The Welfare State While Balancing The Books:

                                          Ontario Budget 2016

 

By Randall White

Adapting some ancient wisdom from John F. Kennedy’s Defence Secretary Robert S. McNamara, a Canadian provincial budget is the quantitative expression of provincial strategy and priorities.

So just what is the unusually early (February) Ontario budget telling us about strategy and priorities in Canada’s most populous province today? 

To start with, the government of Ontario will be spending $133.9 billion in the 2016–17 fiscal year, up from $131.9 billion in 2015–16 (an increase slightly less than inflation). 

This alone says something, in comparative perspective.

California, which Ontario will soon be joining in a carbon pricing market, is planning to spend less than $3.2 billion (U.S.) for every million people this year, compared with almost $7.3 billion (U.S.) for every million in Ontario. 

Canadian provinces generally carry more of the burden of governing than American states, relative to the respective federal governments. And California is not carrying the particular financial burden of a single-payer public health care system. 

In 2016–17, what the budget document calls the "Health Sector" accounts for 38.7% of Ontario’s total provincial expenditures. This is actually up a little from 38.5% in 2015–16. And it includes the first increase in hospital base funding in five years.

The next two Ontario expenditure sectors are "Education", and "Post-Secondary and Training." As a group, they will take up an even 25% of the budget in 2016–17 — the same as in 2015–16.

Next in line is the "Children’s and Social Services" sector — 11.8% of the budget in 2016–17, up slightly from 11.7% in 2015–2016, and followed by the "Justice" sector at a mere 3.4%. 

The two final broad expenditure classes are "Other Programs" and "Interest on the Debt."  And "Other Programs" have declined from 12.8% of the budget in 2015–16 to 12.3% in 2016–17.

So overall, more than 75% of the 2016 Ontario budget goes to health care, education and training, as well as children’s and other social services. The main job of a Canadian province today is to manage the service or welfare state in Canada. 

But the Wynne Liberal government is also working to improve and extend the service state, to meet new challenges in a changing world economy. 

In perhaps the biggest surprise of the 2016 budget, college and university tuition will now be free for lower income families, and lower for middle-income families. 

Meanwhile, Queen’s Park has delayed collecting contributions from employers for one year, but the supplementary new Ontario Retirement Pension Plan is moving ahead as well. And Finance Minister Charles Sousa has also declared “I am proud to announce that we will join with researchers and communities to develop a Basic Income pilot project.” 

It is true enough that interest on the debt has increased slightly — from 8.7% of total expenditures in 2015–16 to 8.8% in 2016–17. 

At last, however, some serious players in financial markets are agreeing that the government of Ontario is dealing constructively with its much-discussed debt and deficit problems.

According to the official budget summary: “For 2015–16, the deficit is forecast to be $5.7 billion ... $2.8 billion lower than projected in the 2015 Budget. The government is projecting a deficit of $4.3 billion in 2016–17 ... Ontario will balance the budget in 2017–18.”

According to Douglas Porter, chief economist at BMO Capital Markets, this year’s Ontario budget is “a big step in the right direction.” As further explained by BMO senior economist, Robert Kavcic: “The good news for bond investors is that the timing is on track to balance the budget in 2017-18.” And Ontario’s “net debt-to-GDP is stabilizing.” 

The controversial strategy the Wynne majority government embarked on coming out of the last provincial election — growing the activist welfare state (wisely) while balancing the books — may actually be working. 

Ontario is in any case being helped along at last by the lower Canadian dollar Dalton McGuinty used to dream about. There is now a somewhat more buoyant regional economy north of the Great Lakes. And this has fortuitously increased government revenues. 

Queen’s Park can likely take some credit as well. “Our number-one priority,” the 2016 budget declares, “is to grow the economy and create jobs,” through accelerated infrastructure spending and stimulative fiscal policy.

Finance Minister Sousa has also announced that in the new age of green energy  “Ontario is moving forward with a proposed cap-and-trade program” to combat greenhouse gas pollution. It has been reported that meeting deadlines for Ontario’s entry into a carbon pricing market with Quebec and California explains the unusually early February 25 date for the 2016 budget. 

As far as the immediate practical political scene goes, what does all this mean for recent prophecies that the Wynne Liberals are facing an election disaster in 2018?  Will the 2016 Ontario budget help?  

Probably.

 

 

 

 

 

 

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About Randall White

Randall White is a former senior policy advisor with the Ontario Ministry of Finance, and a former economist with the Ontario Ministry of Municipal Affairs and Housing. He is the author of Ontario 1610-1985: A Political and Economic History and Ontario Since 1985. He writes frequently about Ontario politics.
Posted date : March 02, 2016

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