Pandemic Fears Overshadow Ontario Fiscal Imbalance

November 9, 2020 Updated: November 10, 2020

After an eight-month delay, the province of Ontario delivered a record-spending budget with no timetable to climb out of annual deficits. While some say the government can get away with that in light of the pandemic, others wanted the deficit reined in.

The budget lays out $187 billion in spending and a deficit of $38.5 billion for 2020–21. This will raise the net debt-to-GDP ratio from 39.7 percent to 47.0 percent in a single year. Provincial debt is expected to reach $404 billion by spring 2021. The budget’s best-case scenario for the future—based on a scenario of faster growth—anticipates a deficit of $27.7 billion in 2021–22 and $21.3 billion in 2022–23.

Finance Minister Rod Philips said the budget will “provide as much certainty as possible in an uncertain time.”

“There is still great uncertainty in the global economy, and this means the same thing for the Ontario budget as it does for the family and business budgets,” Phillips said in the legislature on Nov. 5.

But Jasmine Moulton, Ontario director for the Canadian Taxpayers Federation, said households have addressed that uncertainty in the opposite way.

“When you start to see the budgets of almost every ministry increasing, I think taxpayers should scratch their heads and say, why can’t this government tighten its belt, because that’s exactly what families and businesses are doing now,” Moulton said in an interview.

“The government obviously is spending a lot right now because we’re in the middle of a pandemic, but that doesn’t mean that it’s carte blanche for just spending without any restraint in other areas.”

The budget provides $15 billion in new funding in response to COVID-19, on top of the $30 billion funding provided earlier, for a total support of $45 billion over three years.

The province will spend $1.3 billion over three years to subsidize hydro bills, exempt businesses with a payroll of less than $1 million from paying the Employer Health Tax, and give $200 for each child under 12 to help with education expenses.

“The government says we’re giving this money to parents to pay for their children, [but] it will be repaid by their great-grandchildren, because debt today means taxes tomorrow and all of this is debt-financed,” Moulton said.

“That’s why we need fiscal anchors; that’s why we need to set targets and parameters around our spending, because otherwise you have no incentive to reduce the excess and to tighten your belt.”

A Double Blow’

Nelson Wiseman, professor of political science at the University of Toronto, points out that the current period “is a very difficult and challenging time to be in government.”

“It’s always tough but this [time] is especially so, and especially for Conservatives because they’re committed to shrinking the size of government and living within their means, and here we have an incredibly large deficit,” he said.

Wiseman said the pandemic makes it hard to plan ahead for even a year due to the uncertainty of how things are going to unfold, let alone three years.

“It’s a double blow,” he said. “The problem is that your revenues aren’t coming in and what you were projecting [doesn’t pan out]—that really hurts.”

Moulton said she was “sadly disappointed” that the Ford government walked away from an election commitment to end taxpayer handouts to corporations.

Recently, the federal and Ontario governments gave a combined $590 million to retool a Ford plant in Oakville for electric vehicles.

“Four hundred fewer jobs will be required, so it’s such a head-scratcher,” Moulton said. “It’s obviously not a good return on investment for taxpayer money, so these sorts of examples we just find completely intolerable and inexplicable.”

On budget day, General Motors announced it would reopen its plant in Oshawa to assemble pickup trucks starting in January 2022.

“I specifically asked the government point blank … Were there any corporate welfare handouts involved?’ and they didn’t answer me yes or no,” she said.

“I’m pretty sure that that would be another example that we’ll learn about very shortly, where they’ve taken money directly out of the hands of taxpayers and businesses—the actual job creators—and they’ve redistributed it through corporate welfare.”

As for the public’s opinion regarding the deficit, Wiseman said the emphasis on balanced budgets that emerged in the 1990s is less important presently. That may change, “but not while the pandemic is in its heaviest phase,” he said.

“People are consumed by the pandemic. That’s absorbing all the oxygen.”