Ontario’s Fall Economic Statement: Setting the table

Ontario’s Fall Economic Statement: Setting the table

The new Ontario Government released its Fall Economic Statement (FES) on November 15, 2018—the first time that this government has laid out its comprehensive plan for the province. The Ontario Government began the FES reminding readers of the fact that over the past 29 years, 24 provincial budgets ended with a deficit, and the province remains the most indebted subnational jurisdiction in the world. While there were some notable actions by the government, this was largely a table-setting exercise for the legislative session ahead and the budget in 2019.

The government set the context for how it plans on managing its expenses: aggressively cutting the previous government’s current and planned expenditures. This is done against a backdrop of reduced revenue. Growth over the next few years is expected to be moderate, with real gross domestic product (GDP) falling from 2.0 percent to 1.5 percent by 2021, which will be compounded by the new government eliminating its ability to raise revenue by putting a price on carbon, either through a market-based cap and trade system, or through a carbon tax. With rising interest rates, this tempered growth will further impact the province's debt repayment ability. Therefore, the plan to cut expenses now to decrease the deficit and debt load and relieve the financial burdens of the future has some merit and is, arguably, the most important aspect of the mandate the government received from the public in the last election.  

Thus far, many government decisions have been cost-cutting measures that reduce or eliminate programs or oversight. These measures include: cancelling three planned university campuses and the Guaranteed Basic Income Pilot, reducing the size of Toronto city council, and the “roll up” of three oversight bodies (Child Advocate, Environmental Commissioner, and the French Language Services Commissioner) in advance of the release of the Government’s social assistance reforms and climate change plan. The savings from these decisions are fairly minor in the context of a significant deficit, so one should expect further reductions to government services, and a decrease in funding to the broader public sector.

Cutting red tape for businesses and offsetting the cost to Ontarians

The Government's Open for Business Action Plan, in which small businesses are at the centre, includes tax relief for small businesses and focuses on cutting red tape by 25 percent by 2022. Additionally, the Government has decided that the previous government’s proposed $15 hourly minimum wage increase in 2019 (which sparked much debate) will no longer go forward, instead staying at $14/hour following feedback from the business community that the 20 percent increase from $11.40 in 2017 was too sudden, resulting in the need to raise prices and cut staff.

Bill 148, the Fair Workplaces, Better Jobs Act (2017) will also be substantially changed. The new government bill proposes removing the four-day notice that employers must provide employees for scheduling changes, eliminating four mandatory paid sick days, and cancelling the “equal pay for equal work” provision which required employers to pay part-time and casual staff at the same rate as full-time workers for the same work. Instead, the Ford Government will require employers to provide eight unpaid days for sickness, bereavement, and family responsibility. 

As this Institute has stated many times in the past, providing incentives to keep Ontario businesses small is poor public policy and exacerbates those aspects that hold our economy back – we don’t compete on the global marketplace and we fail to scale our companies up to sufficient size. 

Providing relief to low-wage Ontarians

In an attempt to offset the freeze in pay and roll-back of benefits for Ontarians in part-time, precarious, and minimum wage jobs, the Government is introducing the Low-Income Individuals and Families Tax Credit, which will provide an estimated 1.1 million Ontarians with tax relief of $850 per individual or up to $1,700 for couples per year, but will come with a price tag of $495 million per year in foregone revenue. The Government will also lower Ontarians’ electricity bills by 12 percent and cancel 758 renewable electricity contracts in an effort to reduce future costs. While the Government has promised to introduce legislation that will protect ratepayers from any costs as a result of the cancelled contracts, they could, nonetheless, cost Ontarians in other ways.

Health

The Government has vowed to eliminate ‘hallway medicine’ with an investment of $90 million to create 1,100 beds and spaces as well as $300 million for 15,000 new long-term care beds to handle the large cohort of aging Ontarians. Neither of these decisions is overly surprising, as they fulfill commitments made by the Premier on the campaign trail. Notably, the Government also committed to match the federal government’s commitment to spend $1.9 million over 10 years on mental health. As the Institute has previously noted, untreated mental health issues are a serious drag on our productivity and therefore our economic progress, so this investment is much needed.

Transportation

This government appears to be prioritizing the movement of Ontarians, a critical issue the Institute has previously highlighted. Planned moves include eliminating discrimination based on address when purchasing auto insurance, lowering auto insurance rates, shuttering the Drive Clean program, and uploading Toronto subway construction costs. Ending the Drive Clean program, firing the Environmental Commissioner, and dismantling the cap-and-trade program ahead of the Government’s new climate plan sends a signal that the new Government is not interested in fighting climate change, which is integral to ensuring the health of Ontarians, especially those who live close to a major road. While one can argue that not all cars need emissions testing, 25 percent of cars contribute 90 percent of vehicle pollution, leading to poor air quality that increases the incidences of COPD, asthma, and cardiovascular complications, and therefore healthcare costs. This suggests the need for government oversight, especially given the capacity challenges our healthcare system is already facing. Given the short timeframe we have to take action to contain climate change and its potentially disastrous economic effects, the Institute looks forward to seeing the new climate plan that the Government will release.

Policy areas that still need direction

Where the Government has not yet offered much policy direction is on higher education, research, and innovation. These longer-term investments are integral to improving the productivity of workers and introducing Canadian-made innovations, products, and services that increase the competitiveness of the province. Building on our strengths in these areas could lead to higher economic growth in the years ahead, and thereby require fewer reductions to programs.

While Finance Minister Vic Fedelli has said that getting the budget balanced will “require everyone to make sacrifices without exception,” thus far it appears that the public sector is being asked to bear the brunt of cutbacks. Tomorrow the Government will unveil reforms to the province’s social assistance programs that help support the most financially precarious Ontarians. The Institute will watch with interest to see what impact these and future sacrifices will have on the competitiveness and prosperity of the province.  

Written by: Jamison Steeve with Dorinda So

Photo credit: erhui1979, iStock

Category: Economic Progress, Economy, Income, Benefits, and Pensions, Industrial Policy, Labour, Employment, Health Care, Households, Income, Income inequality, Productivity, Public Policy, Taxation