Ontario budget sees years of red ink to come, as Ford government targets expansion over austerity

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The Ontario government may not run a balanced budget for nearly another decade, at least according to Premier Doug Ford’s latest financial blueprint, as the economic and fiscal effects of the COVID-19 pandemic on Canada’s most populous province are set to linger for years.

Ontario’s 2021 budget, tabled Wednesday at Queen’s Park by Finance Minister Peter Bethlenfalvy, forecasts the provincial government will run a $33.1-billion deficit for its coming fiscal year, following a $38.5-billion shortfall for its 2020-21, which ends March 31.

The province then projects a deficit of $27.7 billion in 2022-23 and $20.2 billion in 2023-24. A return to a “pre-COVID-19 deficit” won’t happen until 2027-28 under the province’s planning projections, which also show Ontario will not balance its budget again until 2029-30, when its “recovery plan” projects a $900-million surplus.

“Significant uncertainty still remains about future economic growth, which may impact these projections further,” the budget states.

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Bethlenfalvy and Ontario’s Progressive Conservative government say they are counting on economic growth to help keep the province’s finances sustainable, rather than trying to do so by hiking taxes or slashing public services.

The budget includes scenarios for both faster and slower growth, but its baseline planning projections show Ontario’s real gross domestic product contracted by an estimated 5.7 per cent in 2020. The same forecast predicts the economy will grow by four per cent in 2021, 4.3 per cent in 2022, 2.5 per cent in 2023 and two per cent in 2024.

Yet the considerable deficits that the province will run for the foreseeable future are further signs of the severe toll that COVID-19 has taken on government finances. The arrival of the pandemic has prompted the public-sector to ratchet up spending to support people and businesses at a time when tax revenues are also under pressure, creating significant shortfalls that governments are bridging with debt.

Future governments may find their finances facing greater scrutiny and criticism as borrowing costs increase. For the moment, though, Ontario is focused on fighting the pandemic, not the deficit.

“As the pandemic has continued to unfold, people have been very clear that they expect us to focus on two vital priorities,” Bethlenfalvy, a former co-president at credit-rating agency at DBRS Ltd., which is now DBRS Morningstar, told reporters. “First and foremost, they expect us to protect people’s health. And second, they expect us to protect our economy. That is exactly what this budget does.”

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Commitments in the 2021 budget, the province says, will help add another $6.1 billion to its plan to fight COVID-19, pushing the projected total for the response to $51 billion over four years. Among other spending items, there is more than $1 billion earmarked to support the province’s vaccination campaign and more than $3.7 billion that’s to be spent over two years on a “comprehensive” COVID-19 testing strategy.

Ontario parents will get a third round of the province’s COVID-19 child-benefit payments, which will be doubled this time around to $400 per child and to $500 per child with special needs. A temporary 20 per cent enhancement to a child-care tax credit this year is proposed as well, boosting the average level of support for a family to $1,500 from about $1,250. Another $2.8 billion is being set aside to improve internet connectivity in the province.

Also in the budget is a new jobs-training tax credit for 2021, which would provide up to $2,000 per person for 50 per cent of eligible costs. A second round of small-business support grants are to be automatically sent out as well, providing firms with an additional $10,000 to $20,000 in support.

To try to attract new business investment, the Ontario government is committing $400 million over four years to create a fund that will support its new agency, Invest Ontario, and try to spur spending in the advanced manufacturing, technology and life sciences sectors.

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Still, the province’s net debt is predicted to hit $439.8 billion this year, with its net debt-to-GDP ratio forecast to rise to 47.1 per cent in 2020-21, up from 39.6 per cent for the prior year. Net debt-to-GDP will then climb to 48.8 per cent for 2021-22, although Ford’s government says it is aiming to slow the rate of the ratio’s increase and to try to keep it from exceeding 50.5 per cent over the medium term.

Borrowing costs will climb higher, with interest on debt as a percentage of revenue to reach 9.8 per cent for 2027-28. Interest on debt expense is still Ontario’s fourth-largest one following health care, education and social services, the budget noted, and is set to rise from $12.5 billion in 2020-21 to $14.6 billion by 2023-24.

“We’ve got a war against an invisible enemy,” Bethlenfalvy said when asked by the media about the red ink. “This is what responsible governments do.”

Ontario’s total spending will fall by approximately $4.2 billion this year, to $186.1 billion, and hover around that level for the following two years, according to the budget. That prompted comments from the opposition that the Ford government is not spending enough.

“This budget doesn’t even mention the third wave, let alone help people through it,” Ontario NDP leader Andrea Horwath told reporters.

However, the government doubling the small-business support grants was “hugely welcome,” said Rocco Rossi, president and CEO of the Ontario Chamber of Commerce, as firms aren’t looking to take on more debt to survive.

Rossi also gave the Ford government credit for providing as much financial guidance as they have.

“Unless you know the exact date that the pandemic ends, you can’t give absolute certainty on the numbers,” he added. “But there are real programs to help us confront the pandemic for some time and build some key foundation stones for a strong recovery.”

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