Ontario banks on near-freeze in spending
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Apr 24, 2015  |  Vote 0    0

Ontario banks on near-freeze in spending

Government plans to hold spending on health and education at 1.9 per cent and 2 per cent respectively


The proposed provincial budget unveiled Thursday relies on a near-freeze on spending and rising economic growth to eliminate the deficit by 2017.

“In terms of eliminating the deficit, there is evidence they are moving in the right direction,” said Mary Webb, senior economist at Scotiabank.

The government credits spending reductions for closing the deficit gap, now expected to come in at $8.5 billion for 2015-16. That’s less than the $8.9 billion initially forecast.

The deficit will fall to $4.8 billion the following year, down from the previously-projected $5.3 billion, according to the budget plan.

It would be eliminated in 2017-18.

“It is a balanced path to a balanced budget,” Finance Minister Charles Sousa told reporters.

The government has “found efficiencies” to beat its deficit targets in recent years, he said.

“We are making every dollar count,” Sousa said. “We are going line by line, examining every program and service that government delivers to see if they are relevant, effective, efficient, and sustainable.”

For instance, the government said that it has changed the way it purchases, dispenses, and bills drugs under the Ontario Drug Benefit Program, saving the province $500 million per year.

“It’s clear that this government has decided that they have a plan and they’re sticking to it. They’re not making any wholesale changes,” Mike Moffatt, assistant professor at the Ivey School of Business at the University of Western Ontario.

“Any new spending seems to be pulled from money coming elsewhere, whether that be from asset sales such as Hydro One or small changes in priority. Overall, we’re not seeing any unexpectedly large increases in spending or any big changes to government revenue.”

The proposed changes to Hydro One, including an initial IPO of 15 per cent of its shares and eventually selling down the government’s remaining shares to a 40 per cent position, is estimated to raise $9 billion.

The spending reductions come as the governments plans to hold spending on health and education at 1.9 per cent and 2 per cent, respectively. Spending on other programs would decline by 5.5 per cent, according to the plan.

In total spending on programs would rise by 0.9 per cent through 2017.

“That’s what’s made people nervous of their deficit reduction program, whether they could really hold spending flat to negative in the last two year. But the important point is that’s not exactly what the government is intending,” Webb said.

“They have enough savings on spending in fiscal 2015 to allow for some new programs in fiscal 2016 without raising the dollar amount by much,” Webb said.

Sales tax, personal income tax and corporate tax are lower because of the slower economy, according to the budget.

Meanwhile, the land transfer tax is estimated to be $154 million higher that previously forecast because of the continued strength in Ontario’s housing market.

The Ontario government expects the economy to expand by 2.7 per cent this year boosted by a combination of lower gasoline prices, a lower Canadian dollar and stronger demand from the U.S.

That rate of growth is expected to fall to 2.4 per cent in 2016 and then to 2.2 per cent and 2.1 per cent in 2017 and 2018, respectively.

“This year, 2015, is Ontario’s year to shine with the dollar and lower oil prices. We’ll see those benefits extend into 2016,” Webb said. “By the time you get to 2017 and 2018, you’re going to have growth settle back towards 2 per cent. This is when they can make it up.”

The big question is whether the government will be able to continue to save money through finding efficiencies, economists said.

It also has $1 billion in reserve, and $650 million in operating and capital contingencies, as well as a conservative economic forecast, Webb said.

“They should be able to stay on track unless something really major blows them off.”

Critics said the budget has no plan to deal with the net debt, which stands at $298.9 billion.

Toronto Star

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