Balanced budget by 2017-18 within reach for Ontario, but risks remain

OTTAWA, May 5, 2016 /CNW/ - Ontario could see its first surplus in a decade, if tough spending targets can be met and revenues come in as the province expects, according to The Conference Board of Canada's Ontario Fiscal Snapshot.

"After an expected nine years of red ink and $160 billion in added debt, a balanced budget may be within reach for the Ontario government," said Matthew Stewart, Associate Director, National Forecast. "But it will remain a difficult challenge,  particularly given the government's  strong revenue projections. Given the risks, we expect balancing the books by the target date will be a photo finish."

HIGHLIGHTS

• Ontario is relying on strong revenue assumptions and tight program spending to balance the books by 2017-18.
• The Conference Board of Canada expects revenues to be weaker than projections from the provincial government by an annual average of $1.6 billion weaker over 2016–17 to 2018–19.
• Equalization payments are also expected to drop by one-third between 2017-18 and 2018-19.

Ontario's revenue assumptions are closely tied to the performance of the economy. While the Conference Board's economic outlook for Ontario is generally consistent with the outlook in Budget 2016, our projections of nominal GDP growth are weaker than those of Ontario's Ministry of Finance. We anticipate nominal GDP growth of 4.1 per cent in 2017, compared with the government's 4.6 per cent. This translates to lower anticipated revenues, which the Conference Board expects to average an annual $1.6 billion less than the government's projections for 2016–17 to 2018–19.

In addition, Ontario's relatively strong economic performance compared with other provinces makes it increasingly likely that the province will lose a large part of its equalization payments starting in 2017–18. This would make the balance target much more difficult to achieve. The Conference Board expects equalization payments to drop by one-third between 2017–18 and 2018–19, which translates to a drop of $300 million in 2017–18 and nearly $500 million in 2018–19.

The Ontario government will also continue to focus on spending restraint this year and next as it attempts to balance its books. Over the next two years, the government plans to keep program spending growth at just over 1 per cent, achieved through ambitious targets in health care and education and sizable cuts to other program spending. Meanwhile, the Conference Board's projects that health care spending in Ontario would have to grow by an average pace of 4.5 per cent per year over the next three fiscal years just to keep pace with inflation and demographic changes in the province.

The province has been successful in restricting health spending in recent years; however, cost pressures are mounting, leading to a potential surge in spending in the near future. This is particularly true for wages, which make up the largest component of its spending. The government will have to convince the public service unions to continue to live within the budget's overall increase in program spending of just 1.8 per cent per year over the next three years.

The report, Ontario Fiscal Snapshot: Budget Balance will Be a Photo Finish, is available from our e-Library.

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SOURCE Conference Board of Canada

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