Ontario not on track to balance the books

As very tough fiscal pressures loom, the province will need to make fundamental changes to the way it delivers services and raises money

OTTAWA, Sept. 25, 2014 /CNW/ - A slowdown in revenue growth will likely leave Ontario short of eliminating its deficit in 2017–18 despite its ambitious spending control plan, according to The Conference Board of Canada's first Ontario Fiscal Snapshot: More Action Needed to Balance the Books.

"Ontario will struggle to meet its goal of balancing the budget without additional spending cuts or tax increases. Despite new tax measures, our forecast for revenues is weaker than the government's projections due to slower economic growth later in the decade," said Matthew Stewart, Associate Director, Canadian Outlook.

"Even if revenues come in higher than expected, the proposed plan in the July 2014 Budget calls for program spending to be held essentially flat over the course of the next four fiscal years. This kind of restraint on program spending has proven to be very difficult over the last 15 years and governments will need to make bolder policy choices in the future."

HIGHLIGHTS

• Balancing the books by the target date of 2017–18 will likely require additional spending cuts or tax increases beyond those already announced in the 2014 budget.
• Weak economic growth and an increase in spending left the province with a deficit of $10.5 billion in 2013–14.
• The province already plans to tightly control its spending, but without additional spending cuts or tax increases, Ontario could fall about $2.4 billion short of reaching its balanced budget goal by 2017-18.

Economic growth in Ontario is expected to rise by 1.5 per cent in 2014, well below the national average. However, real gross domestic product (GDP) is forecast to increase by 2.4 per cent in 2015, thanks to surging exports and continued improvement in the U.S. economy, before weakening again in 2016. The Conference Board forecasts real GDP to grow at an average annual pace of 2.1 per cent a year between 2014 and 2017, which is below the budget's projected annual growth rate of 2.4 per cent over the same period.

Ontario Finance forecasts average annual revenue growth of nearly 4 per cent annually over the next four years. The Conference Board's revenue forecast for Ontario is lower than that of the government by a cumulative $4.5 billion in 2017–18.

Even if the government manages to achieve their ambitious spending control plan announced in the budget, the Conference Board projects that the province will fall about   $2.4 billion short of reaching its balanced budget goal in 2017-18.

Although program spending in the province is one of the lowest in Canada on a per-person basis, the budget calls for essentially no growth in average annual spending over the next four years. The province's program spending increased by an annual average of 5.1 per cent over the last 10 years.

Some of the tightest restraint will be in health care spending, which averaged growth of 5.6 per cent annually since 2000-01. The budget calls for limiting growth in health care expenditures to an average annual rate of 2.1 per cent over the next three years However, the Conference Board projects that health spending would need to average 4.7 per cent annually to accommodate just the province's population growth and inflation—without any additional health services or new products.

The Conference Board will discuss the Ontario budgetary outlook in greater detail during a webinar, Ontario's Fiscal Conundrum: Difficult Decisions Ahead, on Monday, Nov. 10 at 2 p.m. EST.

The Fiscal Snapshot series is a new Conference Board economic product assessing the outlooks for the provinces and the federal government. Snapshots have been published for Quebec, British Columbia and Alberta. In addition, The Conference Board will soon launch its Centre for Taxation and Fiscal Incentives, to provide Canadian business leaders and policy-makers with credible, leading-edge quantitative research on all aspects of the Canadian tax system.

SOURCE: Conference Board of Canada

Yvonne Squires, Media Relations, The Conference Board of Canada, 255 Smyth Rd., Ottawa, ON K1H8M7, Tel.: [phone] ext. 221, E-mail: [email protected]; If you would like to be removed from our distribution list please email [email protected]