The Conference Board of Canada’s Director Matthew Stewart offers the following insights on the upcoming Ontario 2019 Budget:
“The Ontario government faces difficult choices in their first budget. It will be important for them to release a credible plan to return their fiscal situation to a sustainable path. Acting quickly is imperative in light of elevated global risks.”
- Following last June’s election, a new government was elected in Ontario for the first time since 2003. And with very little information gleaned from its fall update in November, all eyes will be on this Thursday’s budget to get an idea of revenue and spending measures the new government will put forth.
- Ontario has been in a deficit position since 2008–09, and 2018–19 is expected to continue this trend with an anticipated deficit of $14.5 billion. Over that decade long period, where the province qualified for equalization for the first time in its history, net debt has grown from $170 billion to $347 billion.
- Net debt has grown at a faster pace than the economy. The net debt as a share of nominal GDP has risen from 28 per cent in 2008-09 to an estimated 40 per cent in 2018–19.
- On the bright side, debt charges as a share of revenues have been relatively stable between 8.5 to 9 per cent, the result of declining interest rates and solid revenue growth. However, this is likely to change as higher interest rates drive up costs. A weaker economy could also stymie revenue growth.
- Ontario’s economic growth has been strong over the last few years. As a result, the province shed its ‘Have-Not’ status, and no longer qualifies for equalization starting in 2019–20. A development that the Conference Board anticipated nearly 3 years ago.
- These foregone revenues will make it ever harder for the province to tackle its deficit problem. To avoid continuing to rack up debt the new provincial government must choose between increasing tax revenues or lowering spending.
- While Ontario’s economy performed well since 2014, the pace of growth is easing more quickly than anticipated. The recent national income accounts showed weakness in many sectors of the Canadian economy in the closing months of 2018, with exports, consumer demand and investment underperforming. We expect only moderate real economic growth for Ontario this year.
- There are risks to the economic forecast: trade disputes, a challenged economy in Alberta with indirect repercussions in all provinces, shortages of labor in several sectors, and, more importantly, a reluctance by companies to accelerate their investment in machinery and equipment. This could lead to much weaker economic and revenue growth for Ontario.
The Conference Board of Canada’s insights on the Ontario budget can be found the night of the budget on the Conference Board website.