Deficit elimination is clearly the priority in this budget. Yet, despite the winding down of the large stimulus program, which pushed up program spending by almost 20 per cent over the last two years, the government will not make any cuts to program spending in fiscal year 2011–12. (See Chart 1.) Therefore, in order to balance the books by fiscal year 2017–18, the Ontario government plans to severely limit future increases in program spending.
In the fiscal year just ending, the province will post a deficit of $16.7 billion—equal to just over 3 per cent of GDP. This deficit is $3 billion lower than what was predicted in the 2010 budget. Most of the improvement is due to unused contingency funds and a saving of $434 million in debt‑servicing charges—a result of lower interest rates. Almost none of the improvement in the province’s finances will carry forward to future years. Total program spending is projected to be just $200 million lower in fiscal year 2011–12 than what was predicted in Budget 2010, leaving the date that the province expects to balance the books unchanged at fiscal year 2017–18.
With the deficit at such a high level, it is imperative that the province begin to curtail growth in program spending in order to improve the fiscal situation. This will require new-found fiscal restraint and continued improvement in revenue growth. The government plans to limit overall spending growth to an average of just 1.4 per cent over the next seven years. This compares with an average rate of growth of 6.2 per cent over the five-year period from 2003–04 to 2008–09, before the strong spending increases associated with the recent stimulus program. In support of this goal, the government plans to continue the salary freeze for all non-unionized public employees for two years and to reduce the size of the public service by 1,500 positions by 2014. That is on top of the 3,400 positions to be cut under the 2010 budget.
The key to constraining the overall growth in program spending hinges on the province’s ability to control health‑care spending, which now consumes 43 cents of every dollar collected in taxes or transferred from the federal government. Although the province recognizes this necessity, it will be challenging to make the changes that will be necessary to limit health‑care spending growth, given the aging population. Over 44 per cent of the total health‑care budget today is spent on caring for those age 65 and over—a group that accounts for only 14 per cent of the population. But the 65‑and‑over population is growing at a rate that is more than three times that of the overall population, putting enormous pressure on health‑care costs. It is partly because of these demographic pressures that health‑care spending has increased by almost seven per cent per year over the last five years. This year, the Ontario government plans to slow this increase to 4.4 per cent, and then reduce it further—to just 3.4 per cent in fiscal year 2012–13 and 2.8 per cent in 2013–14. (See Chart 2.) Although this will be a huge challenge, the province’s ability to balance its books hinges on succeeding on this front.
Similar to the fiscal plans released by other provinces, the Ontario government has directed most of its limited resources toward health care. The budget includes additional funding for mental health services and breast cancer screening. Even with the planned reductions in health‑care spending growth, the government must cut from other areas if it is to meet its balanced budget target. Thus, by 2013–14, the Ontario government plans to cut $4.4 billion from other expenses, with virtually all of the cuts related to time‑limited programs and infrastructure investments. The one new spending measure of significant size included in the budget was an additional $309 million per year for post‑secondary education spaces by 2015–16.
Finally, even with a balanced budget in 2017–18, provincial debt levels are still projected to rise by $67.5 billion over the next six years. As a result, debt‑servicing costs will rise from $9.5 billion in fiscal year 2010–11 to $16.3 billion in 2017–18, by which time they will consume 11.4 cents out of every dollar of revenue.