Ontario to Balance Budget in 5 Years With Slower Spending
(Bloomberg) -- Ontario plans to balance its budget in five years by relying on higher revenue and reining in spending on everything from education to social services as the world’s largest sub-sovereign borrower moves to bring its fiscal house in order.
The government unveiled a budget plan that will eliminate the annual deficit by fiscal 2023-24, after a projected shortfall of C$11.7 billion ($8.8 billion) in the fiscal year that ended on March 31. For this fiscal year, the province’s 11th straight deficit is estimated at C$10.3 billion, including a buffer of C$1 billion.
The plan banks on revenue rising 3 percent a year in Canada’s most populous province, outstripping 1 percent growth in program spending. Ontario is also promising to legalize online gambling, offering tax breaks for business, money for child care and vowing "no new tax hikes."
“It sends a message to the world that we are serious about fiscal sustainability and protecting front-line services and making Ontario open for business and open for jobs," Finance Minister Victor Fedeli told reporters before the budget was released on Thursday in Toronto.
Premier Doug Ford’s Progressive Conservative Party swept to power in June after 15 years of Liberal Party rule, with the province carrying C$343 billion of net debt, the highest of any sub-national borrower rated by Moody’s Investors Services. Moody’s cut the province’s debt rating to Aa3 in December.
Net debt is forecast to rise to C$382.4 billion by 2021-2022, though the ratio of debt to output will decline to 38.6 percent in five years, from a peak of 40.7 percent for the next two years, according to the budget documents
“I don’t think we’re going to see anymore threats of downgrades,” said Dominque Lapointe, economist at Laurentian Bank Securities. Eliminating the deficit will take five years but it’s not overpromising and is not too disruptive, he said.
The government expects the economy, which accounts for about 40 percent of Canada’s output, to slow to 1.4 percent in 2019 from 2.2 percent last year, then gradually climb to 1.9 percent growth by 2022.
Within the next year, the budget plan calls for revenue to rise to C$154.2 billion for fiscal 2019-20, up from C$150.8 billion last year, while program spending will be little changed from last year at C$150.1 billion. The forecast over five years is for total revenue to climb to C$175.1 billion, while program spending will reach C$157.6 billion.
Over the medium-term, the budget plan calls for cuts to spending on post-secondary education and training, children’s and social services, including closing underutilized youth justice facilities. The government also aims to streamline delivery of legal aid and tap technology to gain administrative efficiencies in the justice sector.
The budget’s "open for business " approach includes C$3.8 billion in corporate income tax relief over six years through faster write-offs of capital investments in conjunction with the federal government, a reduction of Workplace Safety and Insurance Board’s premium rates and the cancellation of the cap-and-trade carbon tax. Altogether, savings for business are seen at C$5 billion for this fiscal year.
The budget plan includes measures to support families and seniors, with a child-care tax credit for 300,000 low- and middle-income families that would cover up to 75 percent of eligible child-care costs. There will also be a new dental-care program for low-income seniors and a plan to add 15,000 new long-term care beds over five years.
The budget gives new freedom for society’s vices. There’s a plan to allow drinking at tailgate parties and parks, and to expand alcohol sales to corner, grocery and big-box stores and allow booze to be sold starting at 9 a.m. There’s a move to legalize online gambling, potentially gaining a slice of an estimated C$500 million that Ontarians spend through illegal websites. And it plans to legalize single-event sports wagering, following similar moves in the U.S. and supported by major sports leagues including the National Hockey League.
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