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Ontario’s current “plan” to balance the budget

A Technical Backgrounder in advance of Budget 2013(March 2013)

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Introduction

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Introduction

• Ontario is at a crucial inflection point. According to Don Drummond, the province is on a path toward a $30 billion deficit and $411 billion debt.

• Urgent action is needed on two parallel tracks, one that takes immediate action to reduce the size and cost of government and another that kickstarts economic growth to put people back to work.

• The current government has no plan to reduce the deficit or prolonged unemployment. In fact, its decisions continue to compound the problem.

• Ontario needs a detailed plan that will show how the government will solve the debt problems it has created. Budget 2012 failed to do this, and as a result, Ontario’s credit rating was downgraded.

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No plan to balance the budget

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Significant restraint put off for several years

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The lack of a plan did not go unnoticed

• RBC Economics, March 27, 2012

– “The details for the remaining two-thirds of the journey toward a balanced budget are not much clearer today than they were before the budget...”

• Standard & Poor’s Ratings Services, April 25, 2012

– “We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan.”

• Moody’s Investors Service, April 26, 2012

– “The downgrade of Ontario’s rating reflects the growing debt burden…extended timeframe back to balance and ambitious expenditure targets.”

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What can we do about this lack of disclosure?

• There is no way to tell how the Liberals intend to balance the budget with the current disclosure.

• However, we can get some sense of what they are planning by plugging in some basic assumptions.

• The next series of slides extends the Liberal plan out with a few basic assumptions around growth rates.

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Growth rates by sector

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Health

• Recent average increase is 6.6%.

• Lowest achievement was 2.2%.

• Drummond recommended “very restrained growth in health care” at 2.5%.

• Let’s assume 2% for now – even more restraint than recommended by Drummond.

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Education

• Recent average increase is 5.6%.

• Lowest achievement was 2.3%.

• Drummond recommended 1%.

• Let’s assume 1% for now.

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Post-Secondary Education & Training

• Recent average increase is 8.3%.

• Lowest achievement was 1.2%.

• Drummond recommended 1.5% for post-secondary (excluding training).

• Let’s assume 1%.

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Children’s and Social Services

• Recent average increase is 5.4%.

• Lowest was 1.2%.

• “Expense in the children’s and social services sector is projected to grow by an average annual rate of 2.7 per cent per year over the medium term.” (Budget 2012)

• Drummond recommended 0.5% (but not acted on)

• Let’s assume 1%.

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Justice

• Recent average increase has been 4.5%.

• Current fiscal plan assumes this portfolio will remain frozen at $4 billion.

• With inflation, that is a plan to shrink Justice.

• Let’s assume 0%.

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Other programs

• In the current Liberal plan to balance, all other Ministries are grouped into “Other Programs.”

• Once the expenditure plans are set for the larger groupings discussed earlier, the remaining Ministries must make do on what is left.

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Other programs list

• Aboriginal affairs

• Agriculture Food & Rural Affairs

• Citizenship and Immigration

• Consumer Services

• Economic Development & Innovation

• Energy

• Environment

• Finance

• Francophone Affairs

• Government Services

• Infrastructure

• Labour

• Municipal Affairs & Housing

• Natural Resources

• Northern Development & mines

• Tourism, Culture and Sport

• Transportation

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What happens when we plug in these numbers?

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The plan with plug numbers

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Percentage growth rates

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Drummond’s recommended growth rates

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Prospects for reducing “Other Programs”

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Conclusions

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Conclusions

• Even if we assume the Liberals have an aggressive cost containment plan for:

– Health

– Education

– Training, Colleges & Universities

– Social Services

– Justice

• The Liberals still have to cut the rest of government by 25%.

• Because big chunks of the rest of government are not likely to be reduced, this means that many Ministries must be reduced by 50%, or some Ministries eliminated entirely.

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Conclusions

• The Liberals do not have a “plan” to balance the budget.

• They have not informed stakeholders that their “plan”requires massive reductions.

– Are we facing years of restraint in health, education and other programs?

• Their plan puts off major cost containment until 2016.

• No specific actions have been identified by the government to achieve their planned reductions.

• The government has not been honest with Ontarians about our situation.