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Ontario’s budget plan slow and safe – and that’s the problem

The Ontario provincial flag flies over Queen’s Park in Toronto.

Deborah Baic/The Globe and Mail

Ontario's new provincial budget leaves it creeping, ever so gradually and from a great distance, toward the promised land of balanced books. But the painfully slow process serves to highlight the still-desperate state of the province's finances, and to underline the urgency to fix the problem, one way or another.

For Ontario's minority Liberal government, the chosen path has been the slow, steady and safe. Its projected deficit for the fiscal year ending March 31, 2014, of $11.7-billion is actually nearly $2-billion more than its estimated deficit for the recently completed fiscal 2012-13, which on the surface seems like a government headed in the wrong direction. However, it's more than $1-billion below the previous target for 2013-14 in the government's long-term balanced-budget plan contained in last year's budget. The official government message: We're ahead of schedule on the plan to wipe out the deficit by 2017-18.

The 2013-14 target certainly looks reasonable based on the government's underlying economic assumptions. It has projected real gross domestic product growth in Ontario of just 1.5 per cent this year and 2.3 per cent in 2014 – both one-tenth of a percentage point below the average of private sector forecasts. Combine the conservative growth assumption with the fact that the province beat its 2012-13 deficit target by a massive $5-billion – indeed, it has come in under budget four years in a row – and the government has justifiable optimism that it can achieve a deficit number smaller than the $11.7-billion target.

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Nevertheless, $11.7-billion leaves Ontario with far and away the biggest deficit among Canadian provinces. And while it is also the country's biggest provincial economy, Ontario also has the country's worst deficit relative to GDP. Its net debt – estimated at more than $250-billion and set to grow by a forecast $20-billion in the current fiscal year – is the second highest in the country on both a per-capita and a debt-to-GDP basis. It's not pretty, and this budget does little to put any lipstick on it.

Mr. Sousa characterized the largely stand-pat nature of the budget as a keen awareness of the "sensitive" state of the economic recovery; in short, deeper cuts and/or revenue grabs would threaten to destabilize a fragile economy.

It certainly hasn't helped that the economic growth outlook has deteriorated markedly since the province tabled its previous budget a year ago. The province's GDP growth assumption for 2013 of 1.5 per cent is down from 2.2 per cent a year ago; in that light, improving on the deficit-reduction target for the year is something of an accomplishment.

But the province has also put off some of the hard decisions in generating revenues that could advance the balanced-budget efforts – presumably for fear not only of a non-confidence vote for its minority government, but more importantly, of dealing the provincial economy an austerity blow that would snuff out the tepid economic activity that is anticipated. It avoided dealing with the mess of expensive business tax credits that economists Don Drummond, in his government-commissioned report on Ontario's finances, recommended be overhauled and reduced. It looked at a regime of mining taxes that extract the least from resource exploitation of any province in the country, and said only that it would keep looking.

These decisions (among others) are the tough ones that Ontario will eventually have to tackle if it is serious about getting a nearly $12-billion deficit down to zero in the next five years, and begin to tackle its onerous debt burden. This budget didn't hurt the cause, but it has either delayed it or made decisions in the next couple of years that much more difficult. Ontario is clearly hoping that a stronger economy after this year will cushion the blow; without that, it might find the road ahead a treacherous one.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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