The Ford government has a lot on its plate these days. Rising interest rates and persistent (albeit moderating) inflation, respiratory illnesses straining Ontario’s hospitals, education sector labour strife, and ambitious changes to housing and development planning laws are among the many major challenges facing the recently re-elected government.
Returning to the legislature after a one-week hiatus, the government sought to immediately address some of these challenges head on. The day began with the government making good on its commitment to repeal Bill 28 – the Keeping Students in Class Act – as part of the agreement with CUPE to end its strike and continue negotiations between the government and education workers. This was followed in short order by a press conference with Dr. Kieran Moore, Ontario’s Chief Medical Officer of Health, in which he strongly suggested that Ontarians resume indoor masking in all public settings, while stopping short of re-introducing a mandate.
The day was capped off this afternoon by Finance Minister Peter Bethlenfalvy’s Fall Economic Statement. Facing an uncertain and changing economic environment, the government opted to take a prudent, incremental approach to its overall fiscal position and chose not to introduce very many new initiatives through this year’s statement.
What did attract attention from provincial policymakers is the continuing pressure on cost-of-living and affordability felt by Ontarians across the province as a result of inflation. The centrepiece of the province’s plan to help address affordability is an extension of the 5.7 cent per litre gas tax cut for an additional year. This was a gas tax cut, first announced in the month before the spring provincial election, which was only supposed to last six months. An extension of the gas tax cut by a year, with the option always existing to do it again, helps the province maximize the political gain while providing drivers with a modest amount of relief at the pumps.
Also notable were targeted measures to help some of Ontario’s most vulnerable: persons living with disabilities and seniors. With many in both groups experiencing severe pocketbook and cost-of-living pressure as a result of ongoing inflation, the government built upon earlier initiatives, announced in the summer budget, to provide additional relief. This includes:
- Making changes that would allow a person with a disability on the Ontario Disability Support Program (ODSP) to keep more of the money they earn by increasing the monthly earnings exemption from $200 to $1,000 per month. This would allow the approximately 25,000 individuals currently in the workforce to keep more of their earnings and could encourage as many as 25,000 more to participate in the workforce.
- Planning to adjust the maximum monthly amount for the Assistance for Children with Severe Disabilities program annually to inflation, beginning in July 2023.
- Helping to manage rising costs for low-income people with disabilities by planning to adjust core allowances under the ODSP to inflation annually, beginning in July 2023.
- Helping to manage costs for about 200,000 of Ontario’s lowest-income seniors by proposing to double the Guaranteed Annual Income System payment for all recipients for 12 months starting January 2023, a maximum increase of almost $1,000 per person in 2023.
Other measures included in this targeted slate of affordability and economic initiatives include:
- Launching a voluntary clean energy credit registry.
- Providing Ontario’s small businesses with $185 million in income tax relief over the next three years, benefiting about 5,500 small businesses through the proposed extension of the phase-out of the small business tax rate.
- Automatically matching property tax reductions for small businesses within all municipalities that adopt the small business property subclass.
- Investing an additional $40 million in 2022–23, for a total of $145 million, in the Skills Development Fund, which has already helped over 393,000 people take the next step in their careers in in-demand industries.
- Investing an additional $4.8 million over two years, beginning in 2023–24, to expand the Dual Credit program, encouraging more secondary school students to enter a career in the skilled trades or in early childhood education.
- Proposing to expand eligible expenditures for the Ontario Production Services Tax Credit to include location fees to help attract domestic and foreign film and television production to the province and incentivize more on-location filming in communities across Ontario.
The province is also launching a consultation to create a permanent target benefit pension and a sector-by-sector consultation on “red-tape” regulatory relief, building on the nearly half-billion regulatory cost relief already announced.
ECONOMIC INDICATORS: STORM CLOUDS FOR THE NEXT TWO YEARS
The most important numbers are in the growth projections and inflation. On this score, Ontario is projecting real GDP growth of 2.6% in fiscal 2022, slowing to 0.5% in 2023. The good news: Ontario’s economists are not projecting a recession. The bad news: with 0.5% growth predicted for 2023 and 1.6% in 2024, the outlook is awfully anemic! Ontario may fare better than many other G7 economies, but rates of growth this low haven’t been seen in decades.
Buried a bit further in these numbers are some other troubling stats. Job creation projections for 2023 show job growth of only 38,000 jobs in 2023, growing to only 100,000 in 2024. This compares to a projected 324,000 jobs created in 2022. Likewise, the unemployment rate is projected to rise from 5.7% to 6.3%. Still, these numbers are well off the peak unemployment rates felt in the 1980’s recession, which saw unemployment rates of 12% or higher.
If there is a silver lining to be found, it is that Ontario’s economists and prognosticators are projecting a big drop in the inflation rate in the next few years. In fiscal 2022, the inflation rate for the year is projected to be 6.9% – though for many goods and services, the rate is much higher. In 2023, that inflation will moderate to 3.4% and eventually find itself down to the Bank of Canada target rate of 2.0% in 2025.
Curiously, the Ministry is projecting flat rates of growth for housing starts – a key economic indicator and a signature part of the Ford government mandate. This statement projects 86,600 housing starts in 2022 and a drop in 2023 to 76,900, and 77,800 in 2024. Given the goal of building 1.5 million new homes in 10 years – an average of 150,000 a year – these projections must be a major concern for the Province. Either that, or the Ministry is playing “rope-a-dope” with these numbers and hopes that more housing construction, stimulated by their recent legislation, will see these numbers increase dramatically.
Another projection that will be of interest to anyone who owns a home and carries a mortgage – the Ministry of Finance is projecting an 8.1% decrease in home re-sale prices in 2023, recovering to an anemic increase of 1.2% in 2024. Given that so many Ontarians have HELOCs and mortgages attached to the hope of an ever-growing valuation on their homes, this will be a problem for many as the debt to valuation squeeze takes shape.
The financial projections provided reflect the Minister who delivered the statement – Peter Bethlenfalvy. He has provided prudent, conservative, safe projections. They are almost certainly under-promised with the goal of over-delivering.
“For 2022–23, the government is projecting a deficit of $12.9 billion, nearly $7 billion lower than the outlook published in the 2022 Budget.
Over the medium term, the government is forecasting deficits of $8.1 billion in 2023–24 and $0.7 billion in 2024–25, an improvement of $4.3 billion and $6.9 billion, respectively, relative to the outlook presented in the 2022 Budget. Over the three-year outlook period between 2022–23 and 2024–25, the government is projecting a cumulative $18.1 billion improvement in the deficit outlook and a cumulative $26.1 billion reduction in borrowing needs since the 2022 Budget.
Ontario’s 2022–23 net debt-to-gross domestic product (GDP) ratio is now forecast to be 38.4 per cent, 3.0 percentage points lower than the 41.4 per cent projected in the 2022 Budget, and 0.8 percentage points lower than in 2021–22.”
Within this fiscal plan, revenue from the government of Canada – the amount transferred from the federal government for things like health care – is projected to hold fairly steady at around $32 billion a year, growing only modestly. Obviously, if federal/provincial negotiations on the federal health transfer get traction again, after talks broke down last week, this is where Ontario could see significant growth in spending – something just about everyone agrees that our health system desperately needs.
Interestingly, despite the rise in nominal interest rates, the impact of those rising rates on the province’s ability to service the debt is not as high as one might fear. Interest on debt in 2021-22 was $12.6 billion, but despite interest rates more than doubling in the past year, it only rises to $13.6B in 2022-23 and $14.5B in 2023-24. Interest on debt as a percent of revenue rises from 6.8% in 2021-22 to 7.5% in 2023-24. That’s still a lot of money, but Ontario’s treasury managers, with commendable foresight, hedged against a lot of these interest rate hikes a few years ago with longer-term bonds.
It is a challenging political environment for Premier Ford and his colleagues – as it would be for any government. Education sector contract talks are never easy. Inflation and rising interest rates are hard to deal with and largely outside the control of the Provincial government. Making tough calls on things like urban boundary expansions and potentially unpopular housing policy may have a short-term political price, but Ford is betting on long-term political gains as housing prices moderate and more families move into homes they own.
Within that political environment, however, it is somewhat surprising that Ford and his Finance Minister have not offered a more radical agenda in this Statement.
Rather, this statement reflects a government that is taking a careful, prudent, incremental approach, especially to the province’s finances. Even in the teeth of slowing economic growth, Minister Bethlenfalvy is projecting balanced budgets in just a few years. Even in the face of overwhelming pressures in our healthcare system, health expenditure growth is modest. With spending pressures pent up across most sectors, and an agenda that is focused on growth, the conservative nature of this statement may be reflective of the fact the Budget 2023/24 process is just a few months away. It may be at this time that we will see more substantive, and radical, measures.
The FES provides a snapshot in time; a lot can change and quickly. This statement shows a government that is forecasting modestly, but leaving space to be more aggressive if the situation changes. As noted, if the federal government comes through with increased health transfers, that money will go straight to addressing obvious gaps in our healthcare system. If economic growth rebounds more quickly, and tax revenues follow, more money will be found for the social services sector, education, justice, and all the other areas of government expenditure that are under strain. But if those things don’t happen, this Finance Minister and Premier have given themselves room to maneuver.
Hope for the best; plan for the worst. If this is a plan for the worst, then maybe Ontario – and key sectors that rely on tax dollars to be funded – won’t fare that badly in the next few years. At least, that is the hope.