By Ben Eisen
and Charles Lammam
The Fraser Institute
The Ontario government’s recent update on the province’s economy offers a brief preamble on the 2008-09 recession’s challenges, then this shockingly out-of-touch sentence: “Our plan is working.”
Nothing could be further from the truth.
It’s difficult to know where to begin pointing out the problems with this claim, but looking at the macroeconomic numbers is as good a place as any.
The government’s rosy rhetoric notes that the provincial economy is growing and that relatively strong growth is expected in the years to come.
But it’s important to recognize just how severe and prolonged Ontario’s economic slump has been before popping the champagne to celebrate a brief uptick in growth.
Consider that from 2003 to 2015, per person economic growth (adjusting for inflation) in Ontario increased at an average annual rate of 0.5 per cent. That’s anemic over a long period and is approximately half the growth rate in the rest of Canada.
Weak growth is not just a matter of economic concern – it has hit regular Ontarians hard in the pocketbook. In 2000, average disposable household income in Ontario was 10 per cent higher than in the rest of the country. But prolonged poor economic performance has meant that Ontario’s average income (since 2012) is now below the rest of the country. Ontarians having income below the national average is historically unthinkable but the average Ontarian is now poorer than the average Canadian.
A potent symbol of Ontario’s economic slide came in 2009, when the province became eligible for equalization payments, becoming a have-not province for the first time ever. That would have been almost unimaginable a generation ago. Seven years later, however, the receipt of equalization payments has become business-as-usual in Ontario.
It’ll take more than a few quarters or even a few years of strong economic growth to undo all of this damage and restore Ontario as an economic engine in Canada. If this is what economic success and a “working” plan looks like, it’s hard to imagine what might constitute failure in the government’s eyes.
If the government’s willingness to brag about its economic record is cringe-worthy, it’s willingness to brag about the success of its management of provincial finances is almost surreal. The update says the province is on track to beat its deficit target this year and will return to a balanced budget in 2017-18. This is supposed to be evidence of the government’s prudent fiscal management.
The numbers tell a very different story. In reality, the government is on track this year to run its ninth consecutive multibillion-dollar budget deficit. Since 2003, Ontario’s debt (after adjusting for financial assets) has grown faster than any other province in Canada.
The government may well finally balance its operating budget next year, which includes spending on day-to-day items, although its own fiscal accountability office (FAO) casts some doubt. Even so, the government will continue to rack up debt in the years ahead because it continues to spend money on capital projects including “post-secondary infrastructure,” public transit and “affordable housing, tourism and cultural centres.”
In fact, the FAO projects that the government’s debt burden will increase by more than $50 billion in the years ahead, reaching $370 billion by 2020. The notion that a return to a balanced operating budget next year means the fiscal plan is working, or that Ontario’s battered finances are on the road to recovery, is nothing more than spin.
The rosy rhetoric surrounding the fiscal update is disconnected from the economic realities facing Ontarians and from the realities of the government’s finances.
Ben Eisen and Charles Lammam are analysts with the Fraser Institute.