This afternoon, the Government of Ontario released its 2014 Ontario Economic Outlook and Fiscal Review, which provides an update on the government’s finances and progress on key commitments since the release of the 2014 Budget. In October, the province’s unemployment rate declined to 6.5 percent, its lowest rate since 2008. The province has also seen real gains in GDP, exports, and household consumption since the beginning of the year.
The government remains committed to eliminating its budget deficit by 2017-18. It continues to project a deficit of $12.5 billion for the 2014-15 fiscal year, with significant reductions in the deficit thereafter.
The government plans to meet this target despite a substantial decline in revenue. Projected revenue for 2014-15 is $509 million less than previously forecasted in the 2014 Budget. With projected government expenses declining by $208 million since the 2014 Budget, the government is using $300 million from its reserve fund to make up the difference.
Path to a Balanced Budget
In the Fiscal Review, the government highlighted the four key components of its plan to reach a balanced budget by 2017-18. These are:
1. Reviewing and transforming programs
The government’s annual program review savings targets remain at $250 million for 2014-15 and $500 million for 2015-16 and 2016-17.
OCC Position: The government expressed willingness to pursue “other tools” to meet its goal of balancing its books by 2017-18. We feel that a more robust program review and more ambitious targets are required prior to any revenue increases.
2. Managing compensation costs
Government has negotiated zero or minimal salary increases in recent agreements with public sector unions.
OCC Position: We support government’s efforts to hold the line on public sector salaries.
3. Ensuring everyone pays their fair share of taxes
According to government figures, the province generated over $380 million in additional revenue in 2013-14 by enhancing the integrity of the tax system. The government is taking action to tackle the underground economy. This includes:
Pilot programs to strengthen compliance in high-risk sectors
Working with the federal government to identify new measures to curtail corporate tax avoidance
Stepping up efforts to curb contraband tobacco by establishing oversight of raw leaf tobacco, effective Jan. 1, 2015
OCC Position: We support a crackdown on the underground economy and on tax evaders.
4. Unlocking the value of provincial assets
The Premier’s Advisory Council on Government Assets will present its final recommendations in advance of the 2015 Budget. The Council is investigating how to generate the most value out of the LCBO, Hydro One, and OPG.
OCC Position: We support government’s efforts to deliver more value from provincially owned assets, but these efforts should be expanded to more government assets in a regularized (not one-off) process.
The Federal Funding Gap
In his address to Provincial Parliament, the Minister of Finance called on the federal government to reform the federal transfer system to treat Ontario fairly. The gap between what Ontarians pay in federal taxes and what they receive in federal funding and transfers is $11 billion, or $850 per Ontarian. He stressed that more of the money that comes to the federal government from Ontarians should be reinvested back into Ontario.
Specifically, the Minister called on the federal government to match the province’s $1 billion commitment to Ring of Fire investment, and increase federal investment in public transit.
OCC Position: We strongly encourage the federal government to reform fiscal transfers and programs that shortchange Ontario, such as Employment Insurance.
We also encourage the federal government to match the provincial investment in the Ring of Fire and to invest more in productivity enhancing infrastructure, such as transit.
To learn more about the Ontario Chamber perspective on how government can return to balance, see our recent report, How Bad Is It? What Do We Do About It? A Straightforward Guide to Ontario’s Debt and Deficit Situation.
Read the Government of Ontario’s 2014 Economic Outlook and Fiscal Review.