The Ontario government’s budget deficit of $15 billion this year will rise even higher next year unless swift corrective action is taken.
With the province’s net debt already at $325 billion, eliminating the deficit should be a priority – especially since this enormous deficit is being incurred outside of a recession.
Given that Premier Doug Ford and his Progressive Conservatives were elected last June on a plan to cut taxes, the only way to quickly balance the budget will be through spending cuts. This is also the smarter policy choice. Research shows that governments’ attempts to tax their way out of deficits are far more economically damaging than reducing spending.
Ontario’s fiscal predicament is the result of unreasonable spending increases by previous governments. Program spending in the 2017-18 fiscal year was around $10 billion higher than what the previous Liberal government budgeted for 2017-18 in its 2015 fiscal plan. Then spending was ramped up again in early 2018 as the Liberals went on a pre-election spree.
Pulling Ontario’s spending back into line with the 2015 fiscal plan would eliminate most of the current deficit but that’s easier said than done. It’s much easier for politicians to make lavish promises than it is to cut spending.
There are, however, numerous easily identifiable expenditures that should be eliminated or substantially scaled back.
The first is corporate welfare – the billions of taxpayers’ dollars wasted annually to subsidize businesses. The Jobs and Prosperity Fund, the province’s regional economic development funds, the agricultural Risk Management Program and all other forms of loans and grants to businesses should end immediately.
Secondly, spending on post-secondary education should be further cut. Just as businesses shouldn’t get taxpayer subsidies to invest in machinery, neither should future dentists, accountants and lawyers be heavily subsidized to invest in education. A business might borrow money to invest in worthwhile machinery; similarly, youth should be able to borrow – as long as they can demonstrate that their education pursuits are worthwhile – to finance investments in their education.
Thirdly, there are significant savings to be found in health care. In 2014, then-Ontario PC leader Tim Hudak proposed scrapping the province’s 14 Local Health Integration Networks to reduce the government payroll by 2,000 bureaucrats and save the treasury $800 million annually. It was a good idea then and remains a good idea.
Another idea that today’s Ontario PC government should borrow from the party’s 2014 platform is a two-year public sector wage freeze and the phase-out of defined benefit pensions for new workers. According to a recent study, government workers in Ontario are paid 10.6 per cent more than comparable private sector workers and 78 per cent of them have defined benefit pensions, compared to only 11 per cent of private sector workers.
Moreover, on average, government workers retire 1.8 years earlier, are absent from work 63 per cent more often and have far better job security than private sector workers. Clearly, government workers’ compensation is unnecessarily high.
The PCs ought to lead by example in this area by reducing severance payments to MPPs who resign and by cutting the number of cabinet ministers.
There are many opportunities for the Ontario government to cut spending. Given the size of the deficit and the precarious state of the province’s finances, that work should start now.
Matthew Lau is a research associate with the Frontier Centre for Public Policy.