Ontario budget falls flat on funding for public services

It’s good that Ontarians have 34 days to learn more about the April 28 provincial budget. Because there is a lot to understand.

This year’s budget, titled “A Plan to Build,” increases overall spending by more than $11 billion in 2022-23. No doubt Ontarians will hear a lot about these expenses in the weeks to come.

If the government is re-elected and the budget passes, the controversial Highway 413 in the western part of the Greater Toronto Area could well be built, along with many other major projects.

In total, the government is proposing to spend more than $20 billion on roads, transit, bridges and buildings. This is an increase of 18% over last year. The government also plans to inject money into a number of companies aimed at supporting businesses.

That said, the core business of budgets is the delivery of public services, and on that front the budget falls flat. Despite all the spending, utilities don’t seem to be a priority.

The budget indicates that overall base funding for government programs will increase at an average rate of 5.1% over the next three years. In normal times, this would probably be enough to maintain services at their current level, taking into account inflation, population growth and aging populations.

But these are not normal times.

With year-over-year inflation hitting 7% in Ontario last month, many operating costs borne by the public sector (e.g. for hospital equipment, school heating, gas for government vehicles, etc.) will be much higher than usual. In this context, funding levels based on past inflation are simply not enough.

This is certainly the case in Health care, which will see an average increase in funding of only 3.3% per year over three years. Even in ordinary times, healthcare inflation is higher than in other areas (the cost of drugs is one reason) and most of the additional costs of an aging population are borne by the healthcare system. Normally, health care spending must increase by at least 4.5% per year just to maintain services. The budget plan for health care is to reduce it.

Funding for education in the budget is not what it seems. At first glance, an average increase in spending of 5.9% per year over the next three years looks like a significant jump. But there is a catch. This amount includes $6.8 billion in federal funding for the implementation of the Ontario Early Learning and Child Care Agreement. This money is for childcare, not for running schools. Take that amount out of the education budget and the net result is that in times of high inflation, education almost certainly experiences a reduction in real funding per student. This is nothing less than a tragedy for two million students who need more resources, not less, to help them recover from the pandemic. (See Ricardo Tranjan’s latest article here for more on provincial school board funding).

This is nothing less than a tragedy for two million students who need more resources, not less, to help them recover from the pandemic.

Basic funding for post-secondary education gets an average annual increase of 4.7% over the next three years, perhaps because the sector has been severely underfunded in recent years. With inflation and enrollment changes, it remains to be seen whether this is an increase or not.

Spend on children’s and social services will grow by just 2.6% per year, which would represent a real reduction per capita in the best of cases. The government makes no mention in the budget of improving autism services or increasing social assistance rates for those surviving through Ontario Works or the Ontario Disability Support Plan. Ignoring the desperate need many Ontarians live in is shameful.

Spend in the Justice will grow by 2.1% per year, on average, over the next three years. This is absolutely a real per capita reduction in services in an area where funding is already stagnating.

And then there is the mystery category: “other» expenses, which benefit from an average funding increase of 10.6% per year for three years. The category isn’t really a mystery—it includes many major departments, from agriculture to transportation, as I mentioned before—but how it’s funded is unique. To all appearances, the government is not just funding these ministries: it is storing money there, with no clear explanation of how it will be spent.

The budget states: “The changes [in the Other category] over this period primarily reflect a significant annual increase in the level of contingencies over the outlook to reflect a cautious approach to planning as uncertainty increases over time.

In other words, we don’t know what we spend them on, but if we are sure, we don’t tell you. This is a very unusual way of accounting for unforeseen costs.

On the revenue side, the budget continues the government’s four-year campaign to cut provincial revenues. Various tax cuts and credits in the budget will cost approximately $1 billion in 2022-23. This is on top of the billion dollars a year the government is losing with the waiving of license plate fees for domestic vehicles.

For the first time since the June 2018 election, the government will actually raise a tax, but only for people who don’t live (or vote) in Ontario. A tax hike on non-resident speculation will bring in $175 million for the government this year and more in the years to come.

Nonetheless, the tax cuts in this budget, if implemented, will bring the cost of new tax cuts and credits announced by the government since 2018 to $7 billion per year.

Finally, the government’s decision to run a large deficit this year is unexpected. The $19.9 billion deficit for 2022-23 is certainly manageable, given a stable debt-to-GDP ratio and record interest rates on provincial debt. But just a few weeks ago, the Financial Accountability Office, an independent body of the Legislative Assembly, calculated that under “current policies” the provincial deficit would likely be $1.7 billion, a small number in the Ontario context.

“Current policies,” it seems, have gone out the window. A bigger deficit is nothing to worry about, but for a government that once built its mark on tackling deficits, it’s out of the ordinary.

Thursday’s budget is 242 pages and not always clear. This raises many questions. Hopefully these questions will be answered during the election campaign.

We have 34 days to find out.