Ontario's deficit will improve from its COVID-ravaged state slowly, matching the vibe of the mostly stay-the-course 2022 budget.
The Tories plan to balance the books by 2027-28 — well after the next election. A more optimistic scenario outlined in the budget would see the deficit erased by 2024-25, but that's less likely.
The budget outlines a $19.9-billion deficit this year, including a $1-billion reserve. By 2024-25, the government expects to shrink that to $7.6 billion — which is still nearly $1 billion more than the Liberals proposed in their <a href="https://www.qpbriefing.com/2018/03/28/budget-2018-six-years-deficits-come-20b-pre-election-spending-spree/" target="_blank" rel="noopener">2018 "spending spree" budget</a>.
One economist said he was left wondering about the "so what" of this budget.
Mike Moffatt told QP Briefing that although the PCs may introduce new items on the campaign trail, the current document doesn't have much to anchor voters to the government's vision, with an election just over a month away.
"I'm not seeing any one item in here that would garner anybody's attention," he said. "It's like, okay ... who is the big winner here? Because I don't really have a sense of that."
<h3>Pandemic spending won't end for years</h3>
The effects of the pandemic will linger for the near future.
COVID-19 Time-Limited Funding will wither away from $6.9 billion this year to $0 next year. The government draws on that flexible fund to respond to the unpredictable virus with things like testing, personal protective equipment, supporting municipal transit systems and much more.
In related news, the "other programs" expense will see the largest jump in spending — from $29.6 billion in 2021-22 to $39.7 billion in 2024-25 — to deal with a "significant annual increase in the level of contingencies," the budget reads.
Liberal Leader Steven Del Duca found this fishy, since the province was reticent to spend its federal COVID bailouts quickly.
"So when I see ... just over $10 billion in unallocated contingencies, I am, to be diplomatic, suspicious about what the motivation is around that," he said.
Health funding will increase from $71 billion in 2021-22 to $78.3 billion in 2024-25. That's largely to cover the planned expansion of 30,000 long-term care beds, to build more hospital beds and give hospitals more funding, increase personal support worker wages, and other initiatives largely spurred by the pandemic.
Education funding will jump from $29.5 billion in 2021-22 to $35.1 billion in 2024-25 — largely due to the $10-a-day child-care agreement with Ottawa. That'll cost the province $6.8 billion over three years, the budget states.
The budget notes that education funding is $1.3 billion lower than projected in the 2021 budget. It attributes this to lower-than-expected enrolment and fundraising.
And Finance Minister Peter Bethlenfalvy noted that education spending did increase year-over-year.
"If I had the budget here I'd be waving it at you," he told QP Briefing, adding that his government has increased spending by billions from the Kathleen Wynne government. "So what I see is a big increase in funding."
Opposition parties called it a cut to education in the middle of a pandemic.
"And this follows a pattern of this government saying that they are going to invest, that they are going to spend on specific things and then not following through," NDP finance critic Catherine Fife said.
"They're in effect blaming moms and dads for not stepping up and doing as much fundraising in our kids' schools for part of why they deliberately chose to cut the education budget. That is appalling. I mean, to me, that is despicable," Del Duca said.
Postsecondary funding will bump up from $10 billion in 2021-22 to $11.4 billion in 2024-25. A big chunk of that is due to the government's efforts to train more health-care workers and research future pandemic preparedness.
Postsecondary funding was also $685 million lower than projected in the 2021 budget.
<h3>Personal income tax to drive revenues</h3>
The Ministry of Finance projects revenue to increase by an average of 4.3 per cent each year until 2024-25 — from $179.8 billion this year to $196.9 billion in 2024-25.
Personal tax revenue will increase faster than corporate tax revenue because employees will likely be paid more in the coming years, and because the federal Canada Recovery Benefits are taxable, the ministry says.
Corporate tax revenue spiked to $22.2 billion last year from $17.8 billion the year before. The government's planning forecast pegs it at $19.7 billion this year before slowly increasing for the next two years. The jump was due to $3 billion in deferred pandemic taxes coming due, the ministry says.
The debt-to-GDP ratio jumped to 43.1 per cent in 2020-21, but got back down to 40.7 per cent last year. The government projects it to stay at about 41.4 until 2025.
<div id="attachment_404634" style="width: 877px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-404634" class="wp-image-404634 size-full" src="https://www.qpbriefing.com/wp-content/uploads/2022/04/debt-to-gdp-2022-budget.png" alt="" width="867" height="635" srcset="https://old.qpbriefing.com/wp-content/uploads/2022/04/debt-to-gdp-2022-budget.png 867w, https://old.qpbriefing.com/wp-content/uploads/2022/04/debt-to-gdp-2022-budget-405x297.png 405w, https://old.qpbriefing.com/wp-content/uploads/2022/04/debt-to-gdp-2022-budget-843x617.png 843w, https://old.qpbriefing.com/wp-content/uploads/2022/04/debt-to-gdp-2022-budget-768x562.png 768w" sizes="(max-width: 867px) 100vw, 867px" />Budget 2022.</div>
<h3>A history of inflated deficit projections</h3>
The Ford government has consistently overstated its expected deficits. It's not a novel strategy — governments often try to make themselves look like fiscal saviours.
"Honestly, a lot of this reminds me of a Charles Sousa budget," Moffatt said, referencing the former Liberal finance minister. "You know, overall, you have ... very cautious estimates on future spending, which gives the government a fair bit of wiggle room to both introduce new spending in the future and have deficits that come in lower than forecast."
The budget trumpets: "The 2022 Budget deficit outlook represents a significant improvement compared to the outlook published in the 2021 Budget, demonstrating the strength of Ontario's recovery."
That's true. The 2021 budget predicted a $33.1-billion deficit this fiscal year, which turned out to be $13.5 billion.
<h3>An alternate scenario</h3>
The budget deficit differs significantly from a forecast released by the province’s fiscal watchdog earlier this month.
The Financial Accountability Office issued <a href="https://www.fao-on.org/en/Blog/Publications/EBO-SP2022" target="_blank" rel="noopener">a report</a> finding that if the government were to stay the course without major changes to revenues or spending, it would keep the deficit to just $1.7 billion before reserve this year.
The $17.2-billion difference between the FAO's forecasts and the budget is primarily expense-driven, with the government planning to spend $13.4 billion more than the FAO forecast it would.
The FAO’s forecast was based on the most recent fiscal information available from the government as of March 28, 2022, and the budget does not provide a detailed cost breakdown of its newly announced measures or budget increases.
However, more than $4 billion is accounted for additional time-limited COVID-19 funding and base health-care spending is more than $1 billion higher than the watchdog forecast. The budget also says there is a significant annual increase in the level of contingencies in program budgets “to reflect a cautious approach to planning as uncertainty increases over time.”
The forecasts are closer on the revenue side, with the watchdog’s forecast of corporate taxes almost $3 billion higher than the government’s due to differing underlying economic assumptions.
<h3>Tax breaks, new and old, boosted up and busted down</h3>
The <a href="https://www.ontario.ca/page/low-income-workers-tax-credit" target="_blank" rel="noopener">Low-income Individuals and Families Tax Credit (LIFT)</a> is getting a small bump, from a maximum of $850 to $875. The benefit will now apply to individuals making less than $50,000 (up from $38,500) or families making less than $82,500 (up from $68,500).
It gets clawed back by 5 per cent of the amount of money individuals earn between $32,500 and $50,000 (up from $30,000 to $38,500), and what families earn between $65,000 and $82,500 (up from $60,000 and $68,500).
The <a href="https://www.ontario.ca/page/seniors-home-safety-tax-credit" target="_blank" rel="noopener">Seniors’ Home Safety Tax Credit</a> is being replaced by the Ontario Seniors Care at Home Tax Credit. The former was a temporary rebate for 2021 and 2022 that allowed seniors to claim up to $2,500 a year on home renovations designed to help people age in place.
The new one is a maximum of $1,500. It covers 25 per cent of medical expenses up to $6,000 for those 70 and older. Eligible expenses are the same as the ones under the Ontario Medical Expense Tax Credit (METC). It includes things like attendant care, dental and wheelchairs.
You no longer need to publish a physical book to get the <a href="https://ontariocreates.ca/tax-incentives/obptc" target="_blank" rel="noopener">Ontario Book Publishing Tax Credit</a>. The requirement for 500 bound copies was removed in 2020 and 2021 due to pandemic printing delays. It will be permanently axed to recognize the "importance and growth of e-books and audiobooks," per the budget.
Web series will be eligible for the <a href="https://ontariocreates.ca/tax-incentives/ofttc" target="_blank" rel="noopener">Ontario Film and Television Tax Credit</a> and the <a href="https://ontariocreates.ca/tax-incentives/opstc" target="_blank" rel="noopener">Ontario Production Services Tax Credit</a>. Productions will have to have a minimum budget of $250,000, a streaming agreement with an eligible exhibitor, and can't be instructional or opinion content.
The <a href="https://ontariocreates.ca/tax-incentives/ocase" target="_blank" rel="noopener">Ontario Computer Animation and Special Effects Tax Credit</a> will now be "tethered" to the previous two tax credits. You won't be able to get it without qualifying for one of the other two.
The government is extending the <a href="https://www.ontario.ca/document/regional-opportunities-investment-tax-credit" target="_blank" rel="noopener">Regional Opportunities Investment Tax Credit</a> until 2024. It gives Canadian companies breaks when they invest in certain parts of the province.
The government is extending <a href="https://www.ontario.ca/page/time-limited-relief-taxes-pertaining-transfers-electricity-assets" target="_blank" rel="noopener">tax breaks</a> on municipal sales of electric utilities to the private sector until Dec. 31, 2024.
The total cost of these and previously announced tax changes, the budget says, will be $1 billion in 2022-23, then $255 million and $230 million over the next two years.
-With files from Jessica Smith Cross

Budget 2022: Pandemic spending to keep Ontario in the red until 2027-28

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