In its debut budget three years ago, Ontario’s Progressive Conservative government loudly preached the virtues of fiscal restraint, calling a balanced budget “both a fiscal and a moral imperative.”
Spending would be squeezed. The deficit would be eliminated. And the province’s mounting debt burden would be tamed.
None of that happened. The fiscal fire and brimstone of that first budget has been swept away, not just by the economic emergency of the coronavirus, but by the spending choices of a government that has come to resemble the Liberal predecessor it pilloried, at least when it comes to dollars and decimal points.
“There’s been a lot of continuity,” says Ben Eisen, senior fellow with the Fraser Institute’s Ontario Prosperity Initiative. He argues that the Ford government is not fiscally conservative – and that the records of PC Leader Doug Ford and former Liberal premier Kathleen Wynne are strikingly similar.
The Progressive Conservatives reversed some high-profile policies shortly after taking office, including cancelling a planned hike to the minimum wage, and axing the cap-and-trade system. And the two leaders, of course, have very different personal styles and approaches to governing. But the broad contours of fiscal policy haven’t changed that much, Mr. Eisen says.
“It will surprise many,” he adds.
But the numbers back him up. Program spending has surged during the Ford era, particularly during the first two years of the pandemic, in fiscal 2020-21 and 2021-22. Mr. Eisen and other economists say that program spending measured against the economy is a key measurement of a government’s fiscal conservatism. If program spending as a percentage of gross domestic product is falling, a government is shrinking its economic footprint. And the reverse is true; a growing percentage means a bigger footprint.
On that score, the Ford government has left some very large footprints indeed. As the chart below shows, program spending shot up to 19.5 per cent of GDP in fiscal 2020-21 (in part because of the 2020 economic contraction), far higher than in the previous 10 years of Liberal government. That proportion fell slightly in the 2021-22 fiscal year that just ended. And in its April budget, the Ford government forecast a further decline to 16.6 per cent by fiscal 2025.
Even if everything goes to plan, the Progressive Conservatives would end up spending only marginally less, as a proportion of the economy, than the Wynne Liberals did in fiscal 2016-17. And there are some questionable assumptions in those spending projections, particularly a sudden slowdown in the growth of health care spending starting in fiscal 2024 that doesn’t keep pace with forecast inflation and population growth. (On the other side of the ledger, there are billions of dollars in unallocated contingencies and possible additional corporate tax revenues that, if left unspent, would tilt the spending curve down.)
The Progressive Conservatives, like many others, have argued that the demands of the pandemic meant that they had no choice but to ramp up spending. Speaking to reporters on budget day, Finance Minister Peter Bethlenfalvy said his party aims to strike a balance between fiscal prudence and the need for higher spending on health care and other infrastructure needed to boost economic growth. “We’ve got it right, we’ve got the balance right,” he said.
One way that the Tories underscored that message in the budget was to present spending figures that broke out temporary measures related to the pandemic.
If the expenditures that the Ontario government deemed to be time-limited COVID expenses are excluded, then the spending record of the PCs does look more favourable for anyone pining for a fiscally conservative approach.
But such distinctions are somewhat artificial. Any recession requires higher spending, for one thing. The accounting is a one-way street; the government did not attempt to add back in the savings it reaped in other areas because of the pandemic. And ultimately, financial markets don’t give a discount on dollars just because they were borrowed to fight COVID. It’s all debt.
Mr. Eisen says that the fiscal effects of the recession and pandemic are fading, rendering them an increasingly flimsy rationale for high levels of spending and debt. “I don’t think it’s a get-out-of-jail-free card at all,” he says.
Rebekah Young, director of fiscal and provincial economics at Scotiabank, said that before the pandemic, there is evidence that the Ford government veered away from fiscal conservatism. Like the Wynne government before it, the Ford Tories ran large deficits even with low unemployment, she said. She and other economists noted that Ontario’s program spending is low relative to other provinces, with Ms. Young adding that Ontario has more of a revenue problem than a spending problem.
As this second chart shows, Ontario does not plan to unwind its pandemic-induced debt burden all that quickly, and is actually projecting a small increase in the ratio of net debt to gross domestic product for the current fiscal year. In its budget, the government committed only to keeping the ratio of net debt to GDP below 42 per cent – a less-aggressive goal than the federal Liberals, who have said they intend to reduce the federal government’s net debt as measured against the economy. The fiscal framework laid out in Ontario’s budget would leave debt levels higher than previous to the pandemic for years to come.
However, University of Calgary economist Trevor Tombe cautioned against using debt to GDP as a marker of a government’s fiscal conservatism, since such reductions could be achieved through tax hikes. It is preferable, he says, to use program spending as a proportion of GDP.
On that measure, the Ford government’s record looks a lot more like its Liberal predecessor than the last unambiguously fiscal conservative administration in Ontario: the Mike Harris PCs of the 1990s.
As this third chart shows, all three governments started with program spending at roughly the same share of the economy when they took over from the previous government. (The figures for the Ford government use its preferred measure of excluding temporary COVID spending.)
But the Harris Tories, part of a wider trend in Canada in the 1990s, drove down program spending as a percentage of GDP by more than three percentage points in their first five years in power.
Over a five-year period ending in fiscal 2023, the Ford Tories, often accused of wanting to slash government spending, plan to roll back program spending’s share of GDP by a less-impressive 0.05 percentage points. That’s far less than in the PC government of the 1990s. And it is less even than the Wynne government, which managed to whittle down the share of GDP going to provincial program spending by 0.34 percentage points during its tenure.
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