The fiscal formula for revenue windfalls, pioneered by the Trudeau Liberals, has become wearily familiar: ramp up spending by slightly less than the new dollars that have fallen into your lap and then humble-brag about your budgetary prowess.
So it was somewhat surprising last week when Ontario’s Progressive Conservative government, with an extra $1.2-billion in new tax money in hand, chose to simply not spend any of it on new program expenses. Most of that new revenue will go toward reducing the deficit, now projected to be $18.8-billion, down from $19.8-billion, as detailed in the province’s first-quarter fiscal update.
The remaining $105-million will cover slightly higher interest costs on the province’s debt.
For the most part, the PC government stuck to the budget it tabled ahead of the June provincial election, with just one new spending initiative added: a vaguely defined $225-million over two years for parents to help children.
However, the PCs did make one thing clear: that new program will not add to total spending. Instead, it will be allocated from existing contingency funds already built into the budget. (The government is also leaving untouched its $1-billion reserve, a separate entity from its contingency funds.)
In one sense, this is loosey-goosey budgeting. The province’s $4.6-billion Contingency Fund would be more aptly named the Slush Fund for Ideas We’ll Come Up With Later. The promise of payments to parents, made in the Throne Speech last week, looks a lot more like a move to create political goodwill than an unexpected circumstance creating a need to dip into contingencies.
Still, it is bracing to see a Canadian government decide that it will direct the bulk of extra revenues to reducing its deficit. That decision will see Ontario’s ratio of debt to gross domestic product decline faster from its pandemic peak. Now, the ratio is projected to fall to 40.1 per cent this fiscal year, rather than to 41.1 per cent as previously estimated.
That’s enough to earn the PC government half-marks for budgetary discipline – a kinda-good-enough fiscal conservatism.
A bigger test awaits, as Ontario (along with every other province) faces demands for immediate increases in health care spending. Emergency room shutdowns, shortages of nurses and excruciatingly long wait times do at least qualify as a contingency worth funding. And the government is promising action, of some sort.
Even using the entire Contingency Fund would increase the province’s health care spending by less than 7 per cent this year. And any increase in funding this year will bump up against the government’s plan for a sharp deceleration of the growth in health-care spending in coming years.
Taxing questions
Responding to a recent Tax and Spend on the misery index, one online reader asked about how much of current low unemployment rates can be attributed to people no longer looking for work.
It’s a timely question. In both June and July, the historically low unemployment rate of 4.9 per cent is indeed being driven in part by a contracting work force. In June, the Canadian economy actually shed 43,000 jobs. But the workforce contracted even more, by 97,000 people. Those weren’t what Statistics Canada calls discouraged workers – people that want to work but have given up on active job searches. Instead, they appear to be people, chiefly those aged 55 and older, deciding to permanently leave the workforce.
The pattern was much the same in July, with employment losses largely balanced off with decreases in the workforce. That was enough to keep the unemployment rate stable at 4.2 per cent.
It’s worth noting, however, that in preceding months, it has been economic growth and the resulting expansion in jobs that are chiefly responsible for pushing down unemployment rates to current levels.
Line item
Recalculating retirement: Ottawa’s recent increase of Old Age Security payments to seniors 75 and older bolsters the case for deferring the start of those benefits for as long as possible, writes Bonnie-Jeanne MacDonald and Doug Chandler of the National Institute on Ageing.
They say that a retiree with an average lifespan now stands to pocket an additional $13,000 by deferring benefits until age 70, up from the estimated $10,000 in additional payments before this month’s bump.
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