Meanwhile, back in Toronto

It's not just the Federal government that's facing fiscal problems in Canada at the moment. The fall in the price of oil is taking a huge toll on the budgets of all of the producing provinces (Alberta, Saskatchewan and Newfoundland/Labrador). Alberta, the biggest producer and a place where the term "saving for a rainy day" seems to be unknown, has already warned that it faces a shortfall of as much as C$10 billion this year.

Then there's Ontario, which tabled its budget yesterday. Under the free-spending McGuinty and Wynne governments, the province has posted a shocking fiscal record over the past decade, to the point where it is now, by some measures, the most indebted sub-national jurisdiction the the world, owing just shy of $300 billion.  Here's the thing, though: lower oil prices, and the concomitant fall in the exchange rate, are huge pluses for Ontario. As a result, although the latest budget shows yet another deficit ($4.5 billion) for the 2016/17 fiscal year, the Province is aiming to balance the books next year.

To close the gap, Finance Minister Charles Sousa is using some one-off transactions, a few accounting tricks, some hikes in sin taxes, and a modicum of spending restraint.  More of Hydro One will be sold, and Sousa is upping his estimate of the Province's take from the sale, given the aftermarket success of the first tranche.  Wine prices will be increased slightly, as will the price of cigarettes -- a move of dubious value, given that more than half of the smokes in the Province are already contraband, by some estimates.

Then there's the biggest sin of all, as today's world sees it: consuming carbon. Ontario had already announced its intention to join the cap-and-trade scheme previously pioneered by California and Quebec. Yesterday we found out how much this is likely to cost: starting in 2017, gasoline will go up in price by about 4.9 cents a litre, while natural gas will cost the average household about $5 more per month.  One major gas supplier, Union Gas, has already warned that the latter figure is almost certainly too low.

Needless to say, this is the least popular part of the budget. Canadians are all in favour of going green, but not if it actually costs them money.  (In an informal TV poll, 81 percent of motorists opposed the gasoline price hike).  The Finance Minister claims that all of the proceeds of the "proceeds" from cap-and-trade, estimated at $1.9 billion in the first year and steadily rising after that, will be devoted to "green initiatives" -- transit schemes, home insulation grants and such. To make this seem real, the government is setting up a separate fund for this money.  However, opposition parties have been quick to warn that the government will in fact be using the money to pay for initiatives it has already announced.  To the extent that this is true, it means that there will be less "new" money for green spending -- and the cap-and-trade "proceeds" (don't you dare use the word "tax") will in effect be going into general revenues.

Sousa's economic assumptions seem reasonable -- real growth averaging no more than about 2 percent a year for the next four years -- so there's every possibility that the deficit will indeed be eliminated in 2017/18.  However, this will come with a considerable cost for the Province's longer-term fiscal flexibility. The ill-advised sale of much of Hydro One robs Ontario of one of its most reliable revenue sources, in exchange for a relatively small upfront revenue windfall.  Come the next slowdown, whoever holds the Finance portfolio may well rue the day Kathleen Wynne decided to sell it.