My old investment banking colleague Peter Bethlenfalvy (hereafter, for obvious reasons. Peter B) is now Ontario Finance Minister. On Wednesday he tabled his first budget, Ontario's second of the pandemic. There's a torrent of red ink in there, but before we get to that, let's take a step back to look at the context.
Canadian governments at all levels, from the Feds in Ottawa to the smallest municipality, have seen their finances wrecked by the pandemic. Revenues have fallen while demands for additional spending have soared. The Federal government, as the issuer of the national currency, has by far the most latitude to act, and it has done so in spades: most international studies suggest that Canada has spent more to combat the pandemic than any other country.
The Federal deficit for the 2020/21 fiscal year, which is just ending, is set to be around C$ 400 billion, give or take. Ontario is home to about 40 percent of Canada's population, so you can say that Ontario's "share" of the Federal shortfall is about C$ 160 billion. That's not a number that has any practical implications, but it does allow us to put the Ontario deficit projections into some sort of perspective.
That's important because, as big as the numbers unveiled by Peter B are, they're a small fraction of the fiscal effort the Feds are exerting in the Province. The Ontario deficit for the year just ending is pegged at C$ 38.5 billion. With an anticipated recovery in the economy and the removal of some COVID-specific spending, the deficit is projected to fall to C$ 33 billion in FY 2021/2022. The budget includes projections for the entire decade; the Province does not expect a return to balance until 2029/30. Projecting that far out is frankly almost meaningless, but it's reasonable to assume that Peter B and his boss Doug Ford wanted at least to pay lip service to that great Tory shibboleth, fiscal responsibility.
With the Feds doing most of the heavy lifting, Peter B's budget mainly consists of Band-aids for particularly hard-hit sectors. There's about C$ 5 billion for spending specifically on the pandemic, including the vaccination rollout; there's expanded support for small businesses and families; and there's fresh funding for long-term elder care, in response to severe criticism of how poorly that sector has performed during the pandemic.
Between the time that he and I worked together in a Bay Street trading room and his reincarnation as a politician, one of Peter B's most significant gigs was as head of Dominion Bond Rating Service. One of the key reasons he decided to enter politics seems to have been his concern over the way Ontario's finances were deteriorating under the feckless McGuinty and Wynne governments. Tabling large and long-lasting deficits like those in this week's budget must be painful for him, but here's an interesting quote: "Economic growth is the key to our fiscal recovery. That growth will create jobs, provide revenues to support critical public services and ensure a sustainable fiscal position."
That's very close to the infamous "budget will balance itself" comment by Justin Trudeau a few years ago, an insouciant attitude that Conservatives (of whom Peter B is one) have been mocking ever since. But of course Peter B is correct here: Ontario will never be able to reduce its deficit if it imposes as austerity program once the pandemic is over. It's tempting to think that the economy will grow faster and the deficit will shrink faster than the budget is projecting, but for now at least, the Ford Government is avoiding doing anything to make the situation worse. That's good.
Now we can sit back and wait for the Federal Budget, which after much humming and hawing has been set for April 19. That will almost certainly be a pre-election budget, setting the stage for a Federal vote in early summer or early fall. Just what we all need.
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