Well the Ontario budget is out and despite all the talk of 30 percent across-the-board budget cutting in the wake of the Drummond Report, it forecasts more a deceleration of spending growth rather than steep cuts.
Figure 2 converts everything into real per capita expenditures and revenues assuming 2 percent annual inflation and 1.4 percent annual population growth (based on the averages for the 2000-2011 period). As the graph shows, once inflation and population growth are factored in, real per capita spending is set to come down dramatically while real per capita revenues remain virtually flat. Indeed, real per capita spending between 2011 and 2017 will drop by about $1,000 - almost 12 percent - if these numbers are to be believed. The 3rd order polynomial fit certainly shows a change in the trend over the next few years towards a more sustainable outcome. This budget actually presents a set of sustainable public finances with per capita spending in balance with per capita revenue after decades of divergence. If the goal of this budget is to present a credible fiscal plan to eliminate the deficit by 2017 to calm creditors and financial markets, then it may indeed be successful. Much hinges on whether the provincial government will actually be able to restrain its expenditure growth. Bending the spending curve is easier said than done. Even if this budget plan is actually adhered to, until the budget is balanced another 30 billion dollars will easily be added to the provincial debt and the net debt to GDP ratio is projected to rise from the curent 37.2 percent to a peak of 41.6 percent by 2014 before declining to 39.4 by 2017.