As Ontario moves into budget season, it is instructive to take a quick look at the finances to date as revealed in the most recent Ontario Economic Outlook and Fiscal Review which was presented November 2014. Ontario’s aim then as no doubt now was to have the budget balanced by 2017-18. According to the Review, between 2013-14 and 2017-18, total expenditures (including the reserve) were expected to rise from 126.4 to 134.5 billion dollars – an increase of 6.4 percent. Meanwhile, revenues are expected to rise from 115.9 to 134.5 billion dollars – an increase of 16 percent. Over a four year period, one can estimate that total expenditures are expected to grow about 1.6 percent annually and revenues about 4 percent annually.
For Ontario, the heavy lifting to balance its budget is expected to come from the revenue side. As part of trying to see how well on the road to this goal Ontario is, it can be helpful to look at what the performance is to date – namely between the actual for 2013-14 and the current outlook for 2014-15 as of November 2014. Are expenditures up by 1.6 percent or less and revenues up by 4 percent or more?
Lets look at the spending picture first. Figure 1 presents the percent growth in expenses both in total and by ministry category from 2013-14 to 2014-15. Some savings have apparently been found in terms of program review and year-end savings totaling about 1.3 billion dollars, but it remains that total expenditures are still up by 3 percent – going from 126.4 to 130.2 billion dollars. Spending has grown at about double the rate needed for Ontario to be on track to meet its deficit target. Of the 29 categories, only three have seen a decline – Tourism, Culture and Sport (-7.6 percent), Natural Resources (-0.9 percent) and the Attorney General (-2.1 percent). The remainder all grew ranging from a low of 0.6 percent for Citizenship and Immigration to a high of 83.9 percent for Infrastructure. Government services and the agriculture ministry also appear to have had healthy growth rates.
Of course, the key categories are the big-ticket items of Health, Education and Social Services which together account for 65 percent of provincial government spending. Health grew at 2.3 percent, Education at 5.1 percent and Social Services at 7.9 percent. On the expenditure side, it does appear the first year of moving towards a balanced budget by 2017-18 has given the target a wide berth.
How about revenues? Between 2013-14 and 2014-15, total revenues rise from 115.9 billion dollars to 118.4 billion dollars – an increase of only 2.2 percent. Overall, revenues have grown at about half the rate needed for Ontario to meets its goal of a balanced budget by 2017-18.
Of the 32 revenue categories in Figure 2, ten of them have actually dropped over the one year period ranging from a drop of -0.6 percent in Land Transfer Tax Revenues to -39.4 percent in the Electricity Payments in Lieu of Taxes Category. As well, Equalization is down 37.7 percent. When it comes to own source revenues, corporate tax revenue is down 13.7 percent while personal income tax revenues are up 8 percent and provincial sales tax revenue is up 7 percent. Tobacco tax revenue is up 17 percent while vehicle and driver registration fees are up 16 percent. Liquor store revenues are only up 3.3 percent. Overall, the revenue growth is rather anemic but part of the reason seems to be some rather large fluctuations within quite a few of the categories. (Infrastructure revenue growth from federal grants looks impressive but it is relatively small amounts– an increase from 123 million dollars to 296 million dollars. Sales and rentals is more impressive going from 1.2 to 2.1 billion dollars). Expenditures in contrast have been relatively more stable across categories.
To sum up, after the first year of trying to move Ontario towards a balanced budget by 2017-18, expenditures grew at about double the rate needed and revenues at half the rate needed. Unless, the final figures for 2014-15 show some revenue windfalls and surprise expenditure reductions, it will be even more work to get on track for the remaining years. It explains why the Ontario government keeps mentioning new “revenue tools” and is floating the idea of a “carbon tax.”
Indeed, when one looks at the broad categories of tax revenue, grant revenue, government business revenues and miscellaneous other non-tax revenues, it is tax revenues which have performed the best growing at 3.6 percent while grant revenue and business enterprise revenue have declined and the remainder grew at 3.2 percent. As well, given the decline in equalization and slowing growth to come in federal health transfers, the call by Premier Wynne this week on Ottawa to create a new equalization type block transfer to fund infrastructure should not be a surprise.