Balancing Ontario's Budget...In 1875

We often long for simpler times and search for them in our not so distant past. As an economist that does public finance and economic history, the public accounts of the past can offer me an interesting diversion. Governments, at any time in history always take in revenues and make payments and the budgets and public accounts of the past offer insights into what the pressing issues of the time were. A case in point, the public accounts of Ontario in 1875.

The fiscal year was different back then going from January 1^st to December 31^st making the fiscal year coincident with the calendar year. In 1875, Adam Crooks (1827-1885) was the Treasurer of Ontario and the premier was Oliver Mowat – it was a Liberal administration. According to one account, “He had no previous experience with matters of finance but his untiring industry, and his capacity in mastering details…soon enabled him to master the subject of our provincial finances. His ‘budget speeches’ are models of lucidity.” Despite his supposed lack of experience, Mr. Crooks appears to have had a background in directing railway and canal companies, which undoubtedly was of some assistance in his role as Treasurer.

Of course the public accounts seem to be anything but lucid when you try to understand them both then and now. The summary schedule for the public accounts for 1875 includes own source receipts and payments into what appear to be both current budgetary expenditures as well as assorted capital accounts. Moreover, there are also contributions from government deposits as well as contributions into government accounts.

In 1875, the total receipts of the Government of Ontario were $5.319 million and they are of course perfectly balanced by the total payments of $5.319 million. However, once you net out the withdrawals from the deposit account on the receipts side of $1.988 million and the starting cash balance of $171,184 thousand you get what I would term net receipts of $3.159 million.   Net payments after removing the amount of ending cash balances and amount on investment and special accounts was $3.605 million. This distinction between total and net payments and expenditures is my way of wrapping my head around what the actual current revenues and expenditures of Ontario’s government in the 19^th century were given my lack of facility with public accounting practices especially in the 19^th century.

Yes, it appears despite the nice balance achieved under the total receipts entry, Ontario actually had an operating deficit in 1875 of $445,028.93. This was the second operating deficit since Confederation as the public accounts from 1868 to 1873 generate surpluses with the first deficit clicking into effect in 1874. The early 1870s saw the onset of a major economic downturn, which until the 1930s was viewed as a Great Depression so economic conditions were probably a factor in affecting Ontario’s fiscal situation.

What were the biggest sources of revenue? Natural resource revenues were a big component with revenue from the sales of Crown Lands at $80,014.41 and from Woods and Forests (stumpage fees, rents, etc…) $449,354.75. Natural resource revenues represented about 10 percent of total receipts and 17 percent of net receipts. Indeed, for much of the period from 1867 to 1920, revenues from land sales and forestry revenues easily accounted for a quarter of Ontario’s provincial government revenues. In some respects natural resource revenues from forestry in Ontario were like oil revenues for Alberta today.

One can only imagine an alternate history where Ontario in 1870 decides to create a sovereign wealth fund from its forestry revenues that would be worth hundreds of billions today. Indeed, those hundreds of billions of dollars would come in handy in dealing with a provincial debt now topping $300 billion.  Using a time machine to send Ontario Treasury civil servants back to the year 1875 to convince the Mowat government to set up a sovereign wealth fund would either be a novel use of Ontario's innovation funds or a good plot for a Netflix special series but I digress...

Revenues from licenses were another major item at $107,509.10 and of course there was investment income at $232,101.06. But the biggest single source was believe it or not – transfer payments. The Dominion of Canada subsidy to Ontario in 1875 was $1.334 million – accounting for 25 percent of total receipts or 42 percent of the provinces receipts net of its initial cash balance and drawdown from its deposit account.

As for spending, well some of the major items include civil government at $155,526.16 and colonization roads – Ontario was ‘colonizing’ its northern frontier – at $103,511.89. Health spending -which in 1875 was effectively for hospitals and asylums- came to $329,660.28 or about 9 percent of net payments. Education was a larger item coming in at $503,311.77 or 14 percent of net payments. Combing health and education, in 1875 these two items came to nearly one quarter of the provincial budget whereas today they account for about 60 percent.   A lot of government spending in 1875 seems to have been in assorted accounts for capital and operating expenditures for numerous public institutions and facilities.

One item that seems conspicuously absent in 1875 on the expenditure side is interest on the provincial government debt but that is because there really was not any. When Ontario entered confederation in 1867, part of the deal was the federal government assuming its debt so Ontario starts off with a clean slate. However, with deficits starting in 1874 and 1875, it would only be a matter of time before Ontario acquired new debt and began to service that new debt with debt charges.

In my brief and incomplete perusal of Ontario’s historic public accounts, I find debt charges explicitly listed for the first time that I am aware of in the early twentieth century. However, my understanding of 19^th century public accounting is incomplete and debt may have been dealt with in separate capital spending accounts through the use of sinking funds, which were more common in the 19^th and early 20^th centuries.

Those were the days I suppose. If anyone comes across any academic work on interpreting historical public accounts please let me know.