Written by Tom Sweeting and John Whitehead on March 18, 2021
It’s budget season once again in Ontario. And out of the uncertainties and upended priorities the COVID-19 pandemic has left in its wake, Ontario is now preparing its third budget in the Ford government’s mandate.
In some respects, this Ontario budget will do what budgets always do. It will set out an economic and fiscal blueprint for the immediate and medium term. It will reveal the government’s assessment, based on political and economic analysis, of Ontario’s needs and priorities and the government’s best role in helping to meet those. And it will seek to show that the government has been – and continues to be – an effective manager of Ontarians’ interests. That is generic budget 101.
Budget-making is always both science-based and a work of art, as data, experience and political judgement come together to set the path forward. Budget making is a delicate balance – as budget-makers need to negotiate the future from an array of choices far beyond what can be supported. But coming off the biggest health calamity in modern memory and the worst economic setback since Statistics Canada started measuring, the negotiation that will form the 2021 Ontario Budget involves a range of constraints, needs, and unknowns that are unprecedented in modern budget-making.
Every year there are certain things budget-makers simply cannot control, no matter how much they may wish. One of these is public expectations. With the public frustrated by economic disruption and stressed by pandemic restrictions, it is highly likely that expectations are higher than ever before that the Budget provide ‘good news’.
To a significant degree, how well the 2021 Ontario Budget will meet expectations depends on understanding what is realistic. With a combined 60+ years in planning Ontario Budgets and supporting the decisions involved, we offer several considerations highlighting the realities facing those crafting the Spring Budget as background to forming expectations.
It Ain’t Over ‘Til It’s Over
Even as vaccines begin to roll out, public health officials continue to caution that life and business cannot entirely return to normal right away. Possibly not for many months, or even more for some people and economic sectors. Therefore, continued pandemic management may very well dominate actions and priorities in the upcoming budget, even as many may prefer to see the primary focus on recovery. Perhaps more than any other single factor, continuing pandemic uncertainties will exert tremendous influence.
The Playbook is Missing a Few Pages
Budget making usually relies on previous experience, analysis from economic experts both internal and external, and advice from individuals and organizations. This Ontario budget will have all kinds of input but the fact is this situation is all new and, while speculation is rampant,nobody can really predict with any degree of certainty when recovery will take hold or what it will look like: an incoming tide that floats all boats, as we hope; or, something less evenly distributed. How and where Ontario should exert its influence in this uncertainty remains a big question.
Caution Rules the Day
Budget making has long been guided by the principle that it is better to underestimate economic and revenue performance, as overestimation creates a much more difficult situation to manage down the road. While Ontario has access to best-in-class capabilities for economic and fiscal forecasting, the historic amount of uncertainty, not to mention the lack of guidelines for next steps, suggest that the forecasts underlying the budget decisions will be even more limited than what had already become a cautious endeavour. Along with this, the contingency fund and fiscal planning reserve are likely to be kept at unprecedented high levels to ‘keep some powder dry’ for future adjustments.
Rethinking Fiscal Virtue
Budgets are a key performance metric for governments, with the annual surplus or deficit forecast the hallmark of competent management. The Ontario government is now looking at a $38 billion deficit that it didn’t cause and could have done nothing to prevent. This has laid waste to previous plans to lower or eliminate the annual deficit as a key government accomplishment..
The size of the starting point, pandemic-created economic recovery and restructuring, and emerging demands to respond to pandemic-revealed policy gaps, as well as continuing temporary support programs to kick start the economy, mean massive deficits will be an unavoidable reality for a number of years.
The Ford government no doubt remains firmly committed to treating taxpayer dollars with respect, to reducing costs where possible and to minimizing the accumulated debt. It will want to point to any improvements in the annual deficit as evidence of its prudent management of the public purse. But prospects are low that economically-driven revenue growth will be sufficient to make a serious dent in the yearly deficit any time soon. And now is hardly the time for material tax increases or spending cuts. For a government that came into office with a focus on fiscal prudence, budget-makers will be invested in providing new yard-sticks for measuring fiscal integrity.
The past 12 months have seen, for the most part, considerable cooperation between the federal and Ontario governments. Many have lauded this partnership mentality as a better way for the country to operate. But this has hardly been the norm over time and budgets often have showcased inter-governmental tensions. This tension is built into the distribution of revenues and expenditures going back to the country’s founding and has increased with the economic and social developments wrought by time.
As the respective governments grapple with continued pandemic management and recovery options, fiscal dilemmas are pointing to more, not less, conflict over who should make decisions and who should pay for those decisions. Ontario and its provincial counterparts have already indicated they see the pandemic and its impacts as reinforcing their historic position of the need for a fairer share of federally-raised tax dollars for provincially-determined programs – of which none are more important than health care.
The Role of Government
Fighting a pandemic has required government to play a much larger role in the economy than had been the case for decades. This can be expected to continue – certainly in the short term given the demands to squash the pandemic, boost recovery and recalibrate spending priorities. But the pandemic has also reinforced that government cannot do it all or is always best placed to respond. Ensuring the private sector has access to the resources to enable its ability to innovate and restructure to meet challenging circumstances and turn them into advantages is equally important. Whether both of these developments can be accommodated in future will be a fundamental consideration for government in the next few years. While it may be too soon, budget-makers may send a preliminary signal about this trade-off.
The Door is Open to Changes in the Way Government Does Business
Changing the way government does business has arguably never been more possible. The pandemic has shone a light on efficiencies and modernization opportunities – many which the Ford government always believed were available. Of all the ministers in Cabinet, Finance Minister Bethlenfalvy has been .at the forefront of this effort since the Ford government took office.
It’s now a reality that many public servants can work from home – for the first time, government can seriously consider whether paying for its pre-pandemic office footprint is really necessary.
Moving more government and public services online as part of the pandemic response – lotteries, elements of the justice system, and some physician consultations to name a few – has provided important evidence to both users and government of alternative ways of doing business, including for services not previously thought to lend themselves so well to online delivery – education, perhaps key among those.
It has become clear that tolerating health data systems that provide little, if any, public health oversight information because they are not interoperable is to nobody’s advantage.
The pandemic experience has also bolstered the notion that partnering with the private sector is about more than just the usual public-private partnerships in infrastructure development. There is a real opportunity in expanding ways in which government works with the private sector in achieving benefits for Ontarians.
The pandemic has created wrenching impacts for Ontario’s economy. The economy has grown smaller and many of its workers and businesses are facing an economic future where their only certainty is that it will be much different than in the past. Important implications have been revealed for current public policy across health care, education at all levels, employment supports and intergovernmental finances.
The challenges cannot be underestimated, but neither should the ability of the Ontario government to meet the challenges. Far from it in fact. But the challenges are new and complex and involve large amounts of new spending. In that regard, arguably the most important expectation for Budget 2021 is recognizing it will take considerable time to manage the challenges and this budget is just the first step forward.
Tom Sweeting is a Principal in the Earnscliffe Toronto office. Over the course of his career prior to joining Earnscliffe, he provided ongoing issue management and daily support to twelve Ministers of Finance and eleven Deputy Ministers. Tom was involved in thirty-three Ontario Budgets.
John Whitehead is a Principal in the Earnscliffe Toronto office. John’s experience in government spans taxation policy; federal-provincial fiscal relations; fiscal policy; Treasury Board operations; business planning; energy policy; and agency relations. He contributed expert policy advice to the development of 28 Ontario budgets.