The Ontario government this afternoon delivered its Fall Economic Statement, which provided an update on the province’s economic growth and the status of its commitment to eliminate the provincial deficit by 2017-18. Although it has revised the province’s economic growth projections downward from earlier this year, the government was eager to announce that it is ahead of its deficit projection targets – with the deficit projected to be $7.5 billion this year, $1 billion less than projected in the 2015 Budget.
This $1 billion reduction in the projected deficit, however, seems to have been accomplished largely through the partial sale of Hydro One. This is generating some controversy considering that many observers understood that revenue from the partial sale of Hydro One would be directed toward infrastructure spending and the elimination of the Hydro One debt.
Overall, what remains unclear is how the government will meet its commitment to eliminate the deficit by 2017-18 without additional asset sales, tax increases or program cuts.
What is potentially more problematic for the government is the economic growth numbers, with projected growth to be 1.9% – down from the 2.7% projected in April for this year. This is in addition to the $274 million less in sales tax revenue that was projected in the 2015 Budget, possibly suggesting lower consumer confidence. The combination of lower growth and consumer confidence will apply more pressure on the government to find other alternative cost savings to balance the budget by 2017.
Other highlights from the Fall Economic Statement include:
Hydro One Sale/Infrastructure Spending
The province continues to tout its plan to raise funds for new infrastructure projects through the partial sale of Hydro One, with $4 billion from the proceeds of the sale targeted for infrastructure investments. Ontario’s new Financial Accountability Officer, however, has warned that the sale could worsen the province’s fiscal position in the long run, with the eventual loss of approximately $750 million a year in government revenue currently generated by Hydro One, once the partial sale is fully rolled out.
Further to the recently-released consultation paper on the final design and details of Ontario’s impending cap-and-trade program, the government announced a new $325 million Green Investment Fund for 2015-16, which will focus on reducing greenhouse gas emissions. This fund will support energy retrofits in homes, investments in small- and medium-sized businesses and industry, support for Aboriginal communities, and new investments in electric vehicle infrastructure. The government has said that further details of this fund will be made available in the 2016 Budget.
At least for now, the provincial government says that it remains committed to moving forward with the Ontario Retirement Pension Plan (ORPP). It remains to be seen whether the government would begin to soften its commitment to the ORPP should the federal Liberal majority government move quickly to engage all provinces on the expansion of the Canada Pension Plan (CPP). As this was a central commitment by the provincial Liberals in the 2014 election, the Wynne government will be reluctant to appear to be slowing down on implementation of the ORPP until a truly viable alternative is on the near horizon. If the federal government takes swift action, expect the province to consider delayed implementation of the ORPP until final decisions have been made regarding CPP expansion.
The government also announced next steps on how it plans to address the sharing economy, launching a sharing economy advisory committee that will report back on progress in the 2016 Budget. The province first committed to addressing the sharing economy in the 2015 Budget, however, there has been little progress since. After Progressive Conservative MPP Tim Hudak introduced a bill earlier this session intended to regulate services like Uber, Airbnb, and Rover, the launch of an advisory committee appears to be an attempt by the government to wrest control of the issue away from the opposition, and provide a government-endorsed approach to a constantly-evolving sector.