Since the recession of 2008-09, Ontario Liberals promised to return the budget to balance. Today’s budget saw Finance Minister Charles Sousa reach that goal. However, as Sousa said in his speech to the Legislature, “… a balanced budget is never an end in itself. For Ontarians, this is just a beginning. A balanced budget gives us the means to shape our future and build a fairer society.” The budget heavily emphasized the latter, rolling out a new series of policy initiatives that steer the party more to the left as Ontario heads into the 2018 provincial election.

These initiatives include:

  • An historic expansion of public health care, launching pharmacare for children under 25
  • A 3% increase in hospital funding, which is a significant increase after years of belt-tightening
  • $1.3 billion to reduce wait times, targeted at MRIs and diagnostics, cataract and cardiovascular surgery, and hip or knee replacements
  • A cap on class size for children in full-day kindergarten
  • 24,000 new child care spots, in addition to the 100,000 announced last fall
  • An Ontario Caregiver Tax Credit for those caring for aging parents at home
  • A Career Kick-Start Strategy to help 40,000 students get work-related experience in school
  • Delaying the start of OSAP loan payments until graduates are making $35,000 a year

This is in addition to the initiatives announced in the pre-budget period, including a basic income pilot programme that makes more aspects of social assistance support available to the working poor; the government’s package to moderate the housing market, which included a tax on non-resident speculators; and its policy to reduce hydro rates by 25% by shifting the cost from ratepayers to the tax base.

Reading the 2018 Liberal Election Campaign

In what can clearly be seen as pre-conditioning for the election battle of 2018, Kathleen Wynne’s Liberal government has tabled a budget that is targeted at left wing, progressive voters. This is an attempt to siphon off support (and votes) from the NDP. It is also about putting the Premier forward on a policy mix she is best able to sell: fairness and security for the vulnerable, compared to the cost containment and labour fights of past years. Time will tell if this approach is successful in reversing the poor personal polling numbers for Premier Wynne.

Until now, the Premier has spent her time in office implementing financial decisions focused on balancing the budget, while also taking on other controversial policy decisions (e.g. the sale of Hydro One) to support massive increases in infrastructure spending. While the necessity of these decisions can be debated, the combination of fiscal restraint and the sale of government assets were never consistent with the Premier’s brand as a progressive, left-leaning politician.

The balanced budget changes this equation. With this commitment considered ‘met,’ Premier Wynne will now have free rein to focus on spending and policy areas that appeal to left wing, progressive voters. The Premier and her re-election team are hoping that includes the coalition of progressive voters who delivered Wynne a majority government in 2014.

Key Budget Highlights

Pharmacare

Of Ontario’s 13 million people, 4 million already receive prescription drug coverage including seniors and those on social assistance. Starting in 2018, Ontario will cover drugs for all children and youth aged 24 and under, regardless of family income. It will completely cover the cost of all medicines funded through the Ontario Drug Benefit Program (ODP). There will be no deductible and no co-payment. This is the first program of its kind in Canada with an annualized cost of $465 million.

Fiscal

Significant increases in tax revenue could have put Ontario in the black last year, were it not for $1.4 billion in extra spending, largely in the health care and hydro spaces.

Going forward, corporate tax returns are growing at a remarkable rate as the loss carry forwards that depressed revenues in the early years after the recession are exhausted. Growth in employment income continues to push Ontarians into higher Personal Income Tax bands. Carbon allowance proceeds are outpacing past estimates.

That said, there are some significant risks. President Trump’s intention to lower the U.S. federal corporate taxes from 35% to 15% would move Ontario’s combined Federal-Ontario rate from an advantage to a disadvantage. Housing related revenues have also outpaced economic growth for several years; if measures are successful in slowing GTA housing costs, those revenues could cool.