Ontario 2016 Budget Lays Out 2018 Liberal Election Narrative

With the 2016 Ontario Budget we are witnessing the Liberals’ first efforts at establishing their 2018 election narrative.

In the Budget, the government states that jobs and the economy are its top priority.  For this Liberal government that translates into investing in skills development through improved access to post secondary education, and into infrastructure spending to create jobs and improve the movement of people and goods.

In addition, the Premier and her team have also identified climate change and retirement savings as long-term public policy issues facing Ontario, which require dramatic action.

In effect, the Wynne government is staking its electoral future on three bets:

1. that it has identified the right approach to economic growth and job creation
2. that Ontarians will support paying new outlays aimed at addressing global warming and retirement savings
3. that it can make substantial progress on all of these fronts in the next two years

The challenges are significant, but it is a narrative well-suited to Premier Wynne.  Agree or disagree with the approach and the priorities, these are all issues the Premier will be extremely comfortable defending not only in the legislature, but also on the hustings in 2018.

 Key Budget Highlights

• Government tuition assistance for students from families with incomes of $83,000 or less, or fully-paid college and university tuition funding for students from families with incomes of $50,000 or less
• Details of the cap and trade system to combat climate change, where the government expects to raise $1.9 billion in new revenue, which will be targeted toward green projects that can help reduce greenhouse gas emissions
• The 2016-17 deficit is expected to be $4.3 billion. The government still maintains it will balance the Budget by 2017-18
• Restated the government’s plan to spending $137 billion over the next 10 years on public infrastructure projects

Climate Change

On February 23, the government tabled its climate change legislation and now has released the all-important draft regulation, as well as revised reporting guideline.  The legislation sets out the basic fundamentals, but it is the regulation that sets out the details on how cap and trade will work.  These fundamentals include:

• enshrining reduction targets in law;
• allowing for transitional allowances for large final emitters; and,
• annual reporting on how funds from the auction are spent.

We expect the analysis of the draft regulation and the subsequent consultations will consume a great deal of time both inside and outside of government in the coming months.  Individual companies and industrial associations will be reviewing the draft regulations to determine how cap and trade will impact them, and to identify changes they may wish to pursue through the upcoming consultations.

The government confirmed it expects to raise $1.9 billion in revenue in 2017 from the cap and trade program.  This figure is up from earlier government estimates of $1.3 billion, and much closer to the $1.8 billion we expected.  Through legislation, the government is committing to use all of that revenue on green projects and to publicly report on those investments every year.

Infrastructure

The Budget restated the government’s plan to spending $137 billion over the next 10 years on public infrastructure projects, including roads, bridges, public transit, hospitals, and schools.  Infrastructure has been a high profile item for multiple budgets, and now the Liberals will need to demonstrate tangible progress on those projects, especially transit in the Greater Toronto Hamilton Area.

Deficit Reduction

The 2016 Ontario Budget projects a $5.7 billion deficit for 2015-16, and a $4.3 billion deficit for 2016-17. Despite these projections, the government has reiterated its commitment to balance the Budget by 2017-18, and is forecasting it to remain in balance for 2018-19. The path to balance as outlined by the province is based partly on optimistic growth projections of 2.5 per cent in 2015 and 2.2 per cent in 2016.

It was anticipated that the last two years of the government’s deficit reduction plan would be the most difficult to implement.

Health Care

While the health care budget remains squeezed, the 2016 Budget projects an increase in health care spending of 2 per cent.

Despite plans for increased spending, ongoing cost constraints will add further pressure to the current negotiations with doctors and nurses, which are not expected to end anytime soon. Minister of Health and Long-Term Care, Eric Hoskins will need to realize savings quickly through the implementation of the Patients First Strategy and reform of the home and community care sectors.

Opposition Reaction

Prior to the Budget, the Ontario Progressive Conservatives provided three recommendations to the Liberal government:  making energy more affordable and halting the further sale of HydroOne, properly managing Ontario’s health care system which includes reversing cuts in the sector, and a plan to balance the budget.

In response to the Budget, PC leader Patrick Brown criticized the Liberal’s lack of action on those recommendations, especially as it relates to the budget deficit.  He was also critical of the increased costs to families projected in the Budget.  Nevertheless, he did commend Liberal action on specific programs including investments for children and youth with special needs.

The Ontario NDP characterized the Liberal plan as one that “puts stretch goals ahead of the basics” by putting the emphasis of the Budget on other aspirational priorities, at the expense of jobs, education and healthcare.