Build Ontario: Analysis of Ontario’s 2021 Fall Economic Statement

Ontario’s Minister of Finance, the Hon. Peter Bethlenfalvy, tabled the 2021 Fall Economic Statement (FES), giving Ontario voters and stakeholders a simultaneous glimpse into the province’s fiscal situation, plans for economic recovery, and 2022 re-election strategy.

The FES, as has been custom for the Ford government, is broken down into three pillars: Protecting Our Progress, Building Ontario, and Working for Workers. Under each pillar the government made new investments and policy changes that provide key learnings for their approach to the remaining seven months of their mandate.

Protecting Our Progress

The 2021 FES reflected the government’s cautious approach to both re-opening the economy and budgeting for the future. That means continued reserve funds and fiscal prudence designed to ensure adequate resources are available for Ontario’s health care system and providers should they be needed to deal with the ongoing pandemic.

As much as the government desperately wants to put the pandemic behind them and focus on the economic recovery from COVID-19, it is still gripped with ensuring that variants of the virus do not create a fifth wave or an even more prolonged pandemic. As a result, the FES contained commitments to spend more than $1.8 billion in 2021-22 to support new hospital beds and reduce surgery backlogs, nearly $400 million to help hire 225 new nurse practitioners and add or upskill over 5,000 registered nurses and registered practical nurses.

Additional investments were detailed to support home and community care, improve enforcement in long-term care homes, and provide additional mental health and addictions care.

Building Ontario

Though alluded to in the PC Party’s recent election advertisements, the FES made it official that the government is pursuing a pro-building, pro-growth strategy as part of Ontario’s economic recovery.

The FES officially committed the government to several long-speculated highway projects. These projects include: (i) highway 413 that runs from the 400 north of Vaughan to an area near Milton where the 407 and 401 converge; and, (ii) the Bradford Bypass connecting the 404 to the 400. Notably, both projects were included in the capital plan for the first time, making them officially funded and a part of the province’s long-term infrastructure vision.

In addition to highways, the FES re-iterated and provided more detail on previous promises such as the commitment to build more homes, build several new major transit and subway lines, and build 30,000 long-term care beds.

For smaller communities, the Ford government also committed to investing an additional $1 billion over the next five years in the Ontario Community Infrastructure Fund for rural and Northern communities and promised to continue with its $2.8 billion investment in broadband infrastructure across the province.

The legislative changes accompanying the FES also committed to amending the Far North Act, a commitment made several years ago by the Ford government to remove barriers to growth in Northern Ontario and help kickstart the long-discussed Ring of Fire mining deposit.

All in all, the focus on building Ontario confirms that the Ford government will use low interest rates to their advantage to not only create new infrastructure but propose a vision to the electorate next June of an Ontario that can get shovels in the ground.

Working for Workers

In the lead up to the release of the FES, Premier Ford was joined by several ministers and labour stakeholders to announce an increase to the minimum wage from the existing $14.35 an hour to $15 an hour. That announcement was featured prominently in the FES, pitched as a way to deliver more money to the pockets of those who worked in frontline occupations throughout the pandemic. The FES reiterated the previous announcement, and its accompanying legislation included the provisions necessary to enact the changes by January 1, 2022.

It should be noted that the Low-Income Families Tax Credit, which applies a credit to minimum wage earners so they pay zero provincial income tax, was not adjusted in line with the minimum wage increase in the FES, meaning some low-income earners will re-enter the provincial tax system next year.

The minimum wage increase is the latest development under a relatively new Ford government theme of “working for workers” that has been amplified by recent announcements from Labour, Training and Skills Development Minister Monte McNaughton. Another announcement under this pillar promised $5 million to expand the Second Career Program to help those who lost their jobs to re-enter the labour force and an additional $90.3 million to enhance the province’s Skilled Trades Strategy over the next three years.

Again, this pillar signals both immediate intent to improve the lives of workers during the COVID-19 pandemic and to continue to advocate for workers in an electorally appealing way as June 2022 approaches. Expect more of this pro-worker style labour policy in the coming months.

We recently spoke with Minister McNaughton about this and more on Intended Consequences. Watch the full discussion or listen wherever you get your podcasts.

The Financial Picture

The 2021 Budget projected the 2021-2022 deficit to total $33.1 billion, which was down from the 2020-2021 projection of $38.5 billion. However, since that budget last March, it has become clear that revenues have performed better than expected throughout the pandemic – largely due to large federal support programs – and spending has not reached forecasted levels as the government has managed to largely keep each of the pandemic’s case surges in check.

As a result, the 2020-21 deficit was revised downwards to $16.4 billion in September. That trend continued with the 2021-22 deficit being revised downward from $33.1 billion to $21.5 billion. That number is both $11 billion lower than projected but still more than $5 billion higher than the final figure for the 2020-21 fiscal year. The projected 2021-22 deficit could have been even lower, however most of the government’s increased spending responding to the pandemic’s 4th wave occurred in the first quarter of this fiscal year.

All told, the province is below its projections for the deficit and the net-debt-to-GDP ratio which is projected to be 43.4% instead of the 48.8% projected in the previous budget. That said, the province is projected to eclipse $400 billion of net debt in 2021-222 for the first time ever as continual double digit billion-dollar deficits begin to pile up.

What Does it All Mean?

The FES should be seen as a signal of the direction of the Ford government as it rounds out its electoral mandate. The simultaneous focus on pandemic management and economic recovery has been a hallmark of the government’s past fiscal documents and is likely to continue into Budget 2021.

That said, the government is set to approach a potentially difficult transition period to the post COVID-19 world as it has promised a nearby end to both vaccination requirements and mask mandates. As those dates approach, the public will become increasingly eager to return to normal. The Ford government cannot miss those deadlines without paying a political price extremely close to election day. This means that pandemic management will still be a main priority throughout the winter months even if the government and the public are ready to move on to other issues.

The simultaneous focus will also likely result in more election goodies and popular items being announced in the coming months, such as details of the long-promised staycation tax credit and the extension of the seniors’ home renovation tax credit, both included in the FES.

Part of what makes a Ford government so unique is their ability to read the room and not be constrained by traditional political ideologies. For example, at the same time that the Ford government provides support for small businesses through WSIB premium refunds, it also increases the cost of operations with an increase to the minimum wage. Expect the focus to continue to be on what Ontarians want to see out of their government rather than a strict ideological approach to future decisions.

Yet unfulfilled promises on income tax reductions, beer and wine in corner stores, and gas tax cuts all could feature prominently in the lead up to the Ford government’s final budget of their term. That budget will almost surely serve as the party’s electoral platform so expect it to reveal popular policies and new commitments while temporarily delaying decisions on more technical, operational, or controversial items.