Ford Projects Stability in Fall Economic Statement Despite Economic Challenges

Amid tense education worker contract negotiations, sweeping housing and planning policy changes, and a continued spotlight on the pressures faced by the healthcare system post-pandemic, Finance Minister Peter Bethlenfalvy released the first Fall Economic Statement (FES) of the Ford government’s second mandate.

The FES marks the first fiscal update from the Minister of Finance since the election. Although Bethlenfalvy re-introduced the 2022 Budget in June, the government did not update its fiscal and economic forecasts since it was originally released in April. Since then, Ontario has seen high inflation, two Bank of Canada interest rate hikes, and even posted its own $2.1 billion surplus at the end of 2021-2022.

The FES provides telling details about the government’s attitude towards the current economic climate, the policies it plans to move forward, and its priorities heading into 2023.

By the numbers

After two-years of record-breaking pandemic spending, the once fiscally hawkish Ford government continues to recalibrate its approach to the government’s finances. The province ran $8.7 billion and $16.4 billion deficits in 2020 and 2021 respectively – a necessity given the health, economic, and social impacts of COVID-19 – but unexpectedly posted a $2.1 billion surplus at the end of the 2021-2022 fiscal year due to inflationary impacts on revenues and higher than expected economic activity.

The changing economic landscape led Ontario’s Financial Accountability Officer (FAO) to project continued surpluses of $0.1 billion this year rising to $8.5 billion by 2027-28, based on economic forecasts and the government’s projected rate of spending increases.

In the Fall Economic Statement, the Ford government diverged from the FAO’s estimates. Bethlenfalvy estimates a $12.9 billion deficit this year, $8.1 billion in 2023-24, and $0.7 billion in 2024-25. As the FES is a mid-year fiscal update, the government does not provide a long-term fiscal plan. A more detailed update will be provided through the Budget by the end of March 2023.

How Doug Ford plans to get it done

Premier Ford won his second majority mandate on a promise to “get it done.” A commitment to major infrastructure projects like Highway 413 and the Bradford Bypass and to transportation projects like the Ontario Line mean Ford must overcome the headwinds of high-inflation and a labour shortage, while at the same time addressing today’s affordability challenges, to deliver on his goals.

Despite these challenges, Ford shows no sign of slowing down. In the lead up to the Fall Economic Statement, Ford and Transportation Minister Caroline Mulroney were in Bradford to announce the start of construction on a bridge crossing over the future Bradford Bypass. On the same day, Infrastructure Ontario and Metrolinx proudly announced a $6 billion contract with Ontario Transit Group to deliver tunnels, stations, and groundworks on the southern portion of Ontario Line.

The government doubles down on these and other infrastructure commitments, positioning the FES as a “progress update” on the government’s plan to build. The government describes the documents as its “promise to continue doing everything to be open and transparent with you about what we’ve done and what we will do” – a subtle nod to the challenges and difficult decisions that might lay ahead.

The Ford Government also used the Fall Economic Statement as an opportunity to reiterate its other priorities, introduce new policy measures, and hint at what can be expected in the 2023 Budget. As always, these measures fall into three familiar categories:

Building Ontario’s Economy

• Small Business Tax Rate Eligibility – the government plans to extend the phase-out range of the small business Corporate Income Tax rate to between $10 million and $50 million of taxable capital.
• Ontario Production Services Tax Credit – expanded eligible expenditures to include location fees, further supporting film and television production in the province.
• Clean Energy Credit Registry – establishing a voluntary registry to boost competitiveness and support companies in achieving their environmental goals. Revenue raised by selling these credits could then be returned to ratepayers, lower energy costs, or support future energy generation.

Working for Workers

• Skills Development Fund – an additional $40 million to support priority infrastructure projects and youth employment and training opportunities.
• Enhancing the Dual Credit Program – expanding this program by $4.8 million over two years to allow more students to count apprenticeship and technological education courses towards their high school diploma.
• ODSP Monthly Earning Exemption Increase – raising the earnings exemption for an individual on ODSP from $200 to $1,000 per month, allowing more recipients to take on work without losing their benefits.

Keeping Costs Down

• Extended Gas Tax Cut – the government is extending its 5.7 cent per litre gas tax cut until December 31, 2023. The move is estimated to cost the province $1.2 billion and save Ontario households an average of $195.
• Doubling GAINS Payments – for one year, the government plans to double payments made to seniors under the Guaranteed Annual Income System to help with the rising cost of living.

The road ahead

Premier Ford and his Cabinet Ministers have a difficult road ahead. The current economic climate will make delivering on infrastructure and transportation projects a challenge – the Eglinton Crosstown saw its opening delayed earlier this year, for example; the on-going labour negotiations with education unions are far from being completed – CUPE is just the first of Ontario’s education union negotiations to reach the public eye; and the impacts of the pandemic are still being felt by Ontario’s health care system – wait times are high, staffing levels remain low, and public health officials are bracing for COVID-19 to augment the annual pressures of the flu season.

The FES maintains a low projection for health and education spending compared to the Financial Accountability Officer’s projections. Perhaps the lower projections helps drive cost efficiencies in ministry budget preparations, but expect the Ford government to dip into the historically high contingency funds to help manage budget growth in the heath and education sectors. Ontario and other provinces had hoped for more health care funding from Ottawa, but the federal government seems content holding the line on funding in the absence of specific service improvement guarantees from provinces.

The NDP are also gearing up to elect their new leader. The leader will be announced in March 2023, but Davenport MPP Marit Stiles looks well-positioned to step into the role. First elected in 2018, Stiles immediately stood out as the NDP’s education critic, proving herself to be an effective communicator, a leader within caucus, and one of the strongest opposition voices against the Ford Government. Stiles has earned the support of several NDP caucus members and is currently the only official candidate in the race.

Ontario can also expect a by-election in the new year. Andrea Horwath vacated her Hamilton Centre seat shortly after the election to run successfully for the Mayor of Hamilton. Though traditionally an NDP stronghold, the Hamilton Centre by-election will be an opportunity for the newly minted NDP leader to get valuable airtime early on in their tenure and for Ford to demonstrate a show of strength early on in an already eventful second mandate. The race is made even more interesting by the fact that the PCs were able to flip the nearby Hamilton East—Stoney Creek riding in the election earlier this year.

All this comes against the backdrop of record high inflation, a housing crisis, and affordability challenges facing every corner of the province. Ford is already halfway through the first year of his second mandate. Time is of the essence for him and his team to push forward change if they are going to “get it done.”