A report Wednesday from Ontario’s Financial Accountability Office (FAO) points out troubling weaknesses in the province’s economy. The report acknowledges strong real gross domestic product (GDP) growth in the first quarter of the year, but the FAO identifies significant areas in which the Ontario economy is in decline.
That’s certainly a contrast to Finance Minister Peter Bethlenfalvy’s upbeat message earlier this week. The minister said the province’s first quarter financial results show that the government can spend aggressively to boost economic growth, keep taxes down, meet the needs of a rapidly expanding population and do it all while “tracking a clear path” back to a balanced budget.
Non-partisan sources paint a less encouraging picture. The FAO says business profits were down eight per cent in the first quarter. Labour income continued to rise and is nearly 28 per cent above pre-pandemic levels. That’s good for workers but bad for inflation and competitiveness. Ontario has added jobs this year, but more people are seeking work. The FAO puts unemployment at 6.8 per cent. Statistics Canada has it at seven per cent in June. Either way, the figure is high.
Some important numbers are headed in the wrong direction. In the second quarter of this year, retail sales were down 1.6 per cent, continuing a trend that began in late 2022. Despite the Doug Ford government’s push to expand manufacturing, the sector’s sales have declined for three straight quarters, down by 5.9 per cent over that time.
Housing starts totalled 19,300 units in the second quarter, a 24 per cent decline from the 25,500 units started in the same quarter a year ago. The Ford government has a target of 150,000 housing units a year.
Ontario’s expected economic growth this year is anemic. Bethlenfalvy’s latest numbers say the private sector consensus is 0.8 per cent real GDP growth. The financial accountability people think it might be 1.1 per cent. Either way, it doesn’t compare favourably to the province’s 1.6 per cent growth last year, Canada’s expected 1.7 per cent increase this year or the 2.3 per cent expected in the U.S.
Even though Ontario’s GDP growth was better last year, it didn’t shine when compared to other provinces on a per capita basis. Ontario trailed Alberta, Saskatchewan and B.C. and was about on a par with Newfoundland and Labrador.
This year, TD Economics predicts that Ontario will have the lowest real GDP increase of any province in the country. Last year, TD notes, Ontario’s economic growth was able to outpace the rest of Canada “largely thanks to a healthy dose of government spending.”
The Ontario government can’t control the economy, which is affected my many external factors, but how about its management of taxpayers’ money? Surely the Ford government has some control over that.
In his first quarter update, Bethlenfalvy said: “From day one, our government has been a prudent, responsible manager of Ontario’s finances.”
The PC record shows something a bit different. Bethlenfalvy points to favourable interest rates on government debt as a sign that the government is managing money well. That’s a good accomplishment, but the amount of debt and the total interest charge has gone up steadily since Ford took office.
In 2018-19, Ontario owed about $338 billion and paid $12.4 billion in interest. This year, the expected debt will be $415 billion and the interest $12.8 billion. Part of that is due to the pandemic, but it still doesn’t scream prudence.
The increased debt is the outcome of the Ford government’s attempt to track the elusive balanced budget. In its first year, 2018-19, the government had a $7.4 billion deficit. The pandemic drove the deficit even higher, but by 2021-22, the government had an unexpected $2.1 billion surplus. Then it was back into deficit, although the government has always seen balanced books right around the corner.
The 2023 budget predicted a $200 million surplus this year and a $4.4 billion surplus next year. Instead, the government now expects a $9.8 billion deficit this year and $4.6 billion the year after that. Just wait until 2026, though. There could be a $500 million surplus that year, the government says.
As it turns out, tracking a balanced budget is like tracking a unicorn. The tracking is easy, but finding one is hard.
The Ford government has found it difficult to reconcile its conflicting urges. Clearly, the government wants to please the public and favoured business sectors by spending a lot of money. Mission accomplished. Its original passion for balancing the books is now more like a latent tendency than a plan.
Randall Denley is an Ottawa journalist. Contact him at [email protected]