Ontario’s budget woes due to overspending: think tank

Government spending—not slumping revenues—is responsible for Ontario’s chronic budget deficits, argues a study by the Fraser Institute.

“According to a popular narrative at Queen’s Park, Ontario’s large deficits and massive debt are unavoidable consequences of the 2008 global economic downturn and other uncontrollable economic forces. But in reality, Ontario’s years of rapid spending growth are to blame,” said Ben Eisen, associate director of the Ontario Prosperity Initiative at the Fraser Institute and report co-author.

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For example, between 2003/04 and 2015/16, provincial program spending (spending on day-to-day government operations) in Ontario increased by 71.6% to $120.9 billion, from $70.4 billion. During this period, program spending grew faster than 1) economic growth in the province, and 2) inflation and population growth combined.

In fact, had Ontario restrained program spending increases since 2003/04 to the rate of economic growth, the government would have a $10.7 billion surplus this fiscal year rather than a $7.5 billion deficit. Had program spending simply kept pace with inflation and population growth, the surplus would be even larger.

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The current government has, over the past few years, slowed the rate of spending growth, which was unsustainably rapid in the years leading up to and during the recession. However, these steps have clearly been inadequate in addressing Ontario’s fiscal problems, as the province continues to rack up debt.

Ontario has run 10 budget deficits in the past 13 years (with more to come) and the province’s net debt (projected to reach $298 billion in 2015/16) has more than doubled since 2003/04.

“If successive Ontario governments had exercised greater control of spending, provincial finances would be in much better shape today,” said Charles Lammam, study co-author and Fraser Institute director of fiscal studies.

“As policymakers at Queen’s Park prepare to table this year’s provincial budget, they should recognize the source of today’s deficit and debt problem—government spending,” Eisen said.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.