Ontario Vows Balanced Budgets Despite U.S. Uncertainty
Ontario pledged a balanced budget for the first time since the 2008 crisis on the back of strong U.S. demand, which is also a key risk for Canada’s fastest-growing province.
Revenue is forecast to match expenses for each year through 2020 on the strength of the economy, which the province expects to grow an average 2 percent over the period. Ontario, the world’s most indebted sub-sovereign according to Moody’s Investors Service, also vowed to cut its net debt to gross domestic product to a pre-recession level of 27 percent by 2030, according to the budget released Thursday in Toronto.
"Uncertainty about U.S. economic policy, as well as potential restrictions on global trade and migration, could diminish productivity and dampen business sentiment," the finance ministry said in the budget. A new C$600 million revenue reserve could serve as a buffer during any economic shocks, Finance Minister Charles Sousa said.
Threats were revived this week after U.S. President Donald Trump slapped tariffs on imports of Canadian softwood lumber, pushing British Columbia to seek a retaliatory levy on coal. Trump also vowed to renegotiate the North American Free Trade Agreement, which has been a boost for provincial trade.
An improvement in Ontario’s finances is crucial for Premier Kathleen Wynne to boost social spending and shore up support before next year’s election. Wynne’s approval rating fell to a record 12 percent in March, according to Angus Reid Institute’s poll.
Rising U.S. demand for Ontario shipments of autos and other manufactured goods helped the province’s C$833 billion economy grow 2.7 percent last year, tops in the country. The province sees growth slowing to 2.3 percent this year and 2.1 percent in 2018, according to budget documents.
Wynne is using this year’s gains to spend more on healthcare and education. Ontario will spend C$465 million ($340 million) a year starting in January to offer free prescription drugs to those aged 24 and under. The province will also raise by C$10,000 the minimum salary people must earn before they start repaying their student loans.
Other budget highlights:
- Spending, including debt payments, in the year started April 1 is forecast to rise 4.7 percent to C$141.1 billion; revenue 6.4 percent to C$141.7 billion
- Employment in 2017 is forecast to rise 1.3 percent compared with 1.1 percent in 2016, adding 94,000 net new jobs; 2018-2020 gains seen at 1.1 percent
- Ontario sees growth in gross domestic product slowing to 2 percent in 2019 and 1.7 percent in 2020
- Each percentage point drop in nominal GDP will rob Ontario of C$690 million, or 0.5 percent of total revenue
- Growth from 2017-2020 will be led by business investments, which are seen growing 3.1 percent over the period; exports 2.3 percent; household spending 2 percent; residential investment 1.1 percent
- Ontario will borrow C$96.5 billion over three years, higher than the C$78.5 billion projected over the same timeframe in last year’s budget; the increase is due to rising debt maturities and higher investment in capital assets
- Net debt-to-GDP is seen falling to 35 percent by 2024 and further to 27 percent by 2030, from 37.5 percent in the current year
- Ontario to increase tobacco tax rates by C$10 per carton of 200 cigarettes over three years, generating C$135 million next fiscal year
- Province proposes granting municipalities the authority to levy a hotel tax
- The budget includes a transit pass tax credit for seniors