What the Ontario Government Should Cut to Balance the Budget

Commentary, Economy, Matthew Lau

The Ontario government’s budget deficit of $15 billion this year will rise even higher next year unless swift corrective action is taken. With the province’s net debt already at $325 billion, eliminating the deficit should be a priority – especially since this enormous deficit is being incurred outside of a recession.

Given that Premier of Ontario and the governing Progressive Conservatives were elected on a plan to cut taxes, the only way to quickly balance the budget will be through spending cuts. This is also the smarter policy choice. Research shows that governments’ attempts to tax their way out of deficit are far more economically damaging than reducing spending.

Indeed, the evidence shows that Ontario’s current fiscal predicament is the result of unreasonable spending increases. Program spending in the 2017/18 fiscal year was around $10 billion higher than what the government had budgeted for 2017/18 in its 2015 fiscal plan. Then in 2018, spending was ramped up yet again as the previous government went on a pre-election spending spree.

Pulling Ontario’s spending path back into line with its 2015 fiscal plan would eliminate most of the current deficit, but this is easier said than done. It’s much easier for politicians to make lavish promises than it is to cut back on the money currently being shovelled out the door. There are, however, numerous easily identifiable expenditures that should be axed completely or substantially scaled back.

The first item on the spending chopping block should be corporate welfare – the billions of taxpayers’ dollars wasted annually to subsidize businesses. The so-called “Jobs and Prosperity” Fund, the province’s regional economic development funds, Ontario’s agricultural Risk Management Program, and all other forms of loans and grants to business should be ended immediately.

Secondly, there should be a reduction in spending on post-secondary education. Just as businesses should not get taxpayer subsidies to invest in machinery, neither should future dentists, accountants, and lawyers be heavily subsidized to invest in education today. A cash-strapped business might borrow money to invest in worthwhile machinery; similarly youth should be able to borrow money – as long as they can demonstrate that their education pursuits are worthwhile – to finance investments in their education.

Thirdly, on the healthcare file, there are also significant savings to be had. In 2014, then-Ontario PC Leader Tim Hudak proposed scrapping the province’s fourteen Local Health Integration Networks to reduce the government payroll by 2,000 bureaucrats and save the treasury $800 million annually. It was a good idea then and remains a good idea today.

Another idea that today’s Ontario PC government should borrow from its 2014 platform is a two-year public sector wage freeze and the phase-out of defined benefit pensions for new government workers. According to a recent study, government workers in Ontario are paid 10.6 percent more than comparable private sector workers, and 78 percent of them have defined benefit pensions, compared to only 11 percent of private sector workers.

Moreover, on average, government workers retire 1.8 years earlier, are absent from work 63 percent more often, and have far better job security than private sector workers. Clearly, the compensation of government workers is unnecessarily high and ought to be cut. On this issue, politicians ought to lead by example through their own belt-tightening – such as by reducing severance payments to MPPs that resign, or by cutting the cost of cabinet by reducing the number of cabinet ministers.

In short, there is an abundance of opportunities for the Ontario government to cut spending. Given the size of the deficit and the precarious state of the province’s finances, the government should get to work on cutting spending right away.