Economic analysis

Good times are back in Ontario. Wink wink, nudge nudge.

A low dollar and increased exports are wind in Ontario’s economic sails. For now.

Ontario Finance Minister Charles Sousa, right, delivers the Ontario 2016 budget next to Premier Kathleen Wynne, left, at Queen's Park in Toronto on Thursday, February 25, 2016. (Nathan Denette/CP)

Ontario Finance Minister Charles Sousa, right, delivers the Ontario 2016 budget next to Premier Kathleen Wynne, left, at Queen’s Park in Toronto on Thursday, Feb. 25, 2016. (Nathan Denette/CP)

Here’s the pitch: Ontario is off the mat. The province has fully recovered from a tough recession in 2008 and 2009 that put a lot of people out of work, gutted the province’s manufacturing base and wreaked havoc on government finances. All that will soon be in the past. The province is now, once again, proudly a national economic leader, the Liberals are firmly in control and the people can trust them—just as government trusts the people. Onward. Wink.

Finance Minister Charles Sousa delivered a $133-billion budget that promised black ink—or, at least, no red ink—in time for the next election. He pledged free tuition for kids whose families earn less than $50,000. He announced more expensive cigarettes and slightly more expensive wine, but he wanted Ontarians to know that the province’s economy will grow by 2.2 per cent in 2016. Sure, it’s not a number that’ll blow any door off its hinges but, Sousa claimed, it’s the best Canada’s got. He reminded the legislature in which he stood that his government introduced all-day kindergarten in 2010, and that first class is now in grade five. Translation: These Liberals have been around a while, have seen their province through the bad times and are ready to deliver the good.

Sousa skirted the challenges—see: ongoing budget deficits, stubbornly mounting debt—that he must confront before 2018’s trip to the polls. Ontario’s debt-to-GDP ratio, an important indicator of fiscal health, sits at an all-time high. Sousa said it’s “expected to peak” at 39.6 per cent before dropping slightly to 38.5 by 2019 and “track toward” the government’s ultimate goal of 27 per cent. But that’s a lot of qualifying language as the province’s total debt passes $300 billion, annual interest on that debt eventually tops $13 billion, and debt-rating agencies keep their eyes on Queen’s Park. As for the claim that Ontario is Canada’s healthiest economic engine? B.C. Premier Christy Clark would take umbrage at any claim that any province but hers leads the way on GDP growth. BMO’s latest provincial projections have B.C.’s real GDP growth in 2016 at a nation-leading 2.5 per cent. And the same report has the Pacific province outpacing Ontario on employment growth, too—2.1 per cent to 0.8.

Cue the passive-aggressive competition for title of Canada’s most robust province. Clark and Ontario Premier Kathleen Wynne can hash it out next month when they’re both in Vancouver.

We do know which Canadian province is struggling badly. And Ontario can, and does, thank Alberta’s woes for its own modest economic hope. “Right now, uncertain economic winds are currently blowing in the right direction for Ontario,” said Sousa. “A low dollar, low oil prices and steady U.S. demand all favour Ontario exports.” A backgrounder on the province’s fiscal outlook is peppered with statistics, printed in large, red, block letters, that make the case for Ontario as national leader: lower unemployment and stronger GDP growth than the national average, and tens of thousands of new jobs projected until 2019.

That low Loonie comes up again and again.

A Loonie at parity with the U.S. dollar is often characterized as strong. A depreciated Loonie, then, must be weak—Google those words together and behold thousands of results from just the past few months as the Loonie’s decline has continued almost unimpeded. But read Sousa’s budget document, or listen to his speech, and you’ll find no mention of weakness. A lower Loonie is a chance for “competitiveness,” not decline: increased exports to American businesses, more visits from American tourists and more money flowing across the border.

Budget documents boast that the province’s exports increased by 5.3 per cent in 2014, a nearly four per cent bump over the previous decade’s average annual export growth. International exports jumped 7.1 per cent in 2014. Projections suggest they’ll continue to rise annually at an average of three per cent. The low Loonie made imported goods pricier—including food imports, importantly—but cheaper gas helped offset those expenses for the typical Ontarian in 2015. The documents claim that Ontario households “would have, on average, paid $237 more for food bought in stores and saved $457 on gasoline.”

The Ontario Ministry of Finance’s figures suggest the price of oil won’t rebound hugely before 2019, the U.S. economy will continue to grow steadily and the dollar will only rise to 83 cents over the next four years. And make no mistake: the province’s economic good times, sustainable or not, are real. But if those conditions change—and any fluctuations are largely out of Sousa’s control—the government may have to rethink its patient march to a balanced budget.

Even if economic growth lends a hand, Sousa’s balanced budget still means cuts are on the way. Revised budgetary projections forecast deficits of $5.7 billion in 2015-16 and $4.3 billon the next year, and then two straight balanced budgets. That means finding several billion dollars in savings or new revenue to cover the gap.

The budget offers hints about where that money is hiding. A chart on “major transformation and efficiency initiatives” over the next three years projects between $1.3 billion and $2.5 billion in savings, and includes healthcare reform that, among other outcomes, increases deductibles on drug plans for seniors. The government claims a year-end savings program that capitalizes on underspending will save more than $800 million by 2019. The government also attacks Ontario’s bad habits. Tobacco and alcohol taxes are both in for a hike that could net provincial coffers another $165 million by 2019. Queen’s Park Liberals will also rely on assumed new spending from their Ottawa cousins: about $2 billion over two years, starting next year. Western University public policy professor Mike Moffatt, who was in the budget lockup with Maclean’s, takes a deeper look at how the government will balance its books.

It all adds up to something. But black ink by election time requires uncontrollable economic winds to keep on blowing Ontario’s way. And that means Ontarians must trust their long-serving Liberals’ forecasts as much as those Liberals say they trust their own people, whom Sousa said are the “best edge” the province has in a competitive world. Good luck.

Looking for more?

Get the Best of Maclean's sent straight to your inbox. Sign up for news, commentary and analysis.