Tuesday, December 16, 2014

Ontario Liberal funding plan is LESS than Harper's federal transfers

Federal transfers to Ontario 2015-16
The federal transfers are out for 2015/16 and Ontario has done well –$1.253 billion or 6.5% more than the total federal transfers to Ontario for 2014/15. 

Apparently, the Wynne government's attack on the Harper government's stingy cash transfers to Ontario are convincing the Conservatives to cough up some more dough for Ontario.  (Just in time for the federal election.)  

The total increase in federal transfers ($1.253 billion) equals a 1.1% increase in overall provincial program spending.  In contrast, the current provincial government spending plan is to increase program spending 0.6% next year, a tiny 0.08% the following year, and then impose a cut of 0.7% the year following that.  

In other words, federal Conservative transfer increases to the provincial government far outstrip total provincial Liberal spending plans.  Ontario "own source" revenue would play no role at all in new program spending.

This is very odd - -in the normal scheme of things federal transfers should make up only a small portion of the overall provincial program spending increase.  It is odder still when you considered that the extra cash is coming from a government that makes few pretenses about its interest in spending cash on programs that benefit working people.  The Ontario Liberals however won an election on defending public services -- there just isn't any funding from them to actually implement that policy it seems. 

Not yet anyway.   We will see if they keep to their hard, hard line line when the Budget rolls around in the new year. They certainly have a bit more cash from the Feds to help make change happen.  

Federal Health Transfers:  The health transfer is up $735 million or 5.95%.  That is $364 million more than it would have been if we had not won a two year extension to the 6% federal health transfer increases in the last federal election (and were instead already stuck with the 3% minimum increase that the Harper Conservatives plan).   

This $735 million federal health transfer represents about a 1.5% increase in total Ontario health care funding. 

Ontario needs to fight for federal health funding:  A Toronto Star  article on Charles Sousa and the federal transfers had not a word on fighting to improve the federal health transfers.   Likewise,  health care funding was largely passed over in media accounts of Kathleen Wynne's note  to Harper earlier this week either.  

Unless the Wynne government picks up their health care game,  Ontario will be stuck with a loss of an extra $364 million for health care every year. 

Federal Support to Ontario (millions of dollars)

Canada Health Transfer2
Canada Social Transfer
Total - Federal Support
Per Capita Allocation (dollars)
One-time recoverable payment of $150 million for 2011–12 not included.
CHT includes separate payments to Ontario in respect of the Canada Health Transfer for 2009-10 ($489 million) and 2010-11 ($246 million) to ensure Ontario receives the same CHT cash support as other Equalization-receiving provinces.
Photo: Chalmers Butterfield

Wednesday, November 19, 2014

Ontario set to beat deficit target - contrary to media tales of doom

There was much gloom in the corporate media's reports on the Ontario government's Budget follow-up, the Fall Economic Statement.  The Globe and Mail headlined their front page report on the Statement with the claim "Ontario Fades," concluding that "the key takeaway was that the province's struggle to rein in its chronic budget deficits is getting harder."  

The Sun Media columnist Anthony Furey treats the Statement as another gruesome example of governments addicted to debt. 

Stories about worsening government deficits play well with big business attacks on public services, but they are  based on exaggerating minor issues.

True, the Ontario Finance Ministry did reduce the 2014-15 revenue outlook by $509 million.  

But there is much more to the story than that.  

The reported decline in revenue had little to do with current events. Instead it was largely based on new assessments of corporate taxes for 2012 and earlier.  

As well interest spending was also down $214 million due to lower than expected debt costs.  Otherwise the Finance Ministry claims spending (i.e. program spending) is on track.  

Considering both their revenue and expense changes, they are $300 million down.  But that means they are out by less than 1/4 of one percent of total budget  -- almost eight months through the year.  Hardly a big deal. 

But for the Sun's Anthony Furey this is an "old trick of the trade" to fudge the figures for "debt-addicted" governments. 

A quarter of a percent? Some trick.

The true story isn't that the government understates its deficits, it's that the government consistently overstates its deficits and has done so for years. And that is probably going to be the case this year as well.

The $300 million is only a fraction of the $1 billion reserve the government allowed in the Budget for unexpected contingencies (like unexpected corporate tax assessments).  

So, if they keep to this, the 2014/15 deficit will be $700 million less than currently projected once the remaining $700 million of the reserve is turned over to the deficit.

But there is reason to think this still underestimates the extra cash that may well turn up by next fall's public accounts   -- and not just because the government has consistently overestimated their deficits by billions of dollars for many years. 

Even a quick look at last year's Fall Economic Statement is revealing:  the Statement stuck to the Budget's deficit estimate, but, by the time the public accounts came out after the end of the fiscal year, the deficit turned out to be down $1.3 billion.

Nominal Growth: With much higher inflation than expected, the Finance Ministry did revise their 2014/15 inflation estimate upwards from the estimate in the Budget.  They increased their inflation estimate from 1.5% to 2.1% (still short of the latest 12 month Ontario inflation increase of 2.6% that Stats Can reported for September).  

However, they did not change their nominal growth forecast for 2014/15, which remains at 3.5%, just as it was in the Budget.  As a result, they make the odd claim that, with 1.9% economic growth and 2.1% inflation, nominal growth is still going up only 3.5%.  

It doesn’t add up.  

Nominal growth is the key driver of government revenue.  So if nominal growth is in fact a little higher than they now claim, they may have a little more revenue at year end than they are currently letting on.  A  ½ % in extra revenue would mean about an extra $590 million.  

If so, that could certainly be put to some good use.  Indeed, if it isn't rolled into program spending, higher inflation will mean that program spending has, in real terms, been reduced further.

Under spending: On program spending, the Finance Ministry brags that they have increased it only 1.2% per year for the past 3 years.  That is significantly less than the increases planned in their Budgets. 

Consistent with their less than planned program spending increases,  the Liberals consistently come in under Budget for expense spending.  They don’t spend all their program budgets and overestimate their interest costs.  Here, for example, are the end of year expense savings reported in the last four Budgets:   

2014 Budget
TABLE 2.4 Summary of Expense Changes since the 2013 Budget
($ Millions)

Year-End Savings Target included in 2013 Budget
Increase/(Decrease) since 2013 Budget

Health Sector
Education Sector
Postsecondary and Training Sector
Children's and Social Services Sector
Justice Sector
Other Programs
Total Increase/(Decrease) since 2013 Budget
Net Program Expense Increase/(Decrease) after Applying Savings to Meet $1.0 Billion Year-End Savings Target
Interest on Debt
Total Expense Changes since 2013 Budget

2013 Budget
TABLE 2.4 Summary of Expense Changes Since 2012 Budget
($ Millions)

Program Expense Changes

Health Sector
Education Sector
Postsecondary and Training Sector
Children's and Social Services Sector
Justice Sector
Other Programs
Total Program Expense Changes
Interest on Debt
Total Expense Changes Since 2012 Budget

2012 Budget
TABLE 2.4 Summary of Expense Changes Since 2011 Budget
($ Millions)

Program Expense Changes

   Health Sector
   Education Sector
   Postsecondary and Training Sector
   Children's and Social Services Sector
   Justice Sector
   Other Programs
Total Program Expense Changes
Interest on Debt
Total Expense Changes Since 2011 Budget

2011 Budget
TABLE 4. Summary of Expense Changes Since 2010 Budget 
($ Millions)

Program Expense Changes1

Health Sector
Education Sector2
Postsecondary and Training Sector
Children's and Social Services Sector
Justice Sector
Other Programs
Unused Contingency Funds
Total Program Expense Changes
Interest on Debt
Total Expense Changes Since 2010 Budget
1 Excludes fiscally neutral transfers between ministries.
2 Excludes Teachers' Pension Plan.

On average, they under spent their Budget plans by a little over $1 billion a year (not counting contingency fund savings). Health care under spending alone amounted to $337 million per year on average.  

They don’t make any allowance for this under spending in their Fall Economic Statement.  But if the past is any indication, we will see more expense savings reported at the end of the fiscal year.  

Again that cash could be put to good use.  Unassisted, Finance will roll it into the deficit.     

Smart operators may have other ideas.

Finally, on wages, the government's line is slightly tweaked: “any modest wage increases that are negotiated must be absorbed within Ontario's existing fiscal plan.”   Currently, that plan is to increase program spending a teeny-tiny 0.8% per year for the next three years. (They emphasize Deb Matthew’s Program Review as a driver of spending cuts.)  They continue to claim they will respect collective bargaining.