To: The Honourable Doug Ford, Premier of Ontario
From: Farah Omran
Date: September 26, 2018
Re: Eyes on the Prize: Ontario’s Real Economic Priorities
With other distractions subsiding, and concerns about Ontario's economy returning to the forefront, let us highlight the real challenges.
The province is on an unsustainable fiscal course, and your government has an opportunity to right the ship to ensure Ontarians can enjoy prosperous and enhanced standards of living.
From unsustainable debt levels, rising health care and housing costs, controversial policies for the promotion of renewable energy and flashpoints around electricity costs, the province faces significant policy challenges. Our report on Ontario’s economic priorities last March proposed an economic program highlighting a number of policy directions that can balance increases in spending with the generation of new revenues and cost-saving measures.
Ontario’s dire fiscal outlook is Job One. With current debt levels, and a target net debt-to-GDP ratio of 27 percent, balanced budgets are not enough for fiscal sustainability. Not least, it will require the province to run budget surpluses until 2029/30. Returning the books to consistent surpluses faces hurdles with the size of the current deficit: last Friday Finance Minister, Vic Fedeli, announced there is now a $15-billion deficit this year, after revisions to Ontario’s financial accounting standards.
Healthcare is a particular fiscal hurdle, consuming roughly half of the province’s own-source revenues. With an aging population, Ontario’s healthcare system will continue to face cost and capacity pressures. Reforms could include strengthening self-directed homecare services and switching from the current fee-for-service model to a pay-per-patient (capitation) model with the aim of alleviating emergency room pressures and improving system efficiency.
The government also must address housing affordability – particularly in the GTA. Home prices in the Greater Toronto Area increased by more the 250 percent between 2005 and 2017. The government can leverage market forces to boost housing supply and lower prices by reducing construction barriers, eliminating costly and inefficient rent controls and transfer taxes.
Finally, Ontario’s government needs a policy for reducing greenhouse gases. While Ontario’s now-abandoned cap-and-trade plan has been politically controversial, carbon pricing provides a market-based mechanism to efficiently encourage GHG reductions. To achieve comparable reductions, direct industry-by-industry emissions regulations are less efficient and risk greater distortions. Facing the potential imposition of the federal carbon pricing backstop on January 1, the province must provide an alternative plan. Eliminating energy efficiency programs and subsidies, and adopting carbon pricing in line with the federal backstop would allow your government to redirect the revenues from cap-and-trade to the reduction of taxation on households and businesses.
Ontario’s economy is at a critical juncture. Your government cannot neglect the real economic priorities, and must take actions to correct the current unsustainable fiscal course.
Farah Omran is a Junior Policy Analyst at the C.D. Howe Institute.
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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.