Ontario Premier Dalton McGuinty. On Tuesday, the province projected a deficit of close to $1,500 per person for 2010-11 -- a number that may soar in the coming years.Frank Gunn
Michael Veall is an economics professor at McMaster University
A fellow Ontario resident recently asked me whether the move to the HST is a tax grab. My response: "I wish". The province needs the money.
There are a number of estimates of the impact of Ontario's HST, but let's take those of David Murrell from a study for the Canadian Centre for Policy Studies.
Dr. Murrell estimates that the switch will initially reduce net taxes for the average Ontario family, because of transition measures such as the HST rebate. By the third year however, when the transition measures have ended, the average increase will be about $300 per family, or about $110 per person.
Dr. Murrell's estimate is credible. My personal guess is that it might be a little high. However, that is a mere quibble when compared to the Government of Ontario projected deficit of close to $1,500 per person for 2010-11, just announced Tuesday by Finance Minister Dwight Duncan. This is a modest improvement over the May estimate. There may be a bit more good news in the full fall economic statement on Thursday.
Still, it will be surprising if the projected deficit falls much over the coming two years. By 2012-13, the Government of Ontario will probably have a net debt of about $20,000 per person.
It gets worse.
Using the May budget numbers, the government plan is to balance the budget by 2017-18. By then, the planned net debt will be around $23,000 per person. Even to make those targets, the plan is to hold the annual rate of increase of health care costs, which averaged 7.5 per cent over the last decade, to about 4 per cent this coming year and 3 per cent the following year. For subsequent years total nominal expenditures for everything are planned to increase less than 2 per cent per year. Meanwhile the economy has to rebound to yield steady 5 per cent revenue growth with only modest increases in the interest rate paid on the debt.
The situation is broadly the same in every province east of Manitoba with the exception of Newfoundland and Labrador. All risk provincial debts climbing to double the level of annual government revenues. For residents of these provinces, the federal government debt, which is serious enough, should not even be the primary worry.
For Ontario, maybe the remaining numbers on Thursday will be good enough to prove me an alarmist. That would wonderful, but it is unlikely. This should not become an ideological debate - this is about fiscal survival. As the political parties write their platforms for the October, 2011, provincial election, let's hope they understand this.