The Liberals go for an $8 billion Hail Mary

OPINION: Having balanced the budget for just one year, the Liberals are heading back into deficit. John Michael McGrath asks, what are they thinking?
By John Michael McGrath - Published on March 9, 2018
Ontario Finance Minister Charles Sousa at the Economic Club
Ontario Finance Minister Charles Sousa this week told the Economic Club of Canada that the Liberals will run an $8 billion deficit in 2018. (Steve Paikin)



​The Liberals have a problem: they desperately don’t want to lose power on June 7, but the ambitious, progressive promises they want to run on for re-election don’t square with the amount of money the province is actually taking in as tax revenue. If only someone had told them that ambitious policy costs money.

Until this week, you’d have thought the Liberals would stick to a balanced budget and leave their big promises unfunded or, to use a Kathleen Wynne-ism, “waiting for a federal partner.” After all, less than a year ago, the finance minister himself said that was the plan: the 2017 budget saw the Liberals finally drag the province’s books back into balance, and Charles Sousa told the legislature that “the next year, and the year after, we’re projecting it will be balanced too.” Sousa had spent years on this — surely he wasn’t going to throw away all that work?

It turns out he was. On Wednesday, Sousa told a crowd at the Economic Club of Canada, in downtown Toronto, that in the budget coming March 28, the government will run a deficit of no more than 1 per cent of Ontario’s GDP — about $8 billion.

On its own, this isn’t really a big deal. As long as the economy continues to grow faster than the debt the government adds with deficit spending, the actual risk from a small deficit is, well, small. (Some folks argue that deficits this small are basically sustainable forever, but that’s not the sort of thing finance ministers are supposed to say aloud.) The problem isn’t so much the decision to run a deficit but the context in which the decision was made — and what that tells us about the Liberals.

Sousa can tell people that he’s presenting a deficit budget because while Ontario’s doing fine overall, “the benefits of this prosperity have not reached enough people.” But that was true in April — it was a theme in Sousa’s budget speech last year — and the minister was still predicting a balanced 2018 budget back then. The sudden and urgent need to run a deficit simply can’t be separated from the looming election.

We can probably thank Justin Trudeau for this: the Ontario government was discussing running deficits as long ago as 2016, reported, after their federal counterparts galloped to a resounding election win with an explicit pledge to run a deficit — a promise they’ve actually managed to keep. (And how!) The Ontario Liberals’ hope for re-election depends largely on whether it can engineer a massive surge in youth voting like the one Trudeau profited from, so they’re not being shy about borrowing from the prime minister whatever might help get them there.


The problem for the Liberals is that they’re operating in a wildly different political context. Kathleen Wynne, the 64-year-old grandmother, doesn’t push the same political buttons for young voters that Justin Trudeau, the woke pot-legalizing cool dad, does. Moreover, Trudeau’s proposal to run a deficit broke with years of Conservative narrowness in government. Wynne is proposing to run a deficit after years of, well, Liberal deficits. Trudeau emphasized change; Wynne is proposing more of the same.

That’s just the politics. The policy itself is also a problem. It’s absolutely correct to say that parts of Ontario have been left out of the province’s overall prosperity, and fair to argue that public action can help. But if these places need help, they’re going to need it for more than a year. And if the government wants to implement a progressive, multi-year plan to provide that help, then it should probably propose some way to pay for it over the long-term. A real plan is the kind of thing a government should be able to present voters as an accomplishment come election time — not an aspiration to hold hostage at the ballot box.

And while small deficits aren’t a big concern, the problem Ontario faces is that small deficits aren’t going to stay small on their own. As the federal Parliamentary Budget Office has noted, the long-term fiscal situation for provinces is bleak. The provinces handle some pretty expensive budget items (education, health care, elder care), all of which are projected to get even more expensive over the next few decades. The PBO says current levels of spending aren’t sustainable without service cuts or substantial tax increases.

Funnily enough, it didn’t list “pre-election budget deficits to keep an unpopular government in power” as a reasonable fiscal strategy. But the structural forces driving costs can’t be ignored — at least not for long. The Liberals could make the case for sustainably funding the public services they value; they haven’t. Instead they’ve shown that they’re too afraid to raise taxes, but too spend-happy to keep their own promises to balance the books.

Voters, especially progressive ones, will no doubt like the new promises in the budget this year. They might want to keep in mind that the bill always comes due.

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