Phillips’ budget turns Ford’s world upside down
Forget regime change in America. Ontario announced Thursday it is under new management.
The news came not in a final ballot count, but a formal budget tally: Ontario’s 2020 budget has turned Doug Ford’s world upside down, as the premier tries to get the province back on its feet.
A budget is a political blueprint for the future, but also an X-ray that reveals a government’s DNA. This one could not be more different than the last one — detailing government spending, deficits and debt servicing that are unprecedented, unrecognizable and unfathomable for Ford’s Tories.
Finance ministry officials acknowledged the $38.5-billion deficit is unheard of in their careers. Total spending of $187 billion far exceeds anything under Ontario’s last Liberal government.
When Ford first took power on a wave of populism and Trumpism two years ago, he unleashed a cutting spree that slashed public health services. Now he is allocating billions of dollars to pandemic spending for hospitals and nursing homes — the antithesis of what he once stood for.
But is the spending good enough to get Ontario through bad times? And will it see the province through until better times return?
It is the culmination of a transformation: Ford still shows flashes of his old persona — shamelessly bestowing unsavoury favours on his friends — but is otherwise unrecognizable from the rookie politician who last won election on a pledge to balance the budget.
There is more to Ford’s new face than his personality transplant. The other half of the new management team is Rod Phillips, the finance minister he brought in to repair the damage from the government’s first failed budget (when Vic Fedeli was shuffled out of the portfolio). The debut budget of Phillips recognizes reality over ideology. While last year’s budget imposed a new legal requirement for eliminating deficits, the new Phillips blueprint announced a legislative amendment to undo Fedeli’s doing.
The government declared it will “pause the requirement,” in mid-pandemic, for an explicit path to balance. Giving the uncertainty of economic forecasting, the budget declared it “is taking a responsible and prudent approach” to running deficits, rather than running scared of red ink.
It is an implicit acknowledgment that the old way — balancing by cutting — isn’t all that prudent or responsible in reality. Tories who once squawked about the province surpassing $300 billion in debt will now preside over the breaking of the $400-billion barrier (next year), and brace for a net debt approaching $500 billion as the Tories seek re-election in 2022 (now projected to be $472.9 billion, or possibly higher under the government’s alternative scenarios).
But today’s recessionary reality is all about negative economic growth and record high unemployment at a time of unprecedented demand for health care, long-term care, child care and student care — funding details to come. This is also, conveniently and undeniably, a time of low interest rates unseen in our lifetimes.
The result is that reams of red ink won’t bleed the treasury as in the past, because there has never been a better time to borrow in bad times. Interest rates will average a rock bottom 1.6 per cent this year for the province, which is locking in long-term debt to benefit from savings for years to come.
Previous estimates of interest rates have dropped by more than 2 percentage points from last year’s budget, reducing borrowing costs measurably. Total interest expenditures are staying steady for this year, compared to last year, even as the deficit and debt increase — and those costs now make up a shrinking percentage of the total budget.
The fiscal equation is ineluctable: Cheap money not only saves money, it also inoculates the economy against long-term “scarring” when people are out of work and without future prospects.
In that sense, the finance minister is on the same page as his counterparts across the country and around the world who have renounced the old fiscal orthodoxy. Like his premier, who has forged a strong bond with deputy PM and federal Finance Minister Chrystia Freeland, Phillips is mindful of the benefits that come from co-operating with Ottawa.
In fact, much of the money that Ontario is allocating in its budget is cash flow that comes from federal funding — $33.4 billion in transfers from Ottawa, up from $25.4 billion the year before. There are billions for pandemic pay increases, school safety and infrastructure projects.
Inevitably, however, the question of who pays how much for what has stoked fleeting tensions. When Ford groused that Ottawa’s funds weren’t flowing fast enough — because half of Ontario’s proposed projects were still awaiting approval — federal Infrastructure Minister Catherine McKenna shot back that the bottleneck was at Queen’s Park.
“We’re putting in 80 per cent of the money,” McKenna said pointedly last week.
“Our government is sparing absolutely no expense in the fight against COVID-19,” Ford countered Thursday.
But when I asked Ontario’s budget officials for a detailed breakdown of the federalprovincial split in all areas, they couldn’t provide an answer. Which seems peculiarly unprofessional. The budget allocates an additional $7.5 billion for the pandemic, for a total of $15.2 billion this year. But to what extent are Ford and Phillips shouldering the burden, rather than sheltering under Ottawa’s largesse?
There’s a big difference between channelling federal money while borrowing cheap money — spending someone else’s money — and sparing no expense. Is Ontario doing its fair share, or is it just talking a good game — better than before, but still not good enough?
Spending big, and running up even bigger deficits, is not what Tories signed up for. But it’s a sign of the times.
Measured against last year’s budget, Ontario’s Progressive Conservative government has come a long way toward recognizing reality. But by next year’s budget, when their spending plans are measured against the full impact of COVID-19, there will be another accounting — and they will be held to a far higher standard.