Ontario posts $2.1 billion surplus with higher-than-expected revenue

Ontario Premier Doug Ford and members of the provincial legislature honored Queen Elizabeth and swore allegiance to King Charles III in Toronto on September 14.Christopher Katsarov/The Canadian Press

The Ontario provincial government says it brought in 20 percent more revenue than expected thanks to the accelerating economy, and ran a surplus last year of $2.1 billion, even though it warned just a month ago that it could run into a deficit of $13.5 billion.

The final red ink-free results of the Ontario Public Accounts 2021-22 reflect similar sudden bounces in government revenue in other provinces. The accounts were released Friday and detail actual spending in the fiscal year ending March 31, 2022. It’s the first surplus the county has recorded since 2007-2008, before the global financial crisis.

The opposition in Queens Park said the new figures show the Progressive Conservative government should have spent much more on pandemic relief and could have repealed maximum wage legislation for nurses and other public sector workers as it grapples with a hospital staffing crisis.

Ontario also announced that it will allocate more money in its Direct Payments to Parents plan aimed at helping with the costs of tutoring for children who have fallen behind during the pandemic. The government said it would add $140 million, bringing the total to $365 million.

The government announced the payments last month and children have been back in school for weeks, but it still gave few details. Education Minister Stephen Lecce told reporters on Friday that the application process would begin next month. Opposition critics say the money should be spent on the school system.

The surplus is a dramatic turnaround from a deficit first projected at $33.1 billion in the March 2021 budget. This number was then updated as tax revenue and economic growth increased more quickly than expected. Ontario’s first pandemic budget, in 2020-21, warned of a record $38.5 billion deficit that subsequently narrowed.

On Friday, Finance Minister Peter Bethlinvalvey blamed the uncertainty that has gripped governments around the world during the pandemic for the latest multi-billion-dollar drop in revenue. He said the county has spent billions to fight COVID-19.

Government officials cited a long list of private forecasters who downplayed a quick return after pandemic restrictions were eased, which came to 11.9 percent in nominal terms of Ontario’s gross domestic product, the strongest number since the early 1980s.

Mr. Bethlinvalve said the county spent $6.2 billion on health care in 2021-22 more than the previous year, bringing the total to $75.7 billion, up 8.9 percent. In dollars, this is the largest health care increase in the county’s history, he said. These numbers include one-time funding for COVID-19 testing and vaccines.

Asked if the government plans to introduce new measures in the fall to help Ontarians cope with high inflation, as Ottawa has done, Mr. Bethlinvalve suggested the province would do something.

“What people can continue to expect from this government is that we will always act,” he said, referring to the temporary reduction in the gas tax and the abolition of license plate fees and the tax credit for low-income people.

Official opposition NDP financial critic Catherine Fife said running a surplus while refusing to repeal Bill 124, which temporarily sets all public sector wage increases at 1 percent, was a “slap in the face” for nurses and other workers. She also said that in 2021-22, the county had only a 1 percent annual increase in its healthcare spending, even as the Omicron wave of COVID-19 spread.

“Budgets are about choices. And this government can meet the needs of Ontarians, and they don’t,” said Ms. Fife.

Total spending was down from the county’s original plans by $2.5 billion, for a total of $170.5 billion. The government said spending on education was $1.4 billion less than planned at a total of $29.9 billion, which it blames in part on low enrollment rates.

The surplus of $2.1 billion will go to pay off Ontario’s debt. Friday’s figures put the county’s net debt at $380.8 billion in 2021-2022 and indicated higher interest rates would increase borrowing costs.

Mr. Bethlinvalve won’t speculate on future deficits: The county’s latest forecast is for a deficit in 2022-23 of $18.8 billion. Its budget, which was drafted earlier this year but not passed this month, did not forecast the balanced books until the next year at the earliest in a best-case scenario.

The finance minister also promised to repeal legislation to abolish what would have been an automatic pay increase for MPPs when the books are in balance. Legislation introduced by Liberal Prime Minister Dalton McGinty more than a decade ago would have given lawmakers, who earn a base salary of $116,550 a year, a raise of nearly $26,000.

Marc Desormo, chief economist at Desjardins Group’s Canadian economics division, said he was surprised by the surplus. He also said that this year’s deficit is likely to come in much smaller than expected, unless there is a significant drop in revenue that only matches that which occurred in the financial crisis. But he also warned that inflation may begin to affect the province’s expenditures soon.

“The longer inflation rates rise, the more likely wage pressures will intensify,” he said.

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