TVO: How does the budget work, anyway?

Here's the bottom line

Finance Minister Charles Sousa delivering the 2016 Ontario budget at Queen's Park. (Nathan Denette/CP)

Finance Minister Charles Sousa delivering the 2016 Ontario budget at Queen's Park. (Nathan Denette/CP)

Another year, another budget — and for many Ontarians, another round of numbers-induced bewilderment. But fear not: we’ve got you covered. With the province’s finance minister set to present the 2017-18 edition at Queen’s Park this Thursday, here’s a quick primer on how the budget actually works.

How does the budget get written?

Slowly, and with a lot of meetings. The government usually unveils the budget in April, to align with the province’s fiscal schedule — but planning starts in the fall. The Ministry of Finance meets in November with deputy ministers from every government department. At the end of those meetings, the finance minister lets department officials know what their allotted funding for the year will be. Bureaucrats beaver away through January to come up with a spending schedule for their department that falls within 2 per cent of their allotment (to allow for contingencies).

“In February and March, each minister and deputy minister then sits in front of the Treasury Board of Cabinet and defends their submitted plans,” writes Omar Khan, a former political staffer. “Once the Treasury Board delivers its stamp of approval, the Ministry of Finance uses the combined submissions as the basis for overall budget development.”

Finance spends the remaining time making the numbers add up; then it presents them to the departments one last time.

It’s also worth noting that the government releases quarterly statements on the state of the economy. Its fall economic statement provides the public with an update on how its budget plans are progressing. Here’s last year’s edition.

Does the public have any input?

They do, in two ways. Firstly, this Liberal government has made a point of holding public consultations. Anyone can submit comments and suggestions as to how the government should spend its cash. Departments also meet with “stakeholders” — from labour groups to industry associations and other non-profits — to get their input.

How is Ontario’s economy doing? 

Economic conditions can dictate how the government decides to spend (or not spend) in a given year. In last year’s budget speech, Finance Minister Charles Sousa noted Ontario’s economy was growing at 2.2 per cent, “making us a leader in Canada in economic growth and job creation … We know from experience, however, that the global economy can turn very quickly. Right now, uncertain economic winds are currently blowing in the right direction for Ontario. A low dollar, low oil prices, and steady U.S. demand all favour Ontario exports. We cannot simply trust that those fair economic winds will stay with us.”

He used this as justification for investing in infrastructure, a low-carbon economy, and greater access to university education.

The economic picture is still bright this year. “Ontario’s performance in the past three years … is probably as good as it gets for a large, mature and diversified economy,” says RBC Economics in a recent report. “We believe that Ontario will get more attention in 2017 as it poised to lead the country in growth this year for the first time since 2000.”

Solid economic conditions — plus the June 2018 election — mean we are bound to see new spending this year and next, as the Liberals try to curry favour with a restive electorate.

The Liberals have said they’ll balance the budget this year. Does it matter?

Sousa says that the 2017-18 budget will be balanced — a promise the Liberals made years ago. The goal is a little easier to fulfill these days, with the housing bubble in the GTA contributing to increased government revenues. In principle, reducing the deficit is a good thing for the province, because it means Ontario won’t add to its debt.

But hold off on the champagne (or down it quickly): Ontario is expected to be back in deficit territory again next year. “Beginning in 2018-19, the deficit is expected to gradually increase as growth in revenue is outpaced by increases in program spending and interest on debt expense,” the Financial Accountability Office said in its 2016 fall outlook.

What’s the difference between debts and deficits? 

Debt is the cumulative amount owing, or the amount of money the government has borrowed to pay for current expenses. Deficits occur when spending outweighs income over a set period of time (the opposite of a surplus). So a government’s deficit in a given year contributes to how much it owes overall — that is, their debt.

In Ontario, this is an important issue, because our debt has been steadily rising since the 2008 recession. One way to put Ontario’s debt into context is to measure it as a percentage of GDP. Ontario has the second highest debt-to-GDP ratio in the country after Quebec, at almost 40 per cent. Compare that with the federal debt-to-GDP ratio of 31 per cent. (For some context, economic basketcase Greece is at 181 per cent.) So Ontario’s situation is not dire, but it does cost taxpayers to have to pay off what the province owes service the debt, and it could become more expensive if interest rates rise. Already, debt interest payments are the fastest-growing expense on the government’s balance sheet.

Ontario’s Financial Accountability Office estimates provincial debt will rise to $350 billion by 2020-21.

So what will be in the budget?

Check out tomorrow for our budget predictions.