GOLDSTEIN: Ontario likely to run deficits until at least 2040, says report

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The growing impact of Ontario’s aging population on provincial finances makes it unlikely the government will deliver a balanced budget until at least 2040, according to a new study by the Fraser Institute.

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That’s more than a decade later than Premier Doug Ford’s timeline for balancing Ontario’s books by 2029 in the wake of the COVID-19 pandemic.

“The aging population will exacerbate challenges for Ontario government finances,” said Jake Fuss, study co-author and a senior economist at the fiscally-conservative think tank.

“Projections suggest that at the current trajectory, the province will not see a balanced budget before 2040 … Ontario is expected to run primary deficits (excluding interest costs) equivalent to between 0.3% and 0.4% of GDP, unless it makes changes to its spending or tax policies.”

The report by Fuss and Nathaniel Li —The Implications of an Aging Population for Government Finances in Ontario — says the province’s seniors will make up almost one-quarter of Ontario’s population by 2043, up from the current level of 17.6%.

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The percentage of Ontario’s population who are 65 years of age and older is increasing because of a combination of people living longer, low birth rates, and that even with immigration, there has been a slowdown in population growth.

In the 1950s and 1960s, the average annual increase in Ontario’s population was 2.7%, more than double the 1.2% rate from 2001-20.

The pressure seniors are exerting on provincial finances comes both from lower tax revenues as they retire and the increased costs to Ontario’s health-care system to look after them.

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In 2018, the last year for which government data are available, Ontario seniors accounted for 44.2% of all provincial health-care expenditures while making up only 16.9% of the population.

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By contrast, the 28.8% of Ontario’s population under the age of 25 accounted for only 15.1% of total health-care spending.

“Clearly, the proportion of elderly Ontarians has a direct effect on the province’s level of health-care spending,” the study said.

It estimates Ontario’s health-care expenditures will rise by about 4.1% annually from now until the 2040-41 fiscal year, while provincial revenues during that period will only grow by an average rate of 3.5%.

“Relative to the size of the Ontario economy, our projections suggest that health-care spending by the province will increase from 7.1% (of GDP) in 2019 — the year before the pandemic — to 7.6% in 2040,” the study concludes.

It warns that the risk of future recessions, an increase in interest rates — which raises the cost of financing public debt — or other unexpected events could compound the problem of maintaining government finances at a sustainable rate.

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In order to care for the elderly and “avoid even more red ink in the future, the government will have to make policy changes and better control spending,” Fuss said.

A June report by Ontario’s financial accountability office (FAO) also predicted the province will fail to balance its books by the fiscal year of 2029-30.

“The 2021 Ontario budget included a recovery plan that projected a path to fiscal balance by 2029-30,” its report said. 

“The government’s plan relies on prolonged spending restraint requiring significant and permanent cost savings that would lower real program spending by $1,281 per Ontarian.

“According to the FAO’s projection, the government is not expected to achieve a balanced budget by 2029-30.

“The FAO expects a deficit of $6.9 billion in 2029-30 under current policies.”

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