CCPA report challenges Tory budget deficit fears

April 22, 2002

A report from the Ontario Alternative Budget Working Group released today challenges the key assumption underlying the Eves Government's claim that the province is on the brink of another fiscal crisis.

The report analyzes the state of Ontario's budget for 2002-3 in light of the oft-repeated claim that the province faces a budget shortfall or "problem" of between $3 billion and $5 billion in fiscal year 2002-3.

It shows that, based on the Governments own current projections, the Conservatives can anticipate a budget surplus of $600 million for 2002-3.

"The doomsday forecast of a $3 to $5 billion deficit is not consistent with the Government's own revenue estimates and economic forecasts", the report's author Hugh Mackenzie said.

The report simulated the impact on the budget of two potential downside pressures: an overstatement of the revenue base carried forward from 2001-2; and an economic reversal in 2002 that wipes out economic growth for the year.

"Even in a worst case- a $900 million overestimate of 2001-2 revenue and a collapse of growth in 2002 - the deficit for 2002-3 never goes above $1 billion - less than the contingency funds normally set aside to insure against budget risks.

"With strong evidence in the jobs numbers that Canada is having a strong first quarter in 2002, neither of these risks is very likely. That means an underlying budget surplus for 2002-3 is clearly in the cards", Mackenzie said.

The critical risk factor for a deficit for 2002-3, ironically, is completely under the Government's control. The report estimates the cost for 2002-3 of previously forecast corporate income tax cuts at $1.2 billion. A decision to proceed with those cuts would turn the $600 million surplus into a $600 million deficit.

The report also looked at the budget implications of taking some first steps in repairing the damage from previous budget cuts. It found that a 5% expenditure increase in health and 3% over most of the remainder of the budget adds just over $400 million to spending - an amount that is manageable within the Government's own forecast framework.

"The lack of evidence for a looming fiscal catastrophe puts to the test the Eves Government's claim that it is putting the Progressive back into Progressive Conservative", Mackenzie said.

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