3/3/17

Cash give-aways haven't helped the Liberals so why double down?

The government has answered the question about who might benefit from the improved fiscal situation of the province.  At least in part.


The government's announcement that they will spend $2.5 billion over three years on hydro subsidies (an average of  $833.3 M per year) takes them further down a road they have already tried, without much to show for it.  

Premier Kathleen Wynne implicitly confirmed growing government revenue but cautioned that this latest cash give-away is putting them closer to falling back into deficit.  She stated:
"Thanks to a provincial economy that is leading all of Canada growth, we can make this change and stay on track for a balanced budget next year and the years to follow.  But it’s going to be a lot harder now and we’ll remain a lot closer to the line."
So far these sort of cash give-aways have accounted for the large majority of the new, in-year spending that has marked the tentative move away from government austerity that began last fall. 

The conclusion the government seems to have drawn from their huge hydro cash give-away in the fall (the "HST tax cut") is that it wasn't enough. 

So they have doubled down.

Well it's true that the previous cash give-away hasn't helped the government's polling numbers.

But will more cash give-aways help them any better? It's pretty easy to forget about something you are no longer paying. 

In contrast, it's hard to ignore mounting problems in your public services. 

New funding announcements aimed at simply maintaining public services amount to only a small fraction of the cash give-aways announced.  

As a result, public services are still starving on an austerity diet.

Wynne's comment, noted above, seems aimed at managing expectations that there are more spending announcements to come. But with an election just over a year away, a Budget in the offing, growing government revenue, and perhaps little to show for the cash give-aways, there probably is more to come.  

But surely no more tax cuts or cash give-aways. 

For his part, Patrick Brown now feels compelled to release Progressive Conservative (PC) hydro policy in the next few weeks. This is a change from the cloak of secrecy he has put up around PC policy, whatever it is. Previously the plan was to announce PC policy at their November convention. 

But there is no sign yet that they will announce anything early about their health care policy.   Who knows what they might do -- hospital cuts? more austerity? Exactly what Brown stands for is as clear as mud. 

2/22/17

Ontario government spending grows. But the deficit falls like a stone


Yesterday’s third quarter report from the Ministry of Finance indicates that their estimate of the deficit for 2016/17 fiscal year has fallen by $2.4 billion -- from $4.3 billion to $1.9 billion.

This despite the announcement of another $223 million in new spending increases for 2016/17.  If you recall, the government announced even more in-year spending increases in the fall for Hydro rebates and hospitals.  


Since the 2016/17 Budget, they have now increased program spending about $1.1 billion through in-year increases.  That is an in-year increase in program spending of 0.92%.  

This is quite unusual for a government that typically under-spends their budget.  

The new increased expenditures announced yesterday are mostly on a specific hospital based service and drugs:

·    Ontario Drug Benefit Program: an additional $106.0 million to address funding requirements for the Ontario Drug Benefit program.
·    Malignant Hematology including Stem Cell Transplants: an investment of $95.4 million to support additional capacity to provide stem cell transplants in Ontario, which require specialized facilities and staffing, including creating a new unit at Sunnybrook Health Sciences Centre, as well as OHIP out-of-country costs for stem cell transplants that cannot be accommodated in Ontario.

Health spending is now forecast to be $347.6 million higher than forecast in the 2016/17 Budget. That's the biggest increase of any ministry -- although at 0.67% far from the biggest percentage increase of any ministry.   

Tempering these expense increases is the previously reported $381 M decline in interest expense on the debt. As a result, total expense is up $737 M.

Following an expert panel's report on pension accounting discussed in a previous note, the government is indeed sticking to its preferred accounting method for the teachers and civil servant pension plans, significantly reducing the debt and deficit.  With this, the key debt to GDP ratio is now scheduled to fall for a second year in a row -- hitting 38.3%.
 
The large majority of the in-year decrease in the deficit measured against the Fall Economic Statement is the reversion to the long held accounting practices for these pension plans.  

But this obscures the fact that since the Budget (which also used the government's preferred budget accounting method for the pension plans), there has been a dramatic increase in revenue thanks to increases in a variety of taxation categories.  The big gains were in corporate taxes (up $1.1 B since the Budget) and sales taxes (up $803 M).  Both of these categories have also seen significant increases since the Fall Economic Statement (very significant in the case of sales taxes)Income taxes are also up significantly since the Budget ($726 M) -- but the estimated increase is significantly less than in the Fall Economic Statement.

In total, revenue is up almost $400 million since the Fall Economic Statement and up $2.52 billion since the 2016/17 Budget.   That big increase in revenue largely explains the $2.4 billion reduction in the deficit since the Budget -- when the pension plans were accounted for on the same basis as this third quarter report. 

The government has gotten some favourable media about falling deficits through this third quarter report -- something I can't recall happening before from a usually forgotten report.  

But they are likely saving more good news for the upcoming Budget or the close out of the 2016/17 books with the Public Accounts in late September.  Those are higher profile announcements and much closer to the 2018 election.  

Bottom line: revenue is increasing, the deficit is falling, and the government has shown an uncharacteristic willingness to spend more in-year than budgeted. 

On the fiscal front, things are looking up – at least in the short term.  Some will benefit, but, as always, the question remains, who?  

2/15/17

The end of provincial public sector austerity in Ontario?

The experts appointed to review the claim by the Auditor General that the surpluses in the teacher and civil servant pension plans cannot be counted as government assets have reported.  

Importantly they have sided with the government and against the Auditor General, Bonnie Lysyk.

Lysyk's pension surplus accounting policy required the government to add $10 billion to the provincial debt and $1.5 billion to the deficit last fall. Only then did she approve the final provincial government books for 2015-16 (the Public Accounts).  

The government estimates this policy would add $2.2 billion to the deficit this fiscal year (2016-17).   Indeed, according to the Finance Ministry's Fall Economic Statement the extra program expense associated with this policy is increasing at a rate of $600 to $900 million per year through until at least 2018-19.  The Ministry of Finance reports that this policy would add $2.8 billion  in program expense in 2017/18 and $3.7 billion in 2018/19. 

Ontario fiscal outlook improves


But if this policy is over-ruled, the government could actually spend those billions on public programs (like health care services) and not fall back into deficit. 

This is significant as getting out of deficit has been this government's key measurement of their  own success as fiscal managers -- at least in their public statements.


So the big news (reported by the Toronto Star) is that Treasury Board president, Liz Sandals, now says, for good or ill, that the government is "committed to implementing the advice of this independent panel and will use it in preparing the province's financial statements."   

If so, and if this accounting policy is applied to this fiscal year, $2.2 billion should come right off the top of the deficit. Given that this government always put significant padding into their Budget deficit estimate,  that they reduced the deficit by over $5 billion last year and that they are  (nominally) planning
only a $700 million reduction this year, it is at least possible that the entire deficit will be eliminated this year -- one year earlier than planned.  

Even without this accounting change, the government claimed that they would be deficit free in 2017/18 and 2018/19. So they would be deficit free even with  $2.8 billion in extra program expense  in 2017/18 and $3.7 billion in extra program expense in 2018/19 due to the Auditor General's pension accounting.  

Program expense is $125.3 billion this year. So saving $2.8 billion in program expense should free up 2.23% of program expense for other purposes.  The government was already planning a $2.4 billion (1.92%) increase in program expense for 2017/18, so this, in effect, more than doubles their room.  

Ontario fall economic outlook
 
In total, simply based on their own statements to date, the government has room for $5.2 billion in program expense increases -- over a 4.1% increase.

If provincially funded programs did get a 4.1%  increase, that would be a modest break with the harsh public sector austerity since the recession in 2008-09.  That could help the Liberal re-election campaign in 2018.  It would not however match the widely accepted cost pressures faced in health care.

Of course, just because they have the space, doesn't mean they will use it for good.  For example, the government could blow the cash on tax cuts for the wealthy.  The tax cuts they have provided to date for corporations amount to tens of billions of dollars and there is little doubt that corporations have big plans for all the new found cash. 

Another issue is what position the Auditor General will take. Notwithstanding, Sandals declaration that the government will implement the advice of the expert panel, the Auditor General still has to sign off on the Public Accounts for 2016/17 which are due in September.   

Whatever the Auditor's conclusions, she does not sign off on the Budget (upcoming in the next month or so) and the 2017/18 Public Accounts won’t go to the Auditor General until after the next election.

1/23/17

Few hospital beds & sparse hospital staff means overflowing hospitals

There's a lot of news stories of late about hospitals overflowing with too many inpatients and not enough beds. Here's some of the headlines:


 


 


 

What is not so often reported is that this is directly related to Ontario's policies of very high hospital bed occupancy and very few hospital beds.

The graph below shows curative hospital bed occupancy in European countries -- with occupancy levels usually hovering around 75%. The exceptions are Ireland (which has well above average occupancy) and Macedonia and the Netherlands (which have well below average occupancy). Between 2008 and 2014 most countries saw a small decline in bed occupancy. 

European hospital bed occupancy
Under the OECD definition, "curative" hospital beds excludes rehabilitative and long term care beds.  Eurostat, “Health care resource statistics – beds,”  2016, http://ec.europa.eu/eurostat/statistics-explained/index.php/Healthcare_resource_statistics_-_beds
Ontario however often has hospitals with bed occupancy over 90% in all sorts of hospital beds -- chronic care, rehabilitation, acute care, mental health care. It is not specially unusual for larger urban centres to have occupancy over 100%, and sometimes far over 100%.

Since 1990, Ontario has eliminated 19,000 hospital beds (and 30,000 beds since 1980). The result is that Ontario is now an extreme outlier in terms of the number of hospital beds. Directly connected with this, the rest of Canada has about 22% more hospital staff than Ontario. 
hospital staffing in Canada The OECD, the club of rich nations, reports the number of beds per thousand for its thirty-four members.  The  average (excluding Canada) for the most recent year reported is 4.9 hospital beds per 1,000 population (see chart below). 

Ontario has about 2.2 hospital beds per 1,000 population, well less than half the average number in other developed nations. 

So it is hardly surprising that Ontario hospitals often have extremely high bed occupancy rates.  Given the  limited number of beds, it is a great credit to the efficiency of Ontario hospitals that overflows do not occur more frequently.

Notably, the Ontario Hospital Association  claimed this week that "in November, recognizing the need to open more beds and address wait times in hospitals, the Ontario government provided an additional $140 million for hospital services."

For years, the government has simply ignored or blithely dismissed the need for more hospital beds. So this is, perhaps, an interesting, if very modest, turn to the good. 

 hospital beds per 1000 population OECD