Provinces dodged a bullet to their budgets during COVID-19

If COVID-19 finally subsides, Canada’s provincial governments will make out of the pandemic like bandits versus how they’ve forecasted their finances would end up, a progressive think tank’s new report shows.

Ontario’s government, the biggest spender of all the provinces, will be the most relieved given that the deficits it projected during the pandemic are due for the biggest revisions. Nine out of the 10 provinces will also end up in a better financial position than after the late 2000s’ Great Recession, with “manageable” deficit-to-GDP ratios of below one per cent. The Canadian Centre for Policy Alternatives (CCPA) highlighted those findings in its Disappearing Act report, which it published Thursday.

The CCPA conducts research on social, economic and environmental topics, which it looks at through a progressive-leaning lens, its site says. It’s funded by donations from individuals and organizations, as well as government grants.

The report sought to examine the state of provincial governments’ finances two years into the pandemic.

Overall, early- and mid-pandemic budgetary projections were wildly over-pessimistic and the federal government also bailed out the provinces by shouldering the bulk of the debt burden, the CCPA’s report says.

In 2020-21, the provinces had a collective deficit of $48 billion after originally projecting being $93 billion in the hole. In 2021-2022, this fiscal year, which is over at the end of March, the provinces’ deficits are expected to be $22 billion in total. They originally projected deficits totalling $70 billion.

Ontario ended up with a deficit of $16.4 billion in 2020-21, half its original projection, and $12.1 billion in 2021-22, which was $20 billion less than first projected.

The CCPA’s calculations relied on governments’ most recent fiscal statements, including fall updates or their most recent budgets, if they’ve released them, for up-to-date deficit totals.

What’s bad news for Ontario is that it’s expected to run deficits for longer than most other provinces.

This is partly because it, along with Saskatchewan, had larger deficits than other provinces (compared to each province’s own total spending).

These provinces share another issue: they collect among the least in revenue, compared to the size of their economy. This means their provincial governments’ ledgers won’t benefit as strongly from the economic rebound as others.

In Ontario’s case, this is partially due to tax breaks given during the pandemic, which the CCPA’s report lays out. During the pandemic, Ontario reduced its Business Education Tax, exempted more businesses from its Employer Health Tax, and made a dozen other breaks, costing its bottom line $1.35 billion this year — which is more than 10 per cent of its deficit.

“The bottom line is that failing to collect enough in taxes to cover provincial spending is the result of policy choices, not the impacts of COVID-19,” David Macdonald, the CCPA’s senior economist who authored Disappearing Act, said in a press release.

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