Harry Potter was one of the most popular children's book series of all time, because of children's ability to believe in magic. But as we grow up, most of us lose this belief. We no long believe that mysterious and supernatural forces can influence our lives or events.
But there are a select few who never let go of magic. Those who continue to believe.
Premier Wynne and Finance Minister Sousa remain believers, and last week tabled their 2016 hocus pocus budget.
There's nothing magical about the ninth consecutive deficit, or the $296 billion in debt the province will have as of March 31. Nor in the nearly one billion per month in interest payments our government has us paying.
But Wynne and Sousa's commitment that the budget will be balanced next year requires faith in the supernatural.
The government is projecting revenues to grow at a rate of 4.6 per cent between now and 2019, and at a rate of five per cent for the next three years. This includes a seven per cent revenue growth over the next year.
To put these magical assumptions in context, the government's own Financial Accountability Officer (FAO) projected 3.3 per cent revenue growth over three years, and even this projection is rosy. After all, revenue growth since 2008 has been averaging 2.6 per cent. Yet the government now believes over the next three years this will nearly double. Magic?
The government's projections for the economy (GDP) are equally mysterious. Strong GDP growth means strong revenue growth for the government, so Wynne and Sousa have an interest in higher GDP projections if they have committed to a balanced budget.
The 2016 budget predicts 2.5 per cent GDP growth for the last year, despite the fall fiscal update projection of 1.9 per cent for the same period. The private sector forecasts for the 2015 period are not included in the budget, but both the FAO report and the fall fiscal update from November included private sector forecasts of two per cent. In the past four months the projection has changed dramatically, and the government has not explained why in their budget documents.
Finance officials were asked about the higher 2015 GDP projections, and confirmed that the private sector forecast is lower than the government's forecast. This is unusual. Normally the government bends towards conservative GDP forecasts. Indeed, for 2016, the budget explicitly states that the Ministry of Finance's GDP growth projections are slightly below the private sector forecasts.
The revenue forecast also includes what the budget document calls "prudent assumptions related to federal government commitments for additional funding." Over the next two years, Wynne and Sousa are predicting $2 billion in additional federal funding. Despite the fact that the federal budget has not yet been tabled, and the federal government has already announced an $18 billion deficit, Wynne and Sousa are counting on new federal money. Regardless of whether or not this federal money makes its way to Ontario, it is not "prudent" to base revenue projections and a commitment to balance the budget by next year on $2 billion that the government doesn't know it will have.
Rosy GDP and revenue growth depend on a strong economy. Instead of relying on questionable federal funding and inflated growth projections, the government should be taking initiatives to make Ontario a desirable place to do business. For example, they start down this road by ensuring tax rates are competitive, that hydro is affordable, and by cancelling growth killing plans like the Ontario retirement pension plan payroll tax and the cap and trade carbon tax. These are real actions that could achieve positive change.
Few have a belief in magic like Harry Potter author J.K. Rowling. But as Rowling said in her Harvard commencement speech, "we do not need magic to change the world, we carry all of the power we need inside ourselves already." It is action, not magic, that will balance the budget. A lesson Wynne and Sousa have failed to learn.
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