Finance minister will deliver deficit in fall look at province's finances. Can Ontario afford to keep spending?

Thursday, Ontario will unveil its fall economic statement with the finance minister saying the deficit will grow. A new economic analysis out this week says we need to curb spending growth and rebalance our tax system. Economist Trevor Toome is with the Montreal Economic Institute. He joins us today from Calgary. We have the country covered here, Trevor. Let's start with what worries you about provincial budgets and more specifically Ontario's books right now. Well, if we look over the past several years, you know, some provinces have seen their debt levels rise. others have seen it fall. Ontario has actually been among the lucky provinces that has seen their debt situation improve over the past 10 years. But looking ahead, the challenges grow pretty significant for many provinces. Population aging is adding to health cost pressures right now in real time, and that will continue for several years. In addition, more people retiring cuts into income tax revenues as labor forces shrink relative to what they would otherwise be. So But provinces, for the most part, face those kind of longer term pressures that dwarf any of the improvement in debt that we've seen over the past couple of years. And so we need to think about ensuring that finances are sustainable over the long term, despite those pressures. And those are some of the headwinds that we're sailing into right now. Is anybody else besides Ontario doing a good job? Like what models should we be following then? Yeah, so Ontario has performed pretty well over the past 10 years and among provinces actually doesn't have the most significant challenges ahead. Quebec, for example, has performed better in recent years than Ontario, with its debt levels falling quite a bit more than Ontario's has. But aging and future fiscal pressures will be much larger in Quebec than Ontario. British Columbia, too, has had, I guess, some challenges recently, and those are only going to mount from here. So we've had a change in government in that province, or I guess technically there will soon be a change in government in that province. And they face some pretty significant choices ahead. What do you think needs to be changed, or what can we do differently moving forward? So I think different provinces are in different circumstances around what options they have. all need to focus very carefully on health cost growth aging alone will add considerably to spending several percentage points of gdp and we are just not in a position to fund that entirely with tax increases and so we need to think about changing the way that we do health care to shave a little bit off each year of what the growth in that very significant spending line is yeah with the aging population so i mean how do they do that moving forward then so i think one benefit of canada is that we're a highly decentralized country and provinces can be for lack of a better word policy laboratories where we should experiment a little bit allow provinces to do things a little bit more differently than we have been so less uniformity will allow us to learn lessons and then we can copy what works well uh from one province to of those that does involve some change in federal policy you know typically we try and maintain a certain degree of uniformity in how we approach health care through the canada health act for example federally and so allowing for a little more experimentation learning lessons might accelerate the pace of innovation and that important public service you talk about taxation in the report you know how much we love to be taxed you know you say consumption and property taxes need to increase we just had a mayoral election that was a big issue in the election why those levers well provinces uh do benefit from economic growth revenue rises when incomes go up and when consumption goes up but on average provinces only rely on about half their revenue from taxes there are many other revenue sources that provincial governments uh rely on transfers from the federal government being one but also fees and fines and prices for goods and services that provincial governments sell to individuals. And what provinces need to do, in addition to controlling health cost growth, is also ensure that their revenues grow at least as quickly as overall GDP. And that's not something that happens automatically. So it does require that every time we get a provincial budget, that we make small incremental changes to ensure that revenue keeps pace. Trevor Tomes is an economist with the Montreal Economic Institute. Thank you for this, Trevor. Thank you. Take care.