On April 27 the Ontario government presented a balanced budget for the 2017-18 fiscal year, a projection made credible by last year’s estimated deficit of $1.5 billion. The return to balance marks an important milestone in the fiscal journey from deficits of $19.3 and $14 billion for 2009-10 and 2010-11 respectively. How did they do it?
One perspective is to analyze how the story played out relative to the projections and recommendations of the 2012 report of the Commission on the Reform of Ontario’s Public Finances. The Commission was established in 2011 to advise how to return to balance by 2017-18. Its plan was based on spending restraint coupled with almost no policy-based revenue enhancement.
The Commission began with a set of economic assumptions to predict revenues and debt charges; program spending became the residual. It assumed average annual growth in nominal GDP of 4.1%, much lower than had driven budgets previously and less than the predictions of private forecasters. This proved to be a very accurate assumption given that actual growth to this year’s end is headed for 4.0% on average. Revenues, on the other hand, will be $6.5 billion higher than forecast in 2017-18, excluding an accounting change that raised both revenues and spending. Over half of the increase is accounted for by policy changes that included revenues from auctioning carbon emissions, selling assets, and a new high-income surtax. The Commission’s forecast was also based on its belief that interest rates would rise; their continuing at extraordinarily low levels resulted in a saving of $3.7 billion in public debt charges. Finally, the budget’s contingency reserve is $1.3 billion lower than that recommended. The total allows $11.5 billion more in spending in 2017-18, almost 10% more than in the Commission’s “preferred scenario” to reach a balanced budget.
Whereas the Commission advised that program spending would have to be held to an average of 0.8% from 2010-11 if the budget was to be balanced in 2017-18, in fact balance will be achieved with growth in average annual spending of 2.1% over that period. Nonetheless, this reflects considerable restraint as spending has barely kept pace with inflation; in fact it has declined an average of 0.7% per annum on a real, per capita basis.
The increased pace of spending applies to all major areas but healthcare, for which the Commission recommended a rate of growth of 2.5% per annum; the actual rate is likely to be 2.6%. That the Ontario government did not allocate more of its additional revenue growth to healthcare, despite the cries about ER wait times, overcrowding, and the compensation stalemate with physicians, represents its having made very challenging policy and political choices. Healthcare spending had grown at an average annual pace of 6.5% over the previous decade, raising concern in the Commission at recommending spending in the order of 2.5%. Existing estimates were that spending growth in the order of 6.5% was necessary to maintain the status quo, absent substantial gains in efficiency. The Commission was concerned to avoid a repeat of the 1990s when after a period of restraint, the rate of spending in healthcare exploded for a few years. For all these reasons the Commission argued that spending restraint had to be accompanied by reforms to improve efficiency and effectiveness to avoid future pressures for increased spending. The 2017 Budget signals a determination not to repeat the experience of rebound healthcare spending after a period of budgetary restraint. While most projections do not extend past the current budgetary year, two additional years are given for spending on healthcare showing increases of 3.0% this year, 4.6% in 2018-9 and 3.3% in 2019-20. While some media reports have described this as reinvestment in healthcare, using zero based budgeting as their lens, an alternative perspective is that healthcare spending will continue to increase much less rapidly than under the status quo ante. Restraint continues, albeit somewhat less stringently.
From a fiscal perspective, the healthcare story over the past 7 years (and over the next 2 if the budget projections are realized) is an impressive success. But looked at from the perspective of the public good, the conclusion is much more nuanced. Has the fiscal restraint been adequately balanced by the reforms needed to bolster efficiency, the effectiveness of care, and better outcomes more equitably distributed? Much of the past 7 years of fiscal restraint has been budget cutting, plain and simple, including deferral of some capital spending. Hospital crowding and the Alternative Level of Care issue have to be addressed. The levels and structure of physician compensation must be resolved. Electronic health and medical records have to become a matter of normal course. Co-ordination among the silos and knitting together a genuine system has to be achieved.
Some positive policy reforms have been made. Publicly funded pharmaceutical insurance will be extended to people under the age of 25; the price of generic drugs was reduced. Care of the most intensive users of healthcare services is better coordinated by Health Links. Primary care continues to shift to multi professional clinics, some led by nurse practitioners, that have working linkages with agencies that provide many social services, including home and community care. On paper the Patients First Act gives more authority to Local Health Integration Networks to support regional and sub-regional integration and coordination of services and their associated funding, although the details of how this is to be accomplished remain disturbingly vague.
The expectation of a balanced budget in 2017-18 marks an important milestone in Ontario’s return to financial stability. Restraint in healthcare spending through a mixture of budgetary squeezing and policy reform anchors this accomplishment. As opportunities for the former wane, the latter must pick up an increasingly important role, one in which the federal government’s provision of new money for more and better home care and mental health services will provide helpful leverage. We look forward to the next chapter in the health policy reform story.
Authored by members of the Queen’s Health Policy Council: