London Health Coalition submission to the Ontario Pre-budget hearings (2005)

As Ontario embarks upon the current budgeting process, it is necessary to understand that the province is not suffering so much from an excess of expenditures as it is from a diminishment of revenue. In its 2004-2005 budget and November 2004 economic statement, the government has projected that the only way to balance the budget by 2007-2008 is to curtail program spending and refrain from implementing key election promises for renewal of services. Research conducted by the Canadian Centre for Policy Alternatives reveals that while such projections may serve to dampen public expectations, they are in truth quite misleading. There is far more fiscal flexibility within the government’s capability than the announced fiscal plan suggests.

Contrary to claims that the government is struggling to meet a 2004-2005 budget forecast of a $2.1 billion deficit, CCPA Research Associate Hugh Mackenzie contends that Ontario is actually headed for a very modest deficit this year, and that in fact, if more realistic assumptions about revenue, federal government transfers and debt servicing costs were applied, the province could even be in a surplus situation.

To redress this more optimistic view of the province’s finances, Mackenzie draws upon an in-depth analysis of the government’s November 2004 Economic Statement. The following insights are revealed:

1) An alternative projection of government revenues utilizing current consensis economic growth of nearly 2% would result in $1 billion more flowing into government coffers than the amount of revenue currently forecast. An under estimation of revenue for 2004-2005 in turn, affects base revenue for each fiscal year there after, compounding the misleading numbers.

2) By maintaining over $2 billion in contingency and reserve funds, when total actual draw down of these funds in the first six months of 2004 was only $24 million, the government is seriously overstating its expenditures for 2004-2005.

3) Debt servicing costs have been substantially overestimated. This is despite the fact that current government borrowing rates are below the current average debt servicing cost and that a substantial amount of debt is due to be refinanced at lower interest rates over the next four years.

4) An extremely limited and unambitious spending program. In what Hugh Mackenzie describes "as a consolidation of the reduced role for the public sector", the government capitalizes on an unsubstantiated presumption of over $1 billion shortfall in transfer payments from the Federal government in 2006-2007 and 2007-2008 so as to rationalize near anemic growth in program spending. Overall, program spending as a share of gross domestic product drops in each year, from a high of 13.5% in 2004-2005 to a low of 12.2% in 2007-2008. And of course, as funding to less high profile social programs diminishes health care becomes lionized for eating up an ever increasing share of the provincial budget.

5) Compounding the bleak fiscal forecast the government’s budgetary reserve has been inexplicably increased by $500 million for fiscal years after 2004-2005, thereby projecting a false image of reduced fiscal capacity.

Ontario is not facing an unmanageable financial problem. In light of London’s hospitals facing a $90 milllion funding crunch, the London Health Coalition contends that the provincial funding crisis is largely self inflected and needlessly disruptive. Health care can be preserved without the need to resort to regressive revenue generating gimmicks like health premiums, and delisted services. Such contingencies merely serve to redistribute resources away from the least affluent and compromise the public health principles of universality and accessibility.

The London Health Coalition concurs with Hugh Mackenzie’s alternative budget recommendations which offer increased revenue streams to enhance the provision of public services.

1) Tax loopholes must be constricted. Unfair, poorly targeted and ineffective, tax loopholes are estimated to cost the people of Ontario over $1 billion a year in foregone revenue. By simply harmonizing the provisions of the Ontario Corporate Income Tax with those of the Federal Corporate Corporate Income Tax, the province could realize an additional $800 million in revenue.

The most expensive loopholes in Ontario’s tax system are the various exemptions form the Employer Health Tax (EHT). Exemptions such as for the first $400,000 in payroll or for income from stock options undermine the intent of the EHT which was conceived as the contribution expected of employers in return for the substantial competitive benefit they receive from the existence of public medicare. To maintain such unjustifiable exemptions is a stinging rebuke to the largely lower and middle income taxpayers of the province forced to pay Ontario’s Health Premium. By transforming the employer health tax into a flat tax on all payrolls, Ontario could potentially generate additional revenue of $1.1 billion annually.

2) Furthermore, by tightening up lax tax enforcement, Mackenzie estimates could potentially generate an additional $400 million per year.

The Canadian Centre for Policy Alternatives also identifies areas where modest tax rate adjustments could be made to the benefit of the public good.

1) The Ontario government has the ability to restore lost fiscal capacity by paralleling the Federal Personal Income Tax system’s step up in rates for incomes over $100.000. Each increase in rates of 1% above the current top marginal rate for income over $100,000 could potentially increase fiscal capacity by $600 million.

2) Ontario’s current corporate tax rates are below those of comparable jurisdictions in the United States. By voluntarily withdrawing from this insane race to the bottom and restoring corporate tax rates at their 2000 levels, Ontario would regain approximately $2 billion in additional revenue.

What does enhanced government capacity mean for health care? That the government has the choice to infuse the resources starved public health care system with much needed funding instead of engaging in political brinkmanship with health care workers and the Ontario Hospital Association. That patients can enjoy quality patient focused care, instead of distorted budget focused care. That the true cost drivers of health care expenses such as pricy pharmaceuticals and the involvement of the for profit industry and addressed rather than pointing the finger of blame at health care worker wages.

This government armed with the true picture of its fiscal capacity has clear choices it can make. It is the sincere desire of the London Health Coalition that Queen’s Park prove to the people of Ontario that the government possesses the will to make the right choices.

Peter Bergmanis, Co Chair Roland Parris, Co Chair

London Health Coalition London Health Coalition