Overall Theme and Pre-Budget Expectations
If one were to summarize the theme of yesterday’s pre-budget expectations in a word, it would be: Austerity.  In these turbulent economic times, the public appetite for deficit reduction and fiscal stability in Ontario has perhaps never been greater.  Having been recently presented with the Drummond Report advocating across the board cuts and financial restraint, the current Liberal government was brought face to face with the reality that without the implementation of many austerity measures, their goal of eliminating the provincial deficit by 2017-2018 would likely be impossible.  In advance of yesterday’s official budget release there were several items that were leaked early including: the restructuring of government contributions to public-sector pension programs; an across-the-board freeze on provincial social assistance rates; a slow-down of planned increases to the Ontario Child Benefit; an increase in user fees for driver’s licences and permits; increased private-sector involvement in the OLG; and a curbing of bonuses paid to public-sector executives.  In addition it was expected that any tax hikes, and cuts to education and health care, were off the table.  While it was clear that this budget would represent a measure of provincial belt-tightening, it was unclear how closely it would follow the wide spread cuts advocated by the Drummond Report.  As you will see in the budget highlights below, several of Drummond’s most impactful recommendations were not implemented.

A Breakdown of Revenues and Expenses from the 2012 Budget (Toronto Star, March 28^th, 2012) 
Titled “Strong Action For Ontario”, the 2012 Provincial Budget represents the next step in the Liberal government’s five-year plan to balance the budget by 2017-2018.  The budget’s overall theme focuses on the necessity for deficit reduction through the implementation of austerity measures, but not at the cost of cuts to education, or health care.  In tabling this budget, the government is seemingly trying to safely navigate through an extremely volatile economic period, while at the same time attempting to preserve the high level of services that Ontarians have come to expect.  This offering represents the current Liberal government’s ninth budget overall, but their first  delivered while a minority government, meaning that the opposition may yet reject it and force an early election.

Budget Highlights

• Government is committed to find savings of $17.7 billion through cuts and spending restraint over the next three years
• Recommitted to balancing the budget by 2017-18
• Record an average annual increase in revenue of 3.5% for next three years, and average spending increases of 1.5%
• Posted a deficit for 2011-12 of $15.2  billion, $1 billion lower than projected
• Negotiate with all workers in the public-sector to accept a two-year pay freeze, with legislation threatened should they refuse
• Freeze pay for public-sector executives for four years
• Restructuring of public-sector pension compensation costs so that contributions become closer to 50/50 between employee and employer
• Cancellation or postponement of $900 million in infrastructure programs over the next three years to save $120 million in interest costs
• Over six years, government will delay $3.2 billion in projects, saving $890 million in interest
• Delay corporate tax reductions, and freeze corporate rate at 11.5%
• Cut subsidies to businesses by $250 million in 2014-15 under guidance from a newly formed jobs and prosperity council
• Cap clean-energy rebates at  3,000 kwh saving $500 million over three years
• Addition of an income test to the provincial drug plan for seniors: single seniors making
• $100,000 or more per year and couples earning at least $160,000 will pay more for medication
• Maintain plan to implement full-day kindergarten,  and keep reduced school class sizes
• Cap high school students at 34 credits to save on costs of so-called ‘victory lap’
• Encourage consolidation of small school boards, as well as restructuring school board funding to discourage keeping open under-used schools  
• Sell off or close parts of Ontario Northland rail service, saving $250 million over three years ï‚· Reduce income-stability funding to farmers by $20 million a year

Opposition Commentary

PC Party
According to a release from leader Tim Hudak the PC party caucus has stated unequivocally that they will be voting against the budget for the following reasons:

• Budget does little to reduce the size and cost of government
• Budget works against contributing to private sector job creation with higher taxes on businesses that will further erode confidence in Ontario as a place to invest and create jobs
• Budget does nothing to rein in runaway spending – with spending increases in 14 out of 24 ministries – the budget fails to ensure value for money and accountability for taxpayers
• Budget contains many promises, but not many clear ways of ensuring they are adhered to

NDP 
It is still unclear as to whether or not the NDP will vote in favour of the budget, however, Leader Andrea Horwath made the following points:

• Budget falls short on challenges facing Ontario families worrying about jobs and the growing cost of living
• Lacks a plan to target tax relief to real job creators and will lead to mass layoffs across the province
• Budget does not make investments in home care, or outline a plan to control the growing costs of essentials such as electricity
• NDP pleased at freezing of corporate tax rates

Realities, Challenges, and Opportunities
 In the 2012 budget, it is clear that the Liberal government is attempting to eliminate the deficit by 201718, while ensuring that their commitments to health and education are maintained. While they have acted on only some of the Drummond Report recommendations they seemingly do realize that tough decisions must be made and sacrifices must be shared by everyone.
It is clear that although opposition parties oppose many of the measures in this budget, they also know that voting against it could trigger an early election;   one that neither party is really prepared for, and that the electorate is unlikely to support. Although the decision as to whether or not to force an election rests in the hands of the opposition caucuses, we believe the NDP will find a way to walk the line of opposition without voting down the budget and forcing an early election. However this will be critically important to follow in the next 7-10 days leading up to the budget vote.

Given the threat of an election call it is imperative in the coming weeks and months for groups and businesses to continue to engage their stakeholder bases to influence and interact with all three parties. While the uncertainty around this minority parliament is somewhat unstable right now, stability and strong fiscal management are needed in these tough economic times. In any minority situation, with the threat of a snap election constantly looming, political parties will be increasingly looking for allies and bases of support. For this reason lobbying efforts and other ways to engage elected officials and their staff on issues relative to your industry should be continued, if not ramped up.