As Ontario finance minister Peter Bethlenfalvy gets set to present his first budget Wednesday, he faces a delicate balancing act, one that’s being played out by governments across the country.
Wind down COVID support programs too early, and he risks hurting businesses already teetering on the brink of survival, and throwing more people out of work. Keep them going too long, and he risks saddling the province with a deficit that could handcuff spending flexibility for years.
Business groups are pushing for the provincial government to maintain or expand COVID aid programs, including a $ 20,000 grant to help small businesses slammed by lockdowns. The help is still needed, they say, even though vaccines are starting to roll out across the province.
“It’s definitely fair to say businesses are still hurting,” said Ryan Mallough, Ontario regional director for the Canadian Federation of Independent Business.
While businesses fail in non-COVID times for a variety of reasons, even otherwise-healthy ones are floundering during the pandemic, Mallough pointed out.
“Churn is a normal part of the business cycle. But these aren’t businesses which are struggling because of bad business decisions. They’re struggling because of a pandemic. They’re struggling because of lockdowns. Those aren’t things which are their fault,” said Mallough.
The CFIB is asking for the provincial government to expand eligibility for the $ 20,000 grant to businesses who weren’t officially closed by the lockdowns, but who have struggled during COVID nonetheless, such as dry cleaners, craft brewers and catering companies.
The Retail Council of Canada also had its own prebudget wish list, including, among other things, tax credits for personal protective equipment to help businesses keep staff safe from COVID.
“One only has to look at Statistics Canada’s monthly reports to see that 2020 was a crushing year for many retailers, especially those deemed to be non-essential by governments across Canada such as apparel. … Many retailers will need a lifeline from all levels of government in 2021 in order to remain viable,” said the RCC’s Michelle Wasylyshen in an emailed statement.
Restaurants Canada, meanwhile, has asked the government to allow bars and restaurants to receive a discount when buying at the LCBO. That long-time wish has become more urgent as the hospitality industry has been devastated by repeated lockdowns. The estimated cost to the provincial liquor board of giving that discount would be just under $ 60 million a year.
Asking for more help might be tempting, but at a time when the province already has a $ 38 billion deficit, it could spell trouble for Ontario’s long-term financial health, warned Pedro Antunes, chief economist at the Conference Board of Canada.
Before COVID struck, Ontario already had one of the highest debt loads in the country, with the province’s overall debt sitting at just under 40 per cent of the size of the Ontario economy.
“COVID might end up pushing it to 50. That’s not sustainable,” said Antunes. It’s not just some theoretical talking point, either, he added. A high debt load has real-world implications, including potentially higher costs when the government needs to borrow money.
“It makes it much harder to deal with the next crisis. There wouldn’t be any flexibility. It makes it harder to pay for any other programs, including health care,” Antunes said. Still, he added, pulling existing COVID-related supports right now would be a mistake.
“You can’t withdraw the support in the middle of a crisis, which we’re still in.”
Some economists argue that concern over the size of the provincial debt and deficit are overrated. Robert Kavcic, senior economist at BMO, says that while the deficit has ballooned to roughly 5 per cent of the size of the provincial economy, it will start to drop back down once lockdowns end and the economy starts chugging along again.
“I think with the economy gradually opening back up again, they’ll be able to easily get it back to 2.5 per cent, just because their revenues will increase,” said Kavcic, pointing to higher-than-expected fourth quarter GDP numbers from Statistics Canada.
“If we saw $ 30 billion deficits with no end in sight, that’s a problem. But we’re not. I think austerity and cutbacks would be wrong right now. The economy’s not ready for that,” Kavcic added.
Jim Stanford, a Vancouver-based economist with the Centre for Future Work, agreed that budget cuts would be a mistake right now. Instead, the Ontario government should be focusing on rolling out COVID vaccines.
“The biggest single thing they can do to get the economy going is to do what they can to keep people healthy,” said Stanford. “The pandemic is what caused the deficit to go up so much. And once the pandemic is over, that will change again.”