Ford Plan for Ontario – Potential Employment Impacts

Ontario Conservative leader Doug Ford finally released a partially costed version of his election promises in his Plan for Ontario in the last week before the election. This includes approximately $7.6 billion in tax cuts and revenue reductions and a net $500 million reduction in annual spending.[I]

At the same time, Ford has also promised that “we will balance (the budget) maybe the third or fourth year” e.g. by 2021/22. While Ford has claimed he wouldn’t lay off public sector workers—unlike his predecessor Tim Hudak who promised he’d lay off 100,000—with his additional billions in tax cuts, it will be impossible to balance Ontario’s budget in three or four years without job losses.

This analysis provides best guess estimates of the employment impact of Ford’s promises using economic multipliers publicly available from Statistics Canada and Finance Canada.  A previous post by Edgardo Sepulveda includes an analysis of the impacts on inequality of the different parties’ fiscal plans, finding that the Ford plan would increase inequality the most, while the NDP plan would reduce it, while a recent post by Jim Stanford includes a prescient guestimate that Ford’s plan would lead to a net loss of about 75,000 jobs.   The analysis provides a more detailed summary estimates of the likely impact of Ford’s plan on jobs using these multiplier tools.

Ford has said he would balance the budget by achieving “efficiencies” through spending cuts of about 4%, but he hasn’t provided any details of those. Given his promises of over $7.6 billion in annual tax cuts, a 4% cut to the Ontario government’s overall spending still wouldn’t be enough to balance the budget by 2021. He’d need to cut Ontario’s program spending by 4.9% from its projected levels in 2021/22 to eliminate the deficit[v]. In the absence of any further information from Ford and the Conservative party of what degree and how he would cut spending, this analysis considers three scenarios:

1. A proportional cut to Ontario’s program spending[ii] of 4% or $6.2 billion effective in 2021. This would still leave a deficit estimated at $1.3 billion for that year using the Liberal government’s accounting.
2. A proportional cut to Ontario’s program spending of $7.6 billion or 4.9% of program spending that would be required to balance the budget by 2021 given Ford’s additional tax cut promises.
3. A cut to public spending of $13.6 billion or by 8.8% of program spending, in 2021. This is the amount that would be required to balance Ontario’s budget in 2021 using the Auditor General’s recommended accounting treatment for the Liberals Fair Hydro Plan and net pension assets, which adds $6 billion to the deficit.

The job losses from these spending cuts would be counter-balanced to some degree by indirect and induced job gains resulting from increased private sector spending resulting from Ford’s promised tax cuts. However in all these scenarios, the public and private sector job losses associated with spending cuts would significantly exceed job gains from tax cuts. In fact, even with the more modest spending cut scenario, the largely private sector job losses resulting from cuts to public spending would exceed the jobs generated from tax cuts.

Ford’s plan includes by far the least detail of all the major political party’s election platforms, and some of the costs he’s included for his promises are clearly far below any reasonable estimates for these promises.[iii]  Nevertheless, rather than second guessing their estimated costs we’ve accepted them and used the tabulation Western economics professor Mike Moffatt has helpfully provided and posted on-line.[iv]

The Conservative party plan also doesn’t include a fiscal or deficit forecast, and has been widely criticized for not doing so.  However, Mike Moffatt has also helpfully overlaid these costs onto different fiscal and deficit projections, including Ontario’s Fall Fiscal Forecast, deficit forecasts including the Auditor General’s recommendations regarding hydro plan and pension assets, and using Budget 2018 as a base.   For this analysis, we’ve used Moffatt’s “most likely” estimates using the Fall Fiscal Forecast, with and without the Auditor General recommendations. Ford wouldn’t be expected to adopt many if any of the Liberals proposals in the 2018 budget, so there’s little point in using those higher deficit figures as a base.

Ford’s plan would lead to the highest deficits, as Moffat has observed, reaching $6.99 billion in year three (2020/21) and $7.63 billion in year four, 2021/22, compared to $6.5 billion and $5.6 billion for these years for the Liberals. Of the three major parties, the NDP’s plan would result in the lowest deficits, of $6.47 billion in 2020/21 and $5.04 billion in 2021/22. With the accounting rules proposed by the Auditor General and Ontario’s Financial Accountability Office, these deficits would be $6 billion higher per year.

To calculate how this degree of spending cuts would affect the economy and jobs, I assumed these cuts would be proportional to existing shares of program spending, which are 42% for health, 28% for education and training, 12.3% children’s and social services, and 17.7% in justice and other programs. I then applied Statistics Canada’s economic multipliers, derived from provincial input-output tables for Ontario, to calculate the direct, indirect and induced employment impact of these reductions for these provincial government and non-profit industry sectors, adjusted for projected inflation to 2021.

In summary, these employment multipliers for Ontario calculate that

• $6.2 billion in spending cuts in 2021 proportional to current program spending would lead to a loss of 74,340 jobs in Ontario, including 44,445 direct public sector jobs and an additional 29,895 indirect and induced jobs, mostly in the private sector (all figures rounded to closest unit of 5).
• $7.6 billion in spending cuts in 2021 proportional to current program spending would lead to a loss of 91,020 jobs in Ontario, including 54,430 direct public sector jobs and an additional 36,590 indirect and induced jobs, mostly in the private sector.
• $13.6 billion in public spending cuts in 2021 proportional to current program spending would lead to an estimated 163,010 job losses, including 97,490 direct public sector jobs and another 65,520 indirect and induced jobs, mostly in the private sector.

Against these job losses from spending cuts should be added the jobs that would be generated from Ford’s promised tax cuts. Statistics Canada doesn’t provide these economic and job multipliers for tax cuts, but various private proprietary econometric models do.   I don’t have access to these, but Finance Canada published multipliers in their 2009 budget for various types of tax cuts, including for corporate, personal income, payroll taxes and “measures for low income households.” I’ve allocated Ford’s proposed $7.6 billion in tax cuts by these areas ($1.36 billion in corporate tax cuts, $2.26 billion in personal income tax cuts, $950 million in measures for low incomes and applied $3 billion to payroll tax impacts) and adjusted these figures to adjust for projected GDP and job growth to 2021.  Calculations using these multipliers suggest that $7.6 billion in tax cuts would generate 3,680 jobs in the first year, rising to 28,040 jobs after two years—as it generally takes about two years for these measures to achieve their full impact.

Overall in net terms, the combined impact of $7.6 billion of Ford’s tax cuts and the $7.6 billion in public spending cuts that would then be required to balance the budget by the end of his mandate would lead to a net loss of 62,980 to 87,340 jobs. This includes 54,430 direct public sector jobs and an additional 8,550 to 32,910 indirect and induced job losses in the private sector, even after accounting for the stimulative effect of tax cuts.

If Ford cuts spending deeper—by $13.6 billion—to balance the budget consistent with the auditor general’s accounting recommendations, then the net job losses associated with these spending and tax cuts could reach over 135,000, including 97,500 direct public sector jobs and another 37,500 to 61,900 net indirect and induced job losses in the private sector.

Even the more moderate spending cuts also suggested by Ford of 4% of program spending in 2021 (which would still lead a deficit) would still lead to significant job losses, after accounting for stimulative effects of tax cuts. Overall net job losses for this scenario would amount to 46,300 to 70,660, including 44,440 direct public sector job cuts and between 1,860 and 26,215 job losses in the private sector, depending on the timing of these impacts.

These estimates are of course just that: estimates. Different econometric models and different assumptions could of course yield different results. The job impacts of spending cuts could be quite different depending on where cuts are made, but in the absence of any further information about where they would be, the most reasonable assumption is to assume that spending cuts would be proportional to current program spending levels.  I may have made some errors and if so, please send me a message and I’ll endeavour to correct asap with an update.

While this analysis uses multipliers published by Statistics Canada and by Finance Canada, this use of course doesn’t imply their endorsement, nor should they be considered accountable for any use of these statistics or tools.  

[i] This net change in spending reflects $2.17 billion in specified annual spending cuts and $1.64 billion in specific spending increases for a net decline of approximately $500 million annually.

[ii] Program spending is total spending less debt interest payments.

[iii] For instance, Ford has promised to “Conduct a value-for-money audit of every government program” and “Launch an independent commission of inquiry… to get to the bottom of the deficit scandal and to propose timely solutions to solving the deficit problem”—and said this would cost a total of $1 million, which of course is ridiculously low.

[iv] Moffat’s figures don’t include the costs associated with Ford’s promise to provide an additional 15,000 long-term care spaces over five years as the total estimated costs for these aren’t included in Ford’s plan, but they are likely to add at least $1 billion annually for 15,000 spaces and at least $2 billion annually for 30,000 spaces (at $62,000 for annual operating costs plus capital for each space).

[v] Using the Fall 2017 Fiscal Update projections, e.g., not including budget measures announced or revisions since then.