Commission on the Reform of Ontario's Public Services

The Outlook: Three Scenarios
The public is familiar with the fiscal scenario laid out in the 2011 Ontario Budget. It was
debated in the legislature at the time, formed the basis for the government’s Pre-Election
Report on Ontario’s Finances and for the Auditor General’s review of that report. The “Budget
Scenario,” updated to use the final numbers for the 2010–11 fiscal year, was the starting point
for the work of the <strong>Commission</strong> on the Reform of Ontario’s Public Services. We began by
constructing what we called our “Status Quo Scenario,” based on different assumptions than
those used for the 2011 Budget. We were more cautious in our projections of both economic
growth and revenue, largely because the economic outlook has deteriorated since March
2011; we assumed that spending on programs would be driven by the factors that usually
push spending higher, such as inflation, population growth, aging, school enrolments and so
on. Finally, we developed what we regard as the “Preferred Scenario,” a projection that
combines our more cautious view of economic and revenue growth — along the lines of the
Status Quo Scenario — with the spending target that would fulfil our mandate to eliminate the
deficit by 2017–18.
A fiscal scenario is just that — a projection of the future based on specific assumptions about
how quickly the economy, revenues and spending will grow and about the levels of interest
rates that help determine how much the government will spend in interest costs on the public
debt. A scenario is not a prediction (as in, this is what will happen); it is a projection (as in, this
is what will happen if all our assumptions hold true). As it unfolds, the future always turns out
differently than even the most carefully considered assumptions, so, in that sense, all three
scenarios will turn out to be wrong. Nevertheless, scenario-building is the foundation of good
fiscal planning. Without a view of the future, governments cannot assess what resources they
will have available and cannot set priorities among competing programs.
In short, governments need a fiscal strategy. There is a wide range of possible outcomes
for both the economy and the budget — a range that widens the further out we look.
The government is confronted with a large debt and, in good part due to the aftershocks of a
global recession that sideswiped the Ontario economy, a large deficit and the prospect of a
long path back to a balanced budget. It needs to lay out a clear plan to eliminate the deficit
by 2017–18 — its own target — with bold actions taken early and advanced steadily. Basing
such initiatives on cautious assumptions will help to avoid the frustration of returning again and
again for further rounds of restraint when events prove that the initial steps were too meek.
Several European countries are today learning that lesson.
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