Dependent on U.S., Ontario Fears Potential Blow From Virus Wave

(Bloomberg) -- More than a year into his term as Ontario's finance minister, Rod Phillips still hasn't had his big moment.

Finance chiefs in Canada typically deliver budgets in first half of the year that lay out their fiscal and economic priorities. But these are hardly typical times, so Phillips canceled his maiden budget speech.

Instead, he and other ministers in Premier Doug Ford's government have been fanning out across the province, doing socially-distanced events, “showing people that the economy is opening” and trying to bolster confidence that has been shaken by a deep recession and the resurgence of Covid-19 cases in the U.S.

As the U.S. economy goes, so goes Ontario's. Canada's largest province did C$397 billion ($296 billion) in two-way trade in goods with the U.S. last year -- more than America's goods trade with Japan -- and sends 80% of its exports to its southern neighbor.

The pandemic has slowed trade, forced the closing of the U.S. border to most travelers, crushed the province's tourism industry and caused politicians to take a cautious approach to reopening. In Toronto, for example, movie theaters, bars and other indoor venues were forced to stay closed until July 31, long after many U.S. states had allowed those businesses to open.

“From the outset we understood that shutting down the economy -- as difficult as that was -- was going to be easier than reopening it,” Phillips said in an interview with Bloomberg. The key is “making sure that both citizens and businesses have the confidence to return to the economy as actively as they can,” he said.

Slow Restart

As a second wave of cases threatens the recovery in the U.S., infections in Canada remain largely in check. The country has recorded 3,100 virus cases per million people, as of Aug 2; the U.S. infection rate is about 4.5 times greater. It's a validation, in a way, of the underlying design of Canada's response to the crisis: strict lockdown measures, followed by gradual, phased restarts.

The approach appears to be paying off in data that suggest Canada's recovery has avoided the stall that hit some U.S. states when virus cases surged in the early summer. Yet Phillips is hardly in a smug mood.

He is worried there will be lasting impacts of the crisis on consumer spending and that “fewer businesses open than could, fewer employees come back than could and fewer consumers and citizens come back than could, at least initially,” he said. The economic damage to Ontario is severe: the province lost nearly 800,000 jobs from February to June and the unemployment rate of 12.2% is near post-World War II records.

“We can do well, and I think Ontario is on track to do well, but it's well in the context of a very challenging global economic situation,” Phillips said. It's “potentially even a bigger challenge in terms of the North American regional economy when you see the status of the outbreaks in the U.S. and Mexico.”

Pivoting to Deficits

That's forcing officials to take pragmatic approaches to governing. Phillips, a political rookie, came to power in 2018 on the back of Ford's platform of smaller government and lower taxes. But the government has largely set aside partisanship since Covid-19 hit: Ford often uses his news conferences to praise members of Prime Minister Justin Trudeau's government, previously a favorite punching bag.

There is no more talk of cutting spending or balancing the budget any time soon. Phillips won't say whether that remains a longer-range objective. It depends how the recovery goes. In March, “we signaled we were going to be moving from a focus on balanced budget to a focus on investing in people and communities, at least for the period of this crisis,” he said.

Read more: Ontario Decries ‘Reckless' U.S. Effort to Reopen After Covid

Instead of a full budget, Phillips released a fiscal update that forecast deficits of C$20.5 billion this year. That number, already outdated, will be revised this month, the finance minister said.

Phillips hopes he'll also get a crack at a budget soon. He's planning one in November. By then, the situation may have improved enough to work on other challenges. Issues on his plate include making Toronto's capital markets more efficient and finding ways to better protect intellectual property. But those are concerns for another day.

“Our perspective these days obviously has been focused on the reopening,” Phillips said.

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