Ontario deficit will jump to about $12 billion in 2018, fiscal watchdog says
For the second time in a week Ontario's Liberals were dealt a blow by a legislative watchdog, this time the Financial Accountability Office says the government's deficit projections are inaccurate.
Just weeks before Ontario's provincial election, the FAO said Wednesday the province's deficit will jump to almost $12 billion this year as a result of higher spending in the Liberal government's 2018 budget and weak revenue gains.
Those figures -- released in the FAO's Spring 2018 Economic Outlook -- stand in stark contrast to the $6.7 billion deficit projected just weeks ago by the Liberals in their spring budget and already called into question last week by Ontario Auditor General Bonnie Lysyk.
FAO chief economist David West said at a basic level the government's current spending levels are unsustainable.
"We use the word structural deficit," he said. "There is a fundamental imbalance between revenues and spending. The 2018 budget just added to that imbalance. The conclusion of that ... is that economic growth alone will not be sufficient to allow the government to eliminate the deficit."
The Liberal government's spring budget has projected six consecutive deficits to fund billions in new spending on child care and health care.
The FAO report said the government's spending plan will add about $70 billion to the province's net debt, increasing it to almost $400 billion in 2020-21.
It also warns that the Liberal government's plan to balance the books by 2024 involves a dramatic cut in spending growth, and said the government has provided few specifics about those spending cuts.
It would need to find $15 billion in reductions by 2025, or the equivalent of an eight per cent drop in program spending, to achieve its goal, the report notes.
J. David Wake, the Temporary Financial Accountability Officer, said the government's plan "shifts the burden of stabilizing Ontario's public finances from current taxpayers to younger Ontarians and leaves the province with less flexibility to respond to future crises, including recessions."
The report echoes some of the findings from the auditor general who said that the government had understated its deficit numbers in the 2018 budget, saying they were off by 75 per cent for 2018-2019, with that jumping to 92 per cent for 2020-2021.
Lysyk said the government has not accurately reflected the true cost of its borrowing plan to cut hydro rates by 25 per cent, and also raised questions about how the province accounts for revenues related to two teacher pension plans it includes on the books as assets.
Finance Minister Charles Sousa said his financial projections incorporate restrained estimates and he isn't concerned the FAO's warnings will come to pass.
"We've always beaten those expectations," he said. "We will do so again because I've been taking very cautious measures and I have put in contingencies and reserves to ensure that we track back."
Progressive Conservative Parliamentary Leader Vic Fedeli called the FAO's findings another "damning" report about the state of the province's finances. The watchdog's findings confirm again that the government's projections aren't accurate, he said.
"They did not slay the deficit, as they said, they did not balance," he said. "You cannot trust anything that Kathleen Wynne says ever again."