Liberals on track for $4B deficit in 2017 2018: FAO

Ontario’s financial watchdog says the Liberal government will run a deficit this fiscal year, siding with the auditor general in a dispute over accounting practices the province has used to declare its books balanced. (Pixabay photo)

TORONTO—Ontario’s financial watchdog says the Liberal government will run a deficit this fiscal year, siding with the auditor general in a dispute over accounting practices the province has used to declare its books balanced.

In a report released Monday that examines Ontario’s Fall Economic Statement, the Financial Accountability Office said the Liberals will run a billion deficit in 2017-2018 and will continue to be in the red over the next few years.

More moderate growth in revenues and the increasing fiscal impact of the province’s Fair Hydro Plan, which borrows billions to cut electricity rates by 25 per cent, will take their toll on Ontario’s books, the report notes.

It also says a long-simmering accounting dispute between the Liberal government and Auditor General Bonnie Lysyk over how to count two public sector pension plans on the ledger is contributing to uncertainty.

“It’s pretty clear that we think they are overly optimistic in their revenue projections,” FAO chief economist David West said of the government’s figures.

The Liberals presented a balanced budget in the spring a year ahead of the provincial election. Finance Minister Charles Sousa said last month that Ontario is on track to balance its budget over the next two years.

The FAO projects the government’s budget deficit will grow to $9.8 billion in 2021-2022. The government’s new hydro plan will make up $3.2 billion of the deficit that fiscal year, the FAO said.

“We’ve been very consistent that because of a number of factors we think the deficit will re-emerge,” West said. “Now, with this accounting debate it will become more significant.”

The FAO report projects that Ontario’s net debt will increase by more than $75 billion over the next four years to approximately $400 billion.

“The government is out borrowing this money,” West said. “This current year they’re going to borrow $23 billion in the markets. That’s going to rise to $45 billion in the coming years.”

Last year, Lysyk questioned the province’s decision to include a pair of public pensions — the Ontario Public Service Employee’s Union Pension Plan and the Ontario Teacher’s Pension Plan — as assets on its balance sheet.

The auditor also took issue with what she described as the government obscuring the true financial impact of its hydro plan to avoid showing a deficit on the province’s books. She estimated in October that the plan will cost taxpayers .

4 billion over 30 years, but the accounting the government is using means Ontario’s net debt — currently at about $312 billion — and future deficits won’t reflect that.

The FAO said in its report that since the government has not adopted the auditor’s recommended accounting for both the pension assets and the Fair Hydro Plan it is becoming more difficult for legislators and the public to assess the government’s fiscal projections.

Premier Kathleen Wynne said Monday that the FAO report confirms Ontario’s economy is growing and she expects that will continue.

“(The FAO) also confirmed that under the accounting presentation that we’ve been using for the last 16 years, the budget is balanced, and in fact, there’s a small surplus for 2017-18,” Wynne said.

PC finance critic Vic Fedeli called the FAO report a “blistering indictment” of the government’s fiscal policies.

“The Financial Accountability Office said that government must either raise revenues or lower spending,” Fedeli said. “Will we know before or after the election which taxes they intend to raise?”

NDP Leader Andrea Horwath said the FAO report shows that the Liberal’s hydro plan will have a significant impact on the province’s debt.

“The most important lesson from the FAO is him showing that the Liberal borrowing scheme that they put forward is not in the best interests of the people of Ontario,” she said. “I think it’s really clear that the FAO has identified a big problem here.”