Ontario: Fedeli Predicts $15 Billion Deficit for ’18-’19: “The Hole Is Deep and Will Require Sacrifices”
Ontario Finance Minister Vic Fedeli used the forum of the Economic Club of Ontario to provide a general update on the state of the province’s finances. He also announced the release of both the Public Accounts of Ontario for 2017-18 and the Report of the Independent Financial Commission of Inquiry, headed by former Liberal BC Premier Gordon Campbell. The commission was promised by Premier Doug Ford during the election campaign and was struck in July following the Speech from the Throne.
Significant Financial Shortfalls Left by Previous Government
In his remarks, Fedeli did not hold back about the state of the province’s finances, accusing the Liberals of painting a glowing picture in the previous budget that could not be trusted. According to Fedeli and based on advice from the independent commission, the previous government ran a $3.7 billion deficit last year instead of a balanced budget. In addition, he accused the Liberals of wrongly booking $1.4 billion in “efficiencies not yet achieved” and of lowering the fiscal emergency reserve by $300 million. Fedeli also highlighted the dispute between Auditor General Bonnie Lysyk and the previous Liberal government over how assets were recorded. Note that the Auditor General has given these new restated 2017-2018 Public Accounts numbers a clean opinion.
The news doesn’t get better when it comes to deficit financing. Fedeli accused the Liberals of “stashing billions in additional deficits off the government’s books” and leaving Ontario with a deficit of $15 billion for 2018-19. He noted that the Ford Government would “return to a balanced budget on a timetable that is reasonable, modest, and pragmatic with a reasonable, modest, and disciplined approach” and that balancing the budget was both a fiscal and moral imperative for Ontarians. Setting expectations for all stakeholders, he indicated “the hole is deep, and it will require everyone to make sacrifices without exception.” Fedeli said that the Ford Government’s goal is to earn a AAA credit rating for the province once again.
It’s a common approach for politicians of any stripe to deliver a message that the “books were worse than we thought” after an election in which power changes hands. Former Liberal Premier Dalton McGuinty delivered a similar message after the 2003 election, but Fedeli went out of his way to enlist the opinions of third parties in order to strike a different tone and establish the credibility of his assertations. Additionally, despite the perceived political posturing, the announcement gives voice to a problem that many non-partisan observers have been pointing to for some time: Ontario cannot return to balance without significant effort at constraint. The scale and scope of the challenge is on the same magnitude as warnings previously issued by the Auditor General and the Financial Accountability Office of Ontario.
Challenges for PC Government Moving Forward
In addition to dealing with the fiscal gap, the PCs will also face some of their own accounting challenges. They will be challenged on their commitment to balance the budget versus delivering on their platform commitments after removing revenue streams (through a price on carbon) in the former PC leader’s platform. They also face criticism on their perceived “doubling down” on the government’s fair hydro scheme to reduce rates by 12%. The AG criticizes the plans’ accounting, which uses borrowed money to reduce rates.
Impact on Stakeholders
The bottom line of today’s speech for those who engage with the Ontario government is that any financial ask will be given deep scrutiny as Ford, Fedeli, and team try to return Ontario to balance. Policies and programs will be assessed based on whether they will help grow the economy, create jobs, or otherwise benefit people in their everyday lives. The announcement reiterates the need for stakeholders approaching government to ensure they align their messaging and their approach to the key themes of “doing more for less” and that “Ontario is open for business”. Stakeholders must also continue to ensure their approach is well positioned politically, well thought out, and fact-based. It is also important to keep in mind that as the line-by-line audit continues, the government appears serious that “everyone will have to make sacrifices without exception”.
What to Expect Next
We expect the line-by-line audit of government spending (conducted by EY Canada) in the coming weeks. This, plus the Public Accounts and the Report of the Inquiry, will all help form the basis of the Fall Economic Statement expected later this year.