Auditor’s deficit allegations could be bad news for all parties

History, like politics, has a way of repeating itself. Especially at election time.

In opposition 15 years ago, Ontario’s Liberal Party smelled a rat. They accused the Tory government of the day of cooking the books.

Playing the reformist card in the 2003 campaign, Dalton McGuinty’s Liberals proposed that all future pre-election budgets be reviewed by the auditor. Upon winning power, McGuinty ordered a special audit that uncovered a deficit of more than $5 billion “hidden” by the previous Progressive Conservative government.

Fast forward to 2018. Now, the PC opposition is accusing the governing Liberals of playing with numbers — and this time, the auditor general of the day, Bonnie Lysyk, is on their side.

Lysyk held a news conference Wednesday to declare the Liberals are understating the true deficit by $5 billion.

The law of unintended consequences has a way of catching up to you. All that Liberal reformist zeal from 2003 is now fresh ammunition for the PCs as they accuse McGuinty’s successor as of fudging the numbers.

There is nothing new in the auditor’s latest report. But in auditing as in politicking, timing is everything. Which makes the Liberals electorally unlucky.

Few paid the auditor much heed two years ago when Lysyk suddenly declared she was reversing the accounting rules established by previous auditors: Accumulated surpluses in major public sector pension plans could no longer be counted as budgetary assets, as they had been since Tory times.

The effect of her ruling was to produce a gaping multibillion-dollar hole in the government’s accounting framework at the very moment they were striving to meet a 2017-18 target for deficit elimination. The government convened an outside panel of accounting and pension experts, who declared that Lysyk couldn’t have it both ways: Just as pension shortfalls count as a liability on the balance sheet, a pension surplus should count for something — not nothing, as the auditor insisted.

Lysyk still wouldn’t budge. But Bay Street didn’t bite, ignoring the auditor’s alarm bells. Credit rating agencies also looked at the books but didn’t buy into her alarmist assessments.

But if the pension fight was a professional disagreement that eroded Lysyk’s credibility, the next battle — over an ambitious borrowing scheme to reduce hydro rates — was more complicated. Under opposition pressure, Wynne’s Liberals dreamed up a refinancing plan that would put off today’s bills for tomorrow, supposedly smoothing out the cost curve.

Politically, the plan had some success. But fiscally, the plan looked like aggressive accounting, by off-loading the debt onto a new financing arm of Ontario Power Generation.

The auditor general’s proof point that she’s right and everyone else is wrong. Her opponents are in the pay of the Liberal government — from the public servants contesting her arguments, to the private auditing firms and outside experts who disagree with her: “They paid their advisers well,” she said dismissively at a news conference Wednesday.

Which suggests that any auditor or accountant who charges a fee has been bought — lock, stock and budget. Except for Lysyk, who boasts of her independence as an officer of the legislature.

The opposition PCs and New Democrats have embraced the auditor’s critique, but not her numbers. They should be careful what they wish for.

The NDP’s campaign platform uses the government’s fiscal framework as its starting point, and so did the PC “People’s Guarantee” released last November (suspended after the party’s leadership race). If the opposition parties abide by the auditor’s latest analysis, that means they too will have to explain how they will handle deficits that are billions of dollars higher than they were banking on, for years to come.

Does that mean more program cuts? Reduced campaign promises? Pretending that pension surpluses don’t exist, until they do?

An arcane accounting dispute is now a pressing political issue on the eve of the campaign, and may well be in the aftermath: The new PC leader, Doug Ford, is taking a page from the McGuinty Liberals of 2003 by promising to bring in an outside auditor to settle the budget question that Lysyk has thrown into such confusion.

The Conservatives know well their political history. As they should, given the budgetary events of 15 years ago, when they were last in power.