Only fix for Ont. deficit: Raise taxes or spend less
Ontario is facing years of worsening deficits because none of the major parties has a plan to make the province’s spending line up with its income, says the government’s Financial Accountability Office.
“To the extent the government delays making those adjustments today, the adjustments will become more difficult in the future, and you’re shifting it to future generations and to young people,” said David West, the office’s chief economist, releasing the agency’s latest economic and fiscal outlook Monday morning.
The Liberals under Premier Kathleen Wynne have put a lot of their political capital into a promise to balance the provincial budget this year, and they’ve done it, but it won’t last, according to the watchdog’s numbers.
The Liberals are selling assets, getting a big bubble of federal infrastructure money, selling carbon-market permits and booking the last year of revenues from a debt-retirement charge for the electricity system they’re pledging to scrap. The province’s strengthening economy will mean equalization payments that shrink after this year. The government is scrapping the debt-retirement charge on electricity bills.
The Liberals want to run the numbers in a way that makes them look good and they’re not obviously wrong, but all the government’s independent officers with anything to say about it — the auditor general, the financial accountability officer — say what they’re doing is not OK.
Next year, using accounting rules on the politician-friendly “easy” setting, we’ll run a deficit of $1.9 billion. In 2022, the deficit will be $3.7 billion, the FAO says.
If we run the numbers the hard way, the deficit by 2022 is $9.8 billion.
There’s no magic solution to this. The government can raise taxes and fees or it can cut spending.
“Raising tax rates could impact economic growth, while program restraint would place greater stress on (limited budgets),” West said.
This is happening in pretty good times. The Liberals are projecting a strong economy during the next few years and West and the FAO don’t disagree. They’re all expecting Ontarians to be well employed and the economy to grow.
Finance Minister Charles Sousa liked that part, saying, “The FAO confirms that Ontario’s economy is growing and he expects this growth to continue.”
But, the minister went on, “(W)e know that even though our economy is growing, not everyone is benefitting from this growth. That’s why we’re creating fairness and opportunity by raising the minimum wage, making university and college tuition free and making prescription drugs free for young people.”
Nobody ever says three years from now we’ll be in a recession that’ll rip through the government’s books like a wildfire. Those always arrive unexpectedly, as far as the forecasters are concerned, which makes the assumption that we’ll overspend even in good times even more worrying. This is when you pay debt off, not take on more.
More broadly, Ontario can’t go on indefinitely with a government that’s at war with the legislature’s designated experts over billions of dollars in assets and debts the government might have, or not.
The Progressive Conservatives are a little deeper in this muck than even the Liberals are. They brandish the auditor general and budget watchdog reports and accuse the Liberals of cooking the books, and yet they’re using the Liberals’ numbers as the foundation for their own fiscal plan.
The last time a new party took power in Ontario, when the Liberals defeated the Tories in 2003, we had a similar situation: the Liberals used the Tory numbers to build their own plan. Then, they got into office and proclaimed their horror at the $5.6-billion deficit lurking on the desk.
Under any but the very most optimistic projections, whoever wins June’s election is in for a similar reality check. What they’re going to do about it should be a central campaign question.