Supersized deficit clears way for reckless cuts
Beware Finance Minister Vic Fedeli’s doomsday financial claims, Martin Regg Cohn writes.
After a “change” election, every new government changes the books — and accuses its predecessor of “cooking the books.”
We’ve seen this movie before. When the last Progressive Conservative government moved into opposition, the newly empowered Liberals called in the former provincial auditor general who verified … surprise … that the Tories had understated their pre-election deficit by a whopping $5.6 billion.
Now, with the roles reversed, it’s the turn of Finance Minister Vic Fedeli to have fun with numbers. Relying on his own outside panel, he is supersizing this year’s projected deficit by more than $8 billion — and accusing the last Liberal government of a witch’s brew of “accounting tricks,” while “deliberately” engaging in a “cover up” of their “crippling hidden deficit.”
But beware doomsday claims of hidden deficits, which politicians invoke to camouflage their own hidden agendas. Back in 2003, an earnest Dalton McGuinty wrecked his honeymoon by suddenly declaring a new health tax to dig the province out of that newfound deficit hole.
Fast forward to Fedeli’s fulminations, and Premier Doug Ford’s playbook. While all three major parties made fiscally reckless promises, independent economists were virtually unanimous in assailing the Tories for failing to account for fanciful tax cuts that simply didn’t add up. The only way to square that circle, of course, is to cut government spending — not just massively, but recklessly — in a way Ford solemnly pledged never to do.
Now, amid all that hyperbole over hidden deficits, they are laying the groundwork for their own hidden agenda of slash and burn — softening up Ontarians for cuts that will be hard to swallow. Fedeli’s predictable claim of Liberal shenanigans will find an audience among true believers, but it won’t wash on Bay Street, where credit rating agencies aren’t so easily taken in by magical talk of massive deficits that vanish and resurface on command.
To be clear, no one “hid” any numbers from anyone, least of all financial analysts. To be sure, Auditor General Bonnie Lysyk disagreed strongly with the last government’s interpretations, and issued a “qualified” opinion of their recent budgets. But everyone was working from the same set of numbers and cash flows at the time. That’s why Fedeli’s fulminations about outright deception — not just different interpretations — don’t add up. In fact, his Tories quietly adopted the Liberal numbers as their fiscal framework for their own wild promises before and during the last campaign.
In any case, a partisan political cover-up isn’t as simple as it sounds. As Fedeli now knows, finance ministers and political staff don’t have sole signing authority for budget numbers, because they flow through the public servants who put their names to financial statements.
Despite the disconnect between the Liberal and Conservative versions of those same numbers, the real cognitive dissonance lies between Fedeli and the very panel his government hired. Quite simply, their report doesn’t say what the finance minister says it does.
Nowhere does it agree with the auditor’s much-contested claim that a massive surplus, in excess of roughtly $11 billion in jointly-controlled public service pensions, was improperly counted as an asset (which auditors had approved ever since the Tories were last in power). An outside panel of accounting experts, convened by the Liberals, shredded her arguments. Now, even the new panel is skeptical of Lysyk’s bottom line: “It would seem reasonable that the government should be able to recognize a portion of an asset it jointly controls with another party…. It seems unlikely they would conclude the value to be zero.”
Zero, however, was Lysyk’s peculiar conclusion. Now, Fedeli’s handpicked panel has come up with a delicate compromise, calling on both sides to revisit the issue. Until then, “provisionally,” the government should accept her version — zero — if that’s what it takes to get her to approve the books. Not exactly an unqualified endorsement.
It’s a workaround that allows Fedeli to buy time while crying foul against the Liberals. And while it’s not conceptually elegant accounting, it accounts for the bulk of Fedeli’s claims of financial fiddling. Most of the rest is due to revised growth estimates that depress tax revenues and make it harder to reduce spending. But this supposedly transparent report is curiously opaque on the question all those uncosted Ford tax cuts, and all those costly Liberal campaign planks (built into the financial framework, but quickly cancelled by the Tories).
All of which gives Fedeli more margin of manoeuvre to play with numbers in his own budget. As we were saying, we’ve seen this movie before, and the sequel returns with every new government.