Massive deficits might be the norm
Watchdog warns Ontario is drowning in sea of red ink due to COVID-19
Ontario will be awash in an ocean of red ink for as far as the eye can see, warns the province’s independent fiscal watchdog.
In a 24-page report released Thursday, the Financial Accountability Office (FAO) projected annual provincial shortfalls of at least $16 billion until 2025-26 due to the COVID-19 pandemic.
One day after Finance Minister Peter Bethlenfalvy acknowledged “these deficits are not sustainable in the long run,” the FAO said the fiscal challenges for Canada’s economic engine are large.
“As the province recovers from the COVID-19 pandemic and the economy rebounds, the budget deficit is expected to remain elevated at $30.7 billion in 2021-22, improving to $16 billion over the extended projection, in the absence of policy changes,” the office said.
“When the budget is in deficit, the province must develop a fiscal recovery plan that specifies how and when the budget will be balanced.”
Bethlenfalvy will table a budget next month. On Wednesday, he said there are no plans to either cut spending or raise taxes to deal with the shortfall.
“Our priority remains protecting lives and livelihoods and defeating
this virus,” he said of a pandemic that has killed more than 6,600 Ontarians in the past 11 months.
Bethlenfalvy said 2020-21 spending will come in at a record $189.6 billion — $2.6 billion higher than former treasurer Rod Phillips projected in the Nov. 5 budget — and the deficit is $38.5 billion, by far the highest in Ontario history.
The FAO excludes $3 billion in reserve funds, placing the shortfall at $35.5 billion.
That deficit, said the fiscal office, “is mainly due to temporary COVID-19 expenditures.”
But that doesn’t mean Premier Doug Ford’s Progressive Conservatives have allocated enough money to bankroll other challenges.
“Excluding the COVID-19 funds, planned program spending growth in key sectors, such as health and education, will not keep pace with the demand for public services over the next two years,” the office said, noting the Tories are setting aside billions in reserves.
“While contingency funds are
maintained to manage expense risks, the government has not clearly indicated the purpose of the sharp increase in these funds after the pandemic,” the FAO said. “Importantly, if these contingency funds are not used for new programs or future unforeseen events, they may be used to reduce deficits.”
NDP MPP Catherine Fife (Waterloo) said, “We need to use that money now to provide paid sick days, keep our kids and educators safe in schools and protect staff and residents in our long-term-care homes.
“Investing strategically in measures that keep people healthy is key to our economic recovery.”
Liberal Leader Steven Del Duca said the FAO “confirms what (we) have been saying: Doug Ford is hoarding billions ... in allocated funds, which if unspent, will go towards paying down debt.”
The FAO found Ontario’s debt burden has skyrocketed and could be 49 per cent of gross domestic product by 2022-23, and 50 per cent by ’25-26.