Ontario not on track to balance budget in 2017-18, watchdog says

TORONTO – Ontario’s budget watchdog cast doubt Thursday on the Liberal government’s pledge to balance the books by 2017-18, saying the province is headed for several more years of deficits unless it finds more revenue or makes cuts.

The Financial Accountability Office’s economic and fiscal outlook predicts that Ontario’s deficit will be $2.6 billion in that fiscal year and will deteriorate further to $3.7 billion in 2020-21.

“Achieving and maintaining budget balance will likely require additional measures to raise revenue or reduce expense,” the FAO said in the report released Thursday.

The government has also built into its plan assumptions about revenue from its incoming cap-and-trade program and new federal transfers to the combined tune of $3 billion in 2017-18, West said, and the timing of that revenue would have a “significant impact on the government’s fiscal position.”

Finance Minister Charles Sousa insisted both the 2017-18 budget and the one in 2018-19 will be balanced.

“We have done a lot of work in the last number of years to stimulate growth, to be very strategic in our investments and we’ve also taken a lot of steps to control the spending, which is why we’re balancing next year and the year after that,” he said.

Sousa would not rule out a tax hike to achieve balance.

“I am not going to speculate on what may or may not occur,” he said.

NDP critic Catherine Fife said she couldn’t be sure what the government may be contemplating, whether it’s making cuts or raising taxes or selling assets to reach balance.

“Who knows what this government’s going to do,” she said. “I really do feel, as the finance critic for the NDP, that they’re making it up as they go along.”

Progressive Conservative finance critic Vic Fedeli said he believes the government will temporarily balance the budget through asset sales, such as selling more shares in Hydro One.

“They will sell anything that isn’t nailed down and that’s the only way, according to the FAO, that they’re going to balance artificially, is by the one-time sale of assets,” he said. “What happens when you run out of assets to sell? That’s why we have the next five years of deficits. We have a structural deficit in the province of Ontario.”

Ontario has made billions from selling two tranches of Hydro One shares, money that it is putting to infrastructure spending, and still has roughly 30 per cent that it could sell.

The financial accountability officer predicted in his report in the spring that there will be a deficit of $600 million in 2017-18, but there have been a number of changes since then, including a new accounting treatment for government pension plans that added $1.5 billion to the deficit this past fiscal year.

Also since the spring, higher tax revenues were reported for the last fiscal year, but there were also new government spending commitments — of a rebate on electricity bills expected to cost $1 billion and new child-care spaces at a cost of between $1.6 billion and $3.75 billion — and a more moderate outlook for economic growth.

Ontario posted strong real GDP growth in the second half of 2015 and the first quarter of 2016, the FAO said, but a slowdown in merchandise exports, retail trade and employment growth contributed to smaller overall growth. The FAO is forecasting real GDP growth of 2.4 per cent in 2016 and 2.5 per cent in 2017, slightly below the office’s projection in the spring.

The FAO also projects Ontario’s net debt will rise by $64 billion over the next five years to $370 billion in 2020-21, and that the net-debt-to-GDP ratio will plateau at 41 per cent. The government has said it wants to get that down to 27 per cent, which seems “challenging,” since the government hasn’t released plans that show how it will achieve that target.

Financial accountability officer Stephen LeClair is on extended medical leave and integrity commissioner J. David Wake is filling in while he is away.