Skip to main content

Ontario set to beat deficit target - contrary to media tales of doom

There was much gloom in the corporate media's reports on the Ontario government's Budget follow-up, the Fall Economic Statement.  The Globe and Mail headlined their front page report on the Statement with the claim "Ontario Fades," concluding that "the key takeaway was that the province's struggle to rein in its chronic budget deficits is getting harder."  

The Sun Media columnist Anthony Furey treats the Statement as another gruesome example of governments addicted to debt. 

Stories about worsening government deficits play well with big business attacks on public services, but they are  based on exaggerating minor issues.

True, the Ontario Finance Ministry did reduce the 2014-15 revenue outlook by $509 million.  

But there is much more to the story than that.  

The reported decline in revenue had little to do with current events. Instead it was largely based on new assessments of corporate taxes for 2012 and earlier.  

As well interest spending was also down $214 million due to lower than expected debt costs.  Otherwise the Finance Ministry claims spending (i.e. program spending) is on track.  

Considering both their revenue and expense changes, they are $300 million down.  But that means they are out by less than 1/4 of one percent of total budget  -- almost eight months through the year.  Hardly a big deal. 

But for the Sun's Anthony Furey this is an "old trick of the trade" to fudge the figures for "debt-addicted" governments. 

A quarter of a percent? Some trick.

The true story isn't that the government understates its deficits, it's that the government consistently overstates its deficits and has done so for years. And that is probably going to be the case this year as well.

The $300 million is only a fraction of the $1 billion reserve the government allowed in the Budget for unexpected contingencies (like unexpected corporate tax assessments).  

So, if they keep to this, the 2014/15 deficit will be $700 million less than currently projected once the remaining $700 million of the reserve is turned over to the deficit.

But there is reason to think this still underestimates the extra cash that may well turn up by next fall's public accounts   -- and not just because the government has consistently overestimated their deficits by billions of dollars for many years. 

Even a quick look at last year's Fall Economic Statement is revealing:  the Statement stuck to the Budget's deficit estimate, but, by the time the public accounts came out after the end of the fiscal year, the deficit turned out to be down $1.3 billion.

Nominal Growth: With much higher inflation than expected, the Finance Ministry did revise their 2014/15 inflation estimate upwards from the estimate in the Budget.  They increased their inflation estimate from 1.5% to 2.1% (still short of the latest 12 month Ontario inflation increase of 2.6% that Stats Can reported for September).  

However, they did not change their nominal growth forecast for 2014/15, which remains at 3.5%, just as it was in the Budget.  As a result, they make the claim that, with 1.9% economic growth and 2.1% consumer inflation, nominal growth is still going up only 3.5%.  

That doesn't sound likely.  

Nominal growth is the key driver of government revenue.  So if nominal growth is in fact a little higher than they now claim, they may have a little more revenue at year end than they are currently letting on.  A  ½ % in extra revenue would mean about an extra $590 million.  

If so, that could certainly be put to some good use.  Indeed, if it isn't rolled into program spending, higher inflation will mean that program spending has, in real terms, been reduced further.

Under spending: On program spending, the Finance Ministry brags that they have increased it only 1.2% per year for the past 3 years.  That is significantly less than the increases planned in their Budgets. 

Consistent with their less than planned program spending increases,  the Liberals consistently come in under Budget for expense spending.  They don’t spend all their program budgets and overestimate their interest costs.  Here, for example, are the end of year expense savings reported in the last four Budgets:   

2014 Budget
TABLE 2.4 Summary of Expense Changes since the 2013 Budget
($ Millions)

Year-End Savings Target included in 2013 Budget
Increase/(Decrease) since 2013 Budget

Health Sector
Education Sector
Postsecondary and Training Sector
Children's and Social Services Sector
Justice Sector
Other Programs
Total Increase/(Decrease) since 2013 Budget
Net Program Expense Increase/(Decrease) after Applying Savings to Meet $1.0 Billion Year-End Savings Target
Interest on Debt
Total Expense Changes since 2013 Budget

2013 Budget
TABLE 2.4 Summary of Expense Changes Since 2012 Budget
($ Millions)

Program Expense Changes

Health Sector
Education Sector
Postsecondary and Training Sector
Children's and Social Services Sector
Justice Sector
Other Programs
Total Program Expense Changes
Interest on Debt
Total Expense Changes Since 2012 Budget

2012 Budget
TABLE 2.4 Summary of Expense Changes Since 2011 Budget
($ Millions)

Program Expense Changes

   Health Sector
   Education Sector
   Postsecondary and Training Sector
   Children's and Social Services Sector
   Justice Sector
   Other Programs
Total Program Expense Changes
Interest on Debt
Total Expense Changes Since 2011 Budget

2011 Budget
TABLE 4. Summary of Expense Changes Since 2010 Budget 
($ Millions)

Program Expense Changes1

Health Sector
Education Sector2
Postsecondary and Training Sector
Children's and Social Services Sector
Justice Sector
Other Programs
Unused Contingency Funds
Total Program Expense Changes
Interest on Debt
Total Expense Changes Since 2010 Budget
1 Excludes fiscally neutral transfers between ministries.
2 Excludes Teachers' Pension Plan.

On average, they under spent their Budget plans by a little over $1 billion a year (not counting contingency fund savings). Health care under spending alone amounted to $337 million per year on average.  

They don’t make any allowance for this under spending in their Fall Economic Statement.  But if the past is any indication, we will see more expense savings reported at the end of the fiscal year.  

Again that cash could be put to good use.  Unassisted, Finance will roll it into the deficit.     

Smart operators may have other ideas.

Finally, on wages, the government's line is slightly tweaked: “any modest wage increases that are negotiated must be absorbed within Ontario's existing fiscal plan.”   Currently, that plan is to increase program spending a teeny-tiny 0.8% per year for the next three years. (They emphasize Deb Matthew’s Program Review as a driver of spending cuts.)  They continue to claim they will respect collective bargaining. 


  1. As expected, (and despite all the gloomy comments from the Globe and the Sun) Finance Minister Sousa has now admitted that the deficit is in fact $1.6 Billion less than planned. Look next for possible further reductions in the deficit when the 2014/15 Public Accounts come out in the fall.

  2. As suggested above, the Public Accounts for 2014/15 have now revealed that the deficit was much lower -- as usual. Despite the media claims noted in the story above, the deficit turned out to be $2.2 billion less than estimated in the 2014 Budget, coming in at $10.3 B. This was $600 million less even than the revised "interim" estimate in the 2015 Budget noted in the comment above. Also as usual, the province spent much less than budgeted -- $1.6 billion less.


Post a Comment

Popular posts from this blog

Public sector employment in Ontario is far below the rest of Canada

The suggestion that Ontario has a deficit because its public sector is too large does not bear scrutiny. Consider the following. 

Public sector employment has fallen in the last three quarters in Ontario.  Since 2011, public sector employment has been pretty flat, with employment up less than 4 tenths of one percent in the first half of 2015 compared with the first half of 2011.

This contrasts with public sector employment outside of Ontario which has gone up pretty consistently and is now 4.7% higher than it was in the first half of 2011.

Private sector employment has also gone up consistently over that period. In Ontario, it has increased 4.3% since the first half of 2011, while in Canada as a whole it has increased 4.9%.

As a result, public sector employment in Ontario is now shrinking as a percentage of the private sector workforce.  In contrast, in the rest of Canada, it is increasing. Moreover, public sector employment is muchhigher in the rest of Canada than in Ontario.  Indeed as…

The long series of failures of private clinics in Ontario

For many years, OCHU/CUPE has been concerned the Ontario government would transfer public hospital surgeries, procedures and diagnostic tests to private clinics. CUPE began campaigning in earnest against this possibility in the spring of 2007 with a tour of the province by former British Health Secretary, Frank Dobson, who talked about the disastrous British experience with private surgical clinics.

The door opened years ago with the introduction of fee-for-service hospital funding (sometimes called Quality Based Funding). Then in the fall of 2013 the government announced regulatory changes to facilitate this privatization. The government announced Request for Proposals for the summer of 2014 to expand the role of "Independent Health Facilities" (IHFs). 

With mass campaigns to stop the private clinic expansion by the Ontario Health Coalition the process slowed.  

But it seems the provincial Liberal government continues to push the idea.  Following a recent second OCHU tour wi…

Hospital worker sick leave: too much or too little?

Ontario hospital workers are muchless absent due to illness or disability than hospital workers Canada-wide.  In 2014, Ontario hospital workers were absent 10.2 days due to illness or disability, 2.9 days less than the Canada wide average – i.e. 22% less.  In fact, Ontario hospital workers have had consistently fewer sick days for years.

This is also true if absences due to family or personal responsibilities are included.
Statistics Canada data for the last fifteen years for Canada and Ontario are reported in the chart below, showing Ontario hospital workers are consistently off work less.
Assuming, Ontario accounts for about 38% of the Canada-wide hospital workforce, these figures suggest that the days lost due to illness of injury in Canada excluding Ontario are about 13.6 days per year ([13.6 x 0.68] + [10.2 x 0.38] = 13.1).

In other words, hospital workers in the rest of Canada are absent from work due to illness or disability 1/3 more than Ontario hospital workers. 

In fact, Canad…