Skip to main content

Ontario deficit cut over $5 billion in one year as revenue rolls in -- but who will benefit?

 The government's unaudited financial statements for 2015-16 have been released (in lieu of the Public Accounts) and the deficit is down another $700 million from the last government estimate. Combined with earlier reductions, that means they came in with a deficit $3.5 billion less than they originally budgeted for 2015-16 in the 2015 budget. 

  • Revenue for 2015-16 is up   $4 billion compared with the 2015 Budget forecast and up $2 billion from the 2016-17 Budget estimate for 2015-16.  This is good news.  After years of disappointing increases in revenue, we now have a whopper of a year.
  • Revenue increased $9.8 billion between 2014/15 and 2015/16 - - that is an 8.3% increase. Two billion of this is related to the Hydro sell-off.  But there are big increases in revenue from corporate taxes (up 19%), income taxes (up 6.2%) and sales taxes (up 8.1%). Money is rolling in.
  • Interest on debt is down $400 million compared to the 2015 Budget estimate and down $200 million from the 2016 Budget estimate just seven months ago.  The government consistently overestimates the cost of borrowing for debt, part of a policy of overestimating deficits it seems.  In any case, this reduction is more good news that helps reduce the deficit.
  • Total expenses are up $1.9 billion over the 2015 Budget forecast and about $300 million from the 2016 Budget estimate for 2015-16. 
  • It is unusual for this government to overspend its budgets – they usually spend less than budgeted.  And they would have come close this year as well but for a unique circumstance. Specifically, a $1.5 billion increase in expenses the government has included in this financial statement in response to  the Auditor General's concerns regarding proper accounting for the Teachers and OPS pension plan surpluses.  For its part, the government claims that the AGs concern over pension surplus accounting practices was a break with the past practice of many years (and several Auditors) and was only raised by the Auditor in the last few weeks. On its own account, the government had to add $1.5 billion to the program expense line item just weeks before the September 27 deadline to close out the books for 2015-16 with the Public Accounts.
  • There was also some extra spending on health care--around about $300 million for drugs and hospitals (although it is not clear from the financial statements how much extra each got).
  • The actual increase in program spending between 2014/15 and 2015/16 is $4.2 billion, a 3.6% increase – almost double the budgeted 1.9% increase.   As noted, this is mainly due to the the government's decision to use the Auditor's method of accounting for pension surpluses. 
  • Nevertheless, the deficit is $5.3 billion less than the 2014-15 deficit of $10.3 billion, a 51% percent cut.  Even with the extra $1.5 billion for pension expenses demanded by the Auditor General, the deficit was cut in half to $5 billion. If not for the late breaking push from the AG on the Teachers and OPS pension surpluses, the deficit would be down to a measly $3.5 billion, a whopping $6.8 billion less (66% less) than the 2014-15 deficit.  
  • The government's very modest challenge this year (2016-17) is to move the deficit down to $4.3 billion – only $700 million less than the current 2015-16 deficit estimate of $5 billion.  
  • Given the good economic growth in Ontario so far this year,  they are likely well on their way to surpass that.  Perhaps by a long way. Indeed, as the government hasn't given up on its accounting method for  the pension plan surpluses (and has set up a process to review and possibly revise) they may well be even better placed to move out of deficit. 

While some will remain stuck on debt and deficit, the actual debate in ruling circles has now moved more on to how the new found revenue will be used.   

The real question: who will benefit? While public services have been hammered by years of austerity, it wouldn't be the first time a government has followed cuts to public services "needed" to balance the books with tax cuts

Indeed, something quite similar to a tax cut has been the main response to the rapidly improving deficit situation to date -- with good revenue rolling in, the government hasn't bothered to wait for a balanced budgetLast month it moved to provide billion dollar annual payouts to cover 8% subsidies of residential electrical bills --  the government has even branded this subsidy as a Harmonized Sales Tax, or HST, cut.  

But there's no real change in policy regarding harsh public sector austerity -- yet.

The bad news out of these financial statements?  The changed accounting practices for pension surpluses advocated by the Auditor would add $10.7 billion to the provincial debt, and, as a result, the net debt to GDP level actually increases under this scenario by 1.5% to 40.9% instead of leveling off as expected.  While this may only be an accounting issue (it's not like the government had to spend another penny to deal with the changed accounting for public sector pension surpluses), the right has already seized on this, crying on about debt. That may prove an effective strategy to dampen down popular demands to end the attacks on public services.   

But don't be fooled. While the right  may use debt in their battle against public services, debt in itself is not their big concern. After the last recession in 1991-92, the right cried wolf about debt and deficit.  But despite all the histrionics, when Mike Harris was elected in 1995, he slashed taxes, debt be damned.  

History may be repeating itself.  And, as in the past, the battle will be over whether to use our new collective wealth to improve public services for everyone or divert it to private wealth for the few.

Updates October 7 and 9: The Auditor General has now, essentially, approved the 2015 -16 Public Accounts.  The government says the Public Accounts are identical to the financial statement released earlier and discussed above.  The Auditor General has, however, qualified her opinion because the government has not adjusted the 2014-15 deficit and debt upwards.  Based on the pension asset issue, she believes  the 2014-15 deficit should be adjusted upwards $953 million.  On her account, the deficit actually fell from $11.3 billion in 2014/15 to $5 billion in 2015/16More precisely, that means a one-year $6.24 billion reduction in the deifcit, an astonishing 53.4%.  The virtues and demerits of the different accounting practices aside, this, at least, has the advantage of allowing a comparison of the two years on the basis of the same accounting practices.

 If the government comes even moderately close to such a large dollar reduction in the deficit in 2016-17, they will eliminate the deficit entirely this fiscal year even with the $1.5 billion added to the deficit through the new pension accounting practices advocated by the Auditor.  If the reduction matches the 2015-16 performance, the books would, in fact, be in surplus.    

Such a reduction will prove more difficult with the new in-year spending increase for residential electricity subsidies announced last month (costing about $1 billion per full year and $250 million for the remainder of this fiscal year) and the possibility that the new pension accounting practices advocated by the Auditor General will add more weight to  the deficit But I wouldn't rule out the possibility.
[1] This government consistently overestimates the deficit and then beats that target, sometimes by quite a ways.
[2] With better than planned revenue driving down the deficit last year, the government is now, in effect, forecasting only a $700 million reduction in the deficit this yearThis is much less than their previous estimates of the deficit reduction this year. 
[3] Real growth in the last two quarters reported was an  impressive 3% on an annualized basis.  Moreover, nominal economic growth is predicted to increase from 3.5% in 2015 to about 4.4% in 2016 by the banks.
[4] The Ministry of Finance stated  in its 2016/17 first quarter financial report that they have kept intact their billion dollar reserve.  if that reserve is not used, it will be applied against the deficit.

While we may get some sense of the progress they are making when next year’s Budget is released, we probably will not know for sure until the next Public Accounts come out in late September 2017.   But, with an election only half a year later, that would be perfect timing for the Liberals to announce a major reduction in the deficit, and force the Conservatives, who have banged on about  deficits, to eat their words.


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…