The end of provincial public sector austerity in Ontario?

The experts appointed to review the claim by the Auditor General that the surpluses in the teacher and civil servant pension plans cannot be counted as government assets have reported.  

Importantly they have sided with the government and against the Auditor General, Bonnie Lysyk.

Lysyk's pension surplus accounting policy required the government to add $10 billion to the provincial debt and $1.5 billion to the deficit last fall. Only then did she approve the final provincial government books for 2015-16 (the Public Accounts).  

The government estimates this policy would add $2.2 billion to the deficit this fiscal year (2016-17).   Indeed, according to the Finance Ministry's Fall Economic Statement the extra program expense associated with this policy is increasing at a rate of $600 to $900 million per year through until at least 2018-19.  The Ministry of Finance reports that this policy would add $2.8 billion  in program expense in 2017/18 and $3.7 billion in 2018/19. 

But if this policy is over-ruled, the government could actually spend those billions on public programs (like health care services) and not fall back into deficit. 

This is significant as getting out of deficit has been this government's key measurement of their  own success as fiscal managers -- at least in their public statements.

So the big news (reported by the Toronto Star) is that Treasury Board president, Liz Sandals, now says, for good or ill, that the government is "committed to implementing the advice of this independent panel and will use it in preparing the province's financial statements."   

If so, and if this accounting policy is applied to this fiscal year, $2.2 billion should come right off the top of the deficit. Given that this government always put significant padding into their Budget deficit estimate,  that they reduced the deficit by over $5 billion last year and that they are  (nominally) planning only a $700 million reduction this year, it is at least possible that the entire deficit will be eliminated this year -- one year earlier than planned.  

Even without this accounting change, the government claimed that they would be deficit free in 2017/18 and 2018/19. So they would be deficit free even with  $2.8 billion in extra program expense  in 2017/18 and $3.7 billion in extra program expense in 2018/19 due to the Auditor General's pension accounting.  

Program expense is $125.3 billion this year. So saving $2.8 billion in program expense should free up 2.23% of program expense for other purposes.  The government was already planning a $2.4 billion (1.92%) increase in program expense for 2017/18, so this, in effect, more than doubles their room.  

 
In total, simply based on their own statements to date, the government has room for $5.2 billion in program expense increases -- over a 4.1% increase.

If provincially funded programs did get a 4.1%  increase, that would be a modest break with the harsh public sector austerity since the recession in 2008-09.  That could help the Liberal re-election campaign in 2018.  It would not however match the widely accepted cost pressures faced in health care.

Of course, just because they have the space, doesn't mean they will use it for good.  For example, the government could blow the cash on tax cuts for the wealthy.  The tax cuts they have provided to date for corporations amount to tens of billions of dollars and there is little doubt that corporations have big plans for all the new found cash. 

Another issue is what position the Auditor General will take. Notwithstanding, Sandals declaration that the government will implement the advice of the expert panel, the Auditor General still has to sign off on the Public Accounts for 2016/17 which are due in September.   

Whatever the Auditor's conclusions, she does not sign off on the Budget (upcoming in the next month or so) and the 2017/18 Public Accounts won’t go to the Auditor General until after the next election.