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Has the Financial Accountability Office over-estimated the deficit once again?

Buried in this week's Financial Accountability Office (FAO) report on the Ontario government books is a very quiet admission that Ontario ran a surplus of $700 million in 2017/18 (when using the government's accounting method for pension surpluses and hydro).  Just a year ago, the FAO claimed there would be a deficit of $500 million.

 This $1.2 billion over-estimate is not surprising. The FAO has consistently cried wolf.   A year ago, they put the 2016/17 deficit at $2.8 billion (when using the government's accounting methods).   Now they put it at $1 billion with the same accounting methods.  

 Towards the end of the 2015/16 fiscal year they overestimated the deficit for that year by $3.3 billion to $5 billion more than they subsequently admitted.  Even after that fiscal year ended, they put it at $2.2 billion more than they later admitted.

 Now the FAO has changed its accounting methods (following the Auditor General) to claim a much higher deficit.  Accordingly it too forecasts much bigger deficits and a growing debt for years to come.  


To come back to balance (by 2025-26) the FAO suggests fairly harsh austerity -- worse than we experienced from 2010/11-2017/18.  

They note that this will mean the province would have to lower spending by $15 billion by 2025-26. That’s an 8% cut.  (Note this $15 billion cut is compared to the 3.5% spending increases they estimate are required to maintain existing services, based on population growth and inflation.)

The FAO, like many economists, forecast slowing economic growth in Ontario – with it coming in over the medium term at a modest 1.9%.   The FAO does not believe the province can grow its way out of deficit and growing debt.  And truly, the new low growth of developed capitalist nations (like Canada) does create problems -- especially given that the affluent seize much of the new wealth created.  

Even with the government’s accounting method, it will take several years of austerity to get back to balance by 2024-25.  The adoption of the Auditor General’s accounting methods for pension surpluses and hydro will require more austerity, barring new revenue streams  -- something the FAO hardly even contemplates, like most of the establishment . 

We are being set up for more austerity. If successful, this will mean very difficult bargaining and reduced public services. 

After the recession of the early 1990s, public sector workers and public services took punishment for almost a decade before being able to make up some of those losses between 2001 and 2008/9 (when the next recession occurred and the cycle of cuts began again). 

The new accounting could be a useful tool for the right wing to prevent attempts by working people to recoup the losses they have experienced since 2008/9.  It would provide a new right wing government justification for attacks on public services -- even before the next recession.  

Once that next recession occurs (and it is almost past due even now) government revenue will plummet and public services will be even deeper in hock. 

The problem for the right, however, is, if working people never get a chance to recoup their losses, social stability comes into question -- something we are already seeing in the developed capitalist world. 
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