Ontari-OWE

The newly-minted Doug Ford government in Ontario is breaking all kinds of precedents, but it's been quick to adhere to one tradition.  Yesterday, to no-one's surprise, Finance Minister Vic Fedeli announced that the fiscal position the new government inherited was much worse than the outgoing Wynne government had let on. 

The Wynne government unleashed a blizzard of spending initiatives in the weeks ahead of June's provincial election, but most of them had long time-fuses and thus had no impact on the near-term fiscal position.  Fedeli's revisions to the numbers largely reflect two accounting issues, relating to the treatment of surpluses in public sector pension plans and the former government's so-called Fair Hydro Plan.

Treatment of public sector pensions has been a matter of dispute between the Province and its own Auditor-General for some time.  The government liked to count these surpluses as an asset, but the A-G argued that as they did not represent funds that the government could spend, this was incorrect.  I'm no accountant, but it seems to me that the A-G has this one right, and Fedeli agrees, so that "asset" is off the books again.

As for the Fair Hydro Plan, the previous government had responded to the outcry over the soaring cost of electricity, largely the result of a botched push for green energy, by extending the amortization period for energy-related assets and borrowing long-term against those assets in order to provide a break to consumers. A break, that is, for today's consumers at the expense of the future consumers who will have to pay back the debt.  The wrinkle in the scheme was that the government booked the added debt not on its own balance sheet but on that of the principal power utility, Ontario Power Generation.

The combined effect of removing the pension assets from the balance sheet and putting the Fair Hydro debt onto the Province's books is to increase the deficit projection for this fiscal year by about C$ 5 billion. With a few other changes also taken into account, Fedeli forecasts a deficit for the year of C$15 billion, compared to the C$6.7 billion claimed by the former government.

Now what?  One of the odd features of the recent election was that the Ford team won without ever presenting anything remotely resembling a fully-costed fiscal plan.  Fedeli can't say circumstances have sadly forced him to tear his plan up, because he never had one in the first place.  However, the Ford team did pledge to find "efficiencies" in the Ontario budget amounting to C$6 billion per year, and that plan still seems to be in place.

C$6 billion is about 4 percent of program spending, which doesn't sound unachievable, but there's a catch.  Ford pledged to find those savings without firing any public sector employees.  In many key areas of the public sector -- education and health care to name but two -- wages and benefits are a huge proportion of total costs, so that seems like an impossible proposition. It's also illogical: if you really can find "efficiencies", it follows that you are finding ways to achieve the same results with fewer resources.  That must mean that you will have more employees than you need, and unless you let some of them go, you won't actually achieve any cost savings.

Some time before year-end Fedeli will have to move on from shredding Wynne's fiscal plan and table one of his own. It's likely that a lot of the initiatives hastily announced by Wynne ahead of the election -- expanded day care, high-speed trains and more -- will never see the light of day.  Even so, Ontario, already the world's most indebted non-sovereign jurisdiction, is likely to accumulate yet more debt in the Ford government's first (and, please God, last) term in office.