Playing politics with Provincial deficit projections? ~ Patrick Flanagan

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Fun with Numbers

If there was a report that the Ontario government’s deficit had gone up by several billion dollars, it would be front-page news. Headlines would scream about a fiscal crisis, pundits would berate the government for incompetence, mismanagement and worse.

The deficit has not gone up. Instead, we learned last Friday that the 2018-19 deficit was actually less than expected. But for some reason, that news did not make much of a splash. For example, the Globe & Mail gave it only a short article at the bottom of page A16 of Saturday’s paper. Maybe the deficit news was ignored because (a) it is not bad news, (b) the report came out on a Friday, or (c) it involves numbers and is too complex.

Let’s see how the actual 2018-19 deficit ($7.4 billion) compares with previous estimates.

 In its March 2018 pre-election budget, the Wynne government projected a deficit for 2018-19 of $6.7 billion. The derivation of that number is shown in column (1) of the table below. Some would maintain that it was in Kathleen Wynne’s interest to project a low deficit, since she was being vilified for runaway spending and poor fiscal management.

After the election, the government appointed an Independent Financial Commission of Inquiry to justify Premier Ford’s assertion that the deficit was actually $15 billion. The Commission fulfilled its duty, by assuming lower revenue growth and making some accounting changes that boosted the projected expenses. Its August 30, 2018 report included an adjusted budget, as shown in column (2), which the Ford government adopted as its own starting point. Some cynics have suggested that the projected deficit was artificially overstated so that the previous government could be further vilified and, when the real deficit eventually came in lower, the current government could take the credit.

The Ford government updated its projections two times to reflect more recent information. In November 2018, its Fall Economic Statement reduced the estimated revenue and program expense, and the projected deficit fell to $14.5 billion, as shown in column (3). Then in April 2019, as part of the 2019 Budget, they increased the estimated revenue and program expense, and wiped out the $1.0 billion reserve, so the projected deficit fell again to $11.7 billion, as shown in column (4). On both occasions, the government claimed the deficit reductions were due to its prudent policies.

Last Friday, the government released its Public Accounts 2018-19, which included the final, audited financial statements. As shown in column (5), the picture is rosy! Revenue was higher than all the projections due to more tax income, which is portrayed as a good thing. Program expense was higher than in the Wynne budget, but lower than all the subsequent projections due to, we are told, controlled spending (while maintaining all services). And the deficit was slashed to $7.4 billion.

What is the take away from this? Does it show that the government is now in good hands, or that the books were fiddled, or that in a large system such as the provincial government, it is difficult to make accurate projections? Different people will have different views. And now that 2018-19 is finalized, what about the current year ending March 31, 2020. According to the 2019 Budget, the projected deficit for this year is $10.3 billion. When we learn the actual number about a year from now, will it be lower because of good management, or higher because of external forces over which the government has no control?

Patrick Flanagan is a retired actuary, currently enjoying life in the Huntsville area.

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5 Comments

  1. The oldest trick in the book: consistently forecast high deficits; and celebrate when the deficit comes in considerably under forecast. (Paul Martin was the acknowledged expert of this at the federal level.)
    .
    The sad thing , in this instance, is that we have had absolutely nothing else to celebrate about this government. With all their mean-minded cutting; one would think that a deficit less than $5B should be attainable. Of course the cost of fighting the feds in court (twice), printing stickers, breaking 10-yr contracts, changing direction based on protest and polls etc. doesn’t come cheap.

  2. One thing that hasn’t been discussed is the high cost of maintaining our enormous bureaucracy–especially at the highest levels. Senior bureaucrats are paid ridiculously high salaries–far more than they would be paid in equivalent jobs in the private sector. Rob Ford froze the pay of the bureaucrats but, he should have frozen hiring as well. As just one example, it is obscene that the highest pay in the health ministry is frozen at $700,000+ (in addition to very generous benefits) while those who do the actual work–doctors and nurses–receive FAR less. Nurses jobs are made worse by the fact that we have a severe shortage of personal service workers (called nurse’s aids in times past). PSWs are paid at a level that is barely above minimum wage, and it is difficult, demanding and exhausting work. Is it surprising that we have few applicants for those jobs? Nurses are then challenged to do their normal duties in addition to performing the duties that should be done by nonexistent personal service workers. Doctors too are being short-changed by the bureaucratic system. Their highest pay is around $400,000 and out of that, they must pay for an office and staff. While it is a generous amount, it does not reflect the years of education and training in addition to being demanding work. I guess it is much better to be a health bureaucrat who frequently knows NOTHING about administering health services. What one sees when examining the sacred cow of bureaucracy, senior level people are often lawyers who get their jobs through their connections. One senior- level bureaucrat (a lawyer), having just landed in the health ministry after leaving another bloated bureaucracy in education (before that, he was in transportation) has never worked in any other non-government job–not to mention that he has absolutely NO background in the health sector. And he receives $700,000+ in addition to benefits (he just had his pension topped up by over $50,000 in the last year of the Wynne government).

  3. FUN WITH NUMBERS
    Your title is fitting to politics at any level. That Premier Ford was able to promise cut by 2020 in a country that has it’s manufacturing performed in foriegn lands is amazing. The foriegn lands like China and India are able do great things like go to the moon or Mars. The old democracies borrow in manner similar to the extinct manufacturing  middle class of the boomer era. To finance spending levels of governments past and present tax or borrow. Once public debt approaches GDP, reality changes.
    Premier Ford is caught in such a situation, as is the country as a whole. One can bet the Conservatives debated where to cut. The two vulnerable groups, mental health and long term care were chosen and Ontarians reacted quickly, indifferent to  monitary reality.
    The elephant in the room is; ‘Where can cuts be made to bring government spending in line with taxes collected?’
    For those who say NONE, they are committed to diminishing returns on tax dollars –  less bang from every dollar collected. Borrowed dollars are always ‘inflationary dollars’ unless interest is waived.
    Cuts or bankruptcy for the nation are inevitable!
    The Liberals are so close to Conservatives they might well unite. Trudeau appears aligned with  big business over SNC Lavalin. His major contribution to special  interest is to legalize pot. This project typical of government is already showing a loss as the players set the payscale too high (my view).
    Andrew Scheer, like his Ontario counterpart already has an undo list for when he is in charge. This sort of small minded platform costs tax payers money  likely a large amount in cancelled contracts,  lost jobs and law suits.
    With the elimination of blue collar jobs and their unions, NDP is now a peanut whistle in politics. While Green enjoy’s being trendy, most  climate actions seem to involve money, already in short supply in governments across the provincial democracies and our Federal one.

    Ken Bowd

    • The deficit could be eliminated simply by raising taxes on the highest earner by a minimal percentage. the success of the big earners depends a great deal on the infrastructure, that all of paid for, but gave greater advantage to the top earners. They have earned their wealth but they have not paid their fair share.

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