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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