Reckless Budget Planning

  • National Newswatch

All three political parties are making expensive promises future generations will have to pay for.The Liberals and the NDP to their credit have put out fully costed policy platforms. The Conservatives have not done so.Based on published data, this is what we know so far.  The starting point for the budget calculations of the party policy agendas is the Liberal Government's 2018 Budget, excluding the impact of their election initiatives.  This forecast shows deficits of $1.2 billion in 2018-19 and $1.7 billion in 2019-20, followed by a surplus of  $1.6 billion in 2020-21.Under Ontario's Fiscal Transparency and Accountability Act, the Auditor General of Ontario is required to determine whether the pre-election assumptions and projections are reasonable. She concluded that the pre-election report was not a “reasonable presentation of Ontario's finances” as program expenses and public debt charges were understated, resulting in an underestimation of the annual deficits.  This resulted in an understatement of the deficit by $5 billion in 2018-19, rising to $6.0 billion in 2020-21.According to the Auditor General, the government did not properly account for the true financial impact of the Fair Hydro Plan and the pension expenses relating to the Ontario Teachers' Pension Plan and the Ontario Public Sector Employees' Union Pension Plan.Under the Fair Hydro Plan, ratepayers' hydro bills will be lower than the cost of electricity used. Power generators are still owed the full cost of the electricity they supply.  The government will need to borrow to cover the shortfall. However, the government is not including these costs in its budget plans. Although ratepayers will be paying lower charges until 2027, they will be higher thereafter in order to pay back the past borrowings.  The government is arguing that since these higher charges will offset the current lower charges it need not include the impact of the lower costs.In effect, the government is creating an asset against the future higher charges to offset the current losses. It is also shifting the costs of the current reductions to future generations. This accounting treatment violates the government's stated accounting principles. No other such transaction is accounted for in this manner.  For example, contributions to Registered Retirement Savings Plans (RRSP) are deductible from taxable income but taxed when they are encashed. As such, deductions negatively affect the budgetary balance while encashments have a positive effect.  Yet no asset is established for future taxes owing.With respect to the pension plans, the government assumes it has sole access to any surpluses in the plans.  However, it needs approval from plan members to do so, which currently it does not have.  Furthermore, it is not eligible for the entire surplus but only half.The impact of these two inappropriate adjustments needs to be included in the pre-election fiscal projections. Doing this results in a pre-budget of a deficit of $6.2 billion in 2018-19, $6.3 billion in 2019-20, and $4.4 billion in 2020-21, substantially higher than that used by either the Liberals or the NDP in the presentation of their policy platforms.Using published estimates of the Liberal and NDP policy platforms and corrected pre-budget deficit estimates results in much higher deficits than have been published by either party. For the Liberals, the corrected budgetary deficit that includes their policy platform would be $ 11.6 billion in 2018-19, $12.2 billion in 2019-20 and $12.5 billion in 2020-21.  For the NDP, the budgetary balance would be a deficit of  $9.7 billion in the current fiscal year, $11.1 in 2019-20 and $12.4 billion in 2020-21.The Conservative Agenda is harder to cost. In our experience (a combined 60 years of budget planning) we have heard many political candidates say they will pay for their political promises through cutting government waste and finding efficiencies.  That is code for “we have no idea what we are taking about.”  Nevertheless, based on published data, we have estimated that the Conservative policy platform would result in deficit of $ 9.3 billion in 2018-19, $11.6 billion in 2019-20 and $12.0 billion in 2020-21.So what does this all mean when deciding which party to support? What it means is that none of the three political parties trying to get elected in the largest province of Canada cares one iota about responsible, credible and sound fiscal budget planning. They are all running on policy platforms that would increase provincial debt by over $33 billion over the next three years, and probably even more in the years after that.Voters in Ontario deserve a better choice than what is available but they don't have one.C. Scott Clark held a number of senior positions in the Canadian Government, including Deputy Minister of Finance from 1998-2001.  He has a PhD in Economics from the University of California at Berkeley and is currently President of C. S. Clark Consulting.From 1990 to 2005, Peter C. DeVries served as Director, Fiscal Policy Division, at the Department of Finance.  In that capacity he was responsible for overall preparation of the federal budget.  He is currently a consultant in fiscal policy and public management issues.Their Blog is