Ontario’s economy will be “doom and gloom” before bouncing back next year, the province’s fiscal watchdog said Tuesday.
In its latest outlook, the Financial Accountability Office of Ontario said the province’s economic growth is expected to slow sharply this year with a modest recovery beginning next year.
The FAO’s economic and budget outlook report projects a deficit of $2.5 billion in 2022-2023, but says that will improve to billion-dollar surpluses through the remaining years of its projection to 2026-27.
“We’re going to have a little bit more of the doom and gloom, but it’s not going to be as bad as I think people are afraid of,” said financial accountability officer Peter Weltman.
In its fall economic statement, Premier Doug Ford’s Progressive Conservative government projected a deficit of nearly $13 billion this fiscal year and smaller deficits over the next two years.
The differences between the FAO’s projections and the government’s is due to the accountability office’s lower spending projection combined with higher revenue projection, it said.
“As a result, we’re now projecting that the province will record a budget deficit of $2.5 billion this fiscal year after a $2.1 billion budget surplus in the previous fiscal year,” Weltman said.
The FAO said the province will have $12.5 billion in excess funds over the next three years.
But there is a $5-billion funding shortfall in the health-care sector and a $1.1 billion shortfall in education over that term, the report said.
Weltman said the province has enough money to cover those shortfalls should it choose to top them up due to $19.7 billion allocated to “other programs.”
The majority of that money is largely due to a contingency fund, money that is excluded in the watchdog’s projections because the purpose of that money has not yet been announced, Weltman said.
“In this case, the government could claim rightly that overall there’s more than enough money in their spending plan to cover spending shortfalls that we’ve identified and still enhance programs or reduce the deficit,” Weltman said.
There is $3.5 billion in the contingency fund for this year, Weltman said, but the projections of the contingency fund over the next two years are confidential because they are cabinet records.
Weltman took issue with the large contingency fund, which he said is usually in the $1-billion range.
“When the legislative assembly approves a spending plan, it has a certain amount of visibility into where that money’s going to go,” Weltman said. “But if a whole bunch of money is sitting in an unallocated fund, the assembly has absolutely no idea where that money’s going to go, and they won’t find out about it until they read one of our expenditure monitor reports.”
He said he’d like to see “much more transparency over the use of the funds.”
A spokeswoman for Finance Minister Peter Bethlenfalvy said the government is taking a “responsible and prudent approach in order to respond to global uncertainty and risk.”
“We have a plan to get it done by investing historic amounts in health care, education, and infrastructure,” Emily Hogeveen said, noting health spending will increase this year by $5.6 billion and education by $3.6 billion.
She said the contingency fund can be, and has been, used to fund government programs.
A few factors could change the projections significantly, Weltman said, including a potential new deal that would see the federal government send billions of dollars more to the provinces and territories for health care.
The premiers were in Ottawa on Tuesday to meet with Prime Minister Justin Trudeau as they try to finalize a deal on the Canada Health Transfer.
The provinces and territories are seeking the share of health-care spending by the federal government increased to 35 per cent from 22 per cent.
Weltman said any new federal money should be available for the province’s upcoming budget, which must be tabled by March 31.
That would be followed by a spending plan tabled to the legislative assembly.
“In that spending plan, I hope to see some detail as to how those extra funds are being used,” Weltman said.
The New Democrats also took issue with the large contingency fund and the funding shortfall in education and health care.
“Ontarians deserve to know how their tax dollars are being spent, and the Ford government should be investing in the services that people need, not stockpiling funds with no purpose,” said NDP finance critic Catherine Fife.