TORONTO – Ontario’s Liberal government trumpeted a lower deficit projection Thursday as evidence it is reining in spending, but in reality much of the drop was due to a temporary accounting measure.
The new 2015-16 deficit projection of $7.5 billion — $1 billion lower than was forecast in the spring budget — is mainly the result of the recent initial public offering of Hydro One, which increases revenue on the books by $1.1 billion, the government said in its fall economic update.
The government is on track to eliminate the deficit by 2017-18, said Finance Minister Charles Sousa.
“For the last six years running we’ve managed our program spending to offset softer revenues,” he told the legislature.
“We know with those challenges before us we need to address them and we are. We’re overcoming those challenges by controlling our spending, going over our underground economy issues and going line by line to find the appropriate savings.”
The Liberal government has promised to dedicate the proceeds of asset sales, such as the Hydro One IPO, to the Trillium Trust infrastructure fund.
It’s a promise both opposition parties doubt, but Sousa said it’s all going to infrastructure, which the Liberals have pledged to spend $134 billion on over 10 years.
But that money must first be on the books as a non-tax revenue item, he said.
Progressive Conservative critic Vic Fedeli suggested that once the Hydro One revenue is moved into the Trillium Trust the deficit goes right back up.
“The only explanation is the fact that it’s artificially there,” he said. “You can’t spend it twice. You’re either going to put it against the deficit, as they did here, or you’re going to put it in the other column. They’re attempting to spend the same dollars two times.”
The IPO raised $1.83 billion, but a deferred tax asset benefit, special dividend and payment-in-lieu of taxes brought the total from the sale of 15 per cent of the utility to $5 billion.
That was $3 billion more than Ontario had projected, Sousa said.
The NDP is concerned that a mention in the economic update that the government “will need to consider other tools” to get to balance by its self-imposed target of 2017-18 if revenue growth falls short is a signal it is planning on selling off more assets.
Sousa would not rule out new or higher taxes as those “other tools.”
The fall economic statement also reveals the Liberals expect to see $300 million in 2016-17 in cap-and-trade proceeds — which Premier Kathleen Wynne has said will go to reinvesting in green technology and helping people mitigate increased costs — rising to $1.3 billion in 2017-18. Sousa said revenue from the cap-and-trade system would be accounted for in the same way as the Hydro One revenue.
The rosy picture the government attempted to paint of a quicker path to balance also came with a lower growth forecast. In the spring budget the government projected the province’s real GDP would increase by 2.7 per cent in 2015 and 2.4 per cent in 2016.
Now, the government says real GDP growth is forecast to be 1.9 per cent in 2015 and 2.2 per cent in 2016.
The province’s net debt is still projected to hit nearly $300 billion by March 31, 2016, though the current projection is now slightly lower than the estimate in the budget.
Interest on debt is also now forecast to be $140 million below the estimate in the budget because of low interest rates.
Sousa also said the government will establish a committee to look at improving the representation of women on boards and in senior executive positions, as well as a committee on the sharing economy, encompassing ride-hailing services such as Uber.