Ontario’s reserve funds ‘not transparent’: watchdog

Open this photo in gallery:

Ontario is failing to budget in a transparent way by stashing billions in large contingency funds, the province’s independent financial watchdog said Thursday, while releasing a report predicting six years of surpluses.

The report from the Financial Accountability Office of Ontario (FAO), an arm’s-length agency that scrutinizes the province’s finances, details the dramatic turnaround in Ontario’s books as a roaring economy in the past year has flooded the Treasury with tax revenue. Even now, with rising interest rates and slowing growth, the FAO says Ontario’s books are likely set to remain balanced.

Instead of the multibillion-dollar deficits the government predicted in its budget passed just last month, the FAO is forecasting rising amounts of black ink, starting at $100-million this fiscal year and hitting $8.5-billion in 2027-28.

But the FAO report also lays out what it says are $40-billion in shortfalls over the next six years in planned spending for key government programs, based on the agency’s projections for rising costs.

Ontario budget watchdog projects years of surplus, despite economic slowdown

For the health care system, now struggling with staff shortages and unprecedented emergency-room closings and delays, the government’s spending increases will fall $2-billion short of needs next year alone. Over the next six years, health spending will fall short by a total of $23.38-billion.

Education spending, the FAO says, is $436-million below what is required this year and will be a cumulative $5.95-billion behind by 2027-28.

At the same time, the government is amassing $44-billion in unallocated contingency funds over those six years, more than enough to plug the gaps the FAO has identified.

Financial Accountability Officer Peter Weltman said this amount of idle cash was “unusually high” and made it difficult to discern the government’s real financial plans.

“Is it a transparent way of budgeting? I don’t believe so,” Mr. Weltman told reporters at Queen’s Park.

Finance Minister Peter Bethlenfalvy, who is due to unveil a fall economic statement by Nov. 15, insisted his government was transparent and pointed to increased spending on health care and long-term care in the 2022 budget. He defended the large contingency reserves.

“These are very uncertain times and that’s why it’s always the prudent thing to do to make sure that we’ve got contingencies in place so we can face any challenge that we might have,” Mr. Bethlenfalvy said.

The FAO’s numbers do not show underspending for every year. Health expenditures for the current fiscal year, for example, are $502-million above the agency’s projected need in that sector.

Opposition politicians at Queen’s Park seized on the FAO’s revelations, as the province is locked in contract talks with education workers and has refused health care union demands to scrap wage-cap legislation that temporarily limits all public-sector pay hikes to 1 per cent a year.

Ontario NDP MPP Catherine Fife, her party’s finance critic, said she was shocked to hear the Finance Minister bragging about his $44-billion in reserves when health care and other services are underfunded.

“These are not things that you brag about when you are finance minister and the people that you serve are hurting,” Ms. Fife said.

Liberal MPP and finance critic Stephanie Bowman said the FAO report shows the government has not been upfront about its finances.

“The Ford government needs to give us an accurate picture of where Ontario’s finances are,” she said. “The FAO report shows once again that the government, a few short months ago, tabled an outdated budget.”

Ontario’s Progressive Conservative government introduced its 2022 budget in the spring, but did not pass it until September, after its June re-election. The document projected a $13.5-billion deficit for last year – a figure that turned into a $2.1-billion surplus late last month when Ontario unveiled its year-end numbers, thanks to a galloping economy.

That pace is expected to slow as the Bank of Canada raises interest rates to restrain the highest inflation rates in decades. Some economists predict a recession. Mr. Weltman said his office isn’t. But he does expect growth in Ontario’s real gross domestic product to dwindle to just 0.7 per cent in 2023.

“We are on the knife’s edge right now,” Mr. Weltman said. “We’re not at recession territory yet. We don’t think there will be one. But we think we’re close.”