Ontario to run large budget surpluses, fiscal watchdog says

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Ontario will end up with $500-million in black ink in the fiscal year that ended in March instead of the $2.2-billion budget deficit the government had projected, the province’s fiscal watchdog says in a new report that also predicts more multi-billion-dollar annual surpluses to come.

The Financial Accountability Office said Tuesday that it expects the province to run large surpluses over the next five years, despite a slowing economy and the government’s tendency to stash unused cash in large contingency funds.

The FAO’s new numbers prompted opposition politicians to accuse Premier Doug Ford of holding back money that could be spent to help the ailing health care system, while the government dismissed the agency’s findings as a “snapshot” that does not reflect all its future spending plans.

The FAO still expects higher interest rates and dampening of recent rapid growth in gross domestic product – which the agency sees slowing to just 0.8 per cent in 2023 – to cut into the ballooning tax revenues that flowed to Ontario and other provinces as they emerged from pandemic lockdowns.

However, even with government spending rising, the agency still expects a $500-million surplus for Ontario for fiscal 2022-23, which ended March 31. (The government is not due to release its final accounting for the year’s books until September.)

For 2023-24, the government had predicted a $1.3-billion deficit, while the FAO expects a $3-billion surplus. The government had not promised a surplus until 2024-25, when it expects one of just $200-million. But the FAO says there will be $7.4-billion in black ink that year, and a whopping surplus of $16.4-billion by 2027.

It’s not the first time large deficits have disappeared, as the government’s previous red-ink projections during the pandemic were also washed away by stronger-than-predicted economic growth.

The FAO says that if all of the surplus cash was used to pay down Ontario’s debt, the province’s net-debt-to-gross-domestic-product ratio would sink to its lowest level since the aftermath of the global financial crisis in 2008-2009.

The amount the government spends on interest on its debt is also expected to decline, when measured as a percentage of revenues, hitting a low of 5.5 per cent in 2027-28 – a level not seen since the 1980s, despite the current spike in interest rates.

However, the FAO says the government’s spending plans are also on average $5.6-billion higher each year from next year through to 2025-26, compared with the agency’s projections.

Earlier this year, the FAO had warned of a critical shortage of funding in health care. But it later said spending in the area was running ahead of projected needs, thanks to the federal funding deal and increases in Ontario’s March budget. The agency still says its numbers show small shortfalls in funding over the next four years in education, justice and children’s and social services.

However, billions earmarked for health and other areas are not reflected in the government’s actual spending plans, the FAO says. And billions more are stashed in unallocated contingency funds, meaning the province is on track to amass $22.58-billion in unspent extra cash over the next four years.

Emily Hogeveen, a spokesperson for Finance Minister Peter Bethlenfalvy, dismissed the FAO report, calling it “opinions” and a “snapshot in time” that is “not representative of actual government spending.”

The government has received recent praise from credit ratings agencies. S & P Global last week upgraded its outlook for Ontario to “positive” from “stable,” pointing to its “strong budgetary results” and affirming its “A+” long-term issuer credit rating.

Opposition NDP finance critic Catherine Fife accused Mr. Ford of sitting on money that could be used to stop the current closings of emergency rooms in some rural hospitals.

“Ford is well known for creating huge slush funds with public money – but the FAO’s projection of $22.6-billion in excess funds is outrageously irresponsible, even for this government,” she said in a statement.

Interim Liberal leader John Fraser said the FAO report shows that the Progressive Conservative government has been intentionally overstating deficit projections in order to contain its costs.

“It is unconscionable that at a time when emergency rooms are closing and there are tremendous staffing pressures in hospitals and long-term care, they continue their shell game,” he said in a statement.