One-on-one with Ontario Finance Minister Vic Fedeli
Ontario’s budget deficit will be $15 billion this year, more than double the estimate of the previous government, the province’s new finance minister said.
Vic Fedeli is boosting the deficit forecast from $6.7 billion for the fiscal year ending March 2019, saying an independent inquiry found that the Liberal government didn’t accurately portray the fiscal situation. For 2017-18, instead of the budget being balanced, there was actually a $3.7 billion deficit, Fedeli said.
Fedeli’s Progressive Conservative Party swept to power in June, ending 15 years of Liberal rule, and almost immediately set up an inquiry to examine the province’s books. Canada’s largest province, one of the world’s biggest sub-sovereign borrower, has been under the scrutiny of rating companies with its debt set to soar in the years ahead. Fedeli on Friday reiterated an earlier pledge to balance the books, but didn’t specify when that will happen.
“Balancing the budget is not only a fiscal, but also a moral imperative,” Fedeli said in a speech in Ontario, adding later at a press conference that the process of erasing the deficit would take place “in a reasonable, modest and pragmatic way.”
The inquiry found that the previous government counted assets from two jointly sponsored pension plans as their own to balance the budget, contrary to an opinion from the province’s auditor general, according to the government’s website. The government’s plan to cut electricity rates also cost more than $4 billion than if the government had financed the plan directly.
“Only when the Government of Ontario truly accounts for its real deficit position can we begin to put the province back on a path to balanced fiscal sustainability,” Fedeli said. “This is why we are so quick to accept the commission of inquiry’s recommendations and work, in good faith, with the auditor general on solutions.”
Fedeli didn’t specify how the bigger deficit will impact the province’s borrowing requirements, currently seen at $31.7 billion for the 2018-19 fiscal year. They could be around $4 billion higher, Robert Kavcic, a senior economist at Bank of Montreal, said in a note.
For Kavcic it wasn’t clear whether the higher deficit would trigger any ratings action.
“If history is any guide, new governments get one chance to blame their predecessor, so the bar is usually set very low to begin with,” according to Kavcic.
Moody’s Investors Service rates Ontario at Aa2 with a negative outlook, while Standard & Poor’s has the province at A+ with a stable outlook. Fitch has Ontario at AA- with a negative outlook, while DBRS at AA(low) with a stable perspective.
Ontario’s ratio of net debt to gross domestic product was expected to peak at 38.9 per cent in 2021-22 under the Liberal forecast, up from 37.1 per cent in 2017-18 and about 27 per cent in 2003 when the party took power.
The inquiry was chaired by Gordon Campbell, former Premier of British Columbia. Its other members included forensic accountant Al Rosen and Michael Horgan, a former Canadian deputy finance minister.
Ontario’s domestic bonds lost 1.5 per cent this year, lagging the rest of the provincial bond market which fell 1.4 per cent, according to a Bloomberg Barclays index tracking the performance of Canadian government and quasi-government issuers.
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