statism watch

Karen Howlett, The Globe and Mail
February 27, 2009

Ontario Premier Dalton McGuinty faces a bleak future for his province, as economist forecasts a shocking $13-billion deficit for the next fiscal year

TORONTO – Ontario is facing a deficit of $13-billion in the fiscal year beginning April 1, leaving Canada’s biggest province in far worse shape than the McGuinty government has acknowledged, Toronto-Dominion Bank chief economist Don Drummond says.

The picture will remain bleak for the foreseeable future, with Ontario mired in deficit over the next four years as spending on health care, education and other programs continues to climb in the face of plummeting revenues, Mr. Drummond said. By fiscal 2012-13, he said, the deficit will hit $17-billion.

“I don’t think people have really caught on that the situation is quite as serious as it is,” Mr. Drummond said in an interview yesterday. [Ed. Note: Winner! Understatement of the year.]

Ontario is far from alone. The economic crisis that began in Canada’s manufacturing heartland has spread to Alberta, marking a reversal of fortune for the energy-rich province, and to Quebec, which is embroiled in controversy over the $39.8-billion loss posted by Canada’s biggest public pension fund manager, Caisse de dépôt et placement du Québec.

Alberta Finance Minister Iris Evans revealed in a fiscal update yesterday that the province will end a 15-year run of surpluses by posting a deficit of $1.4-billion.

Quebec Finance Minister Monique Jérôme-Forget said last month that the province will post its first deficit in a decade. Adding to Quebec’s woes, the Caisse will face government scrutiny into its loss, the worst in its history.

Ontario Premier Dalton McGuinty has acknowledged that the faltering economy will leave the province with “substantial, multiyear” deficits. But his government has not affixed a figure to the gloomy prognosis.

Mr. Drummond’s forecasts are based on the assumption that program spending will increase 5 per cent each year in Ontario. He said he has shared his deficit calculations with officials in the Ministry of Finance and they did not appear surprised.

“No one fell off a chair.”

Mr. Drummond added that the lack of up-to-date numbers on the size of the deficit has left Ontarians in the dark about the true state of the province’s economy.

The economist’s numbers reveal just how woefully wrong the government’s own forecast of a $500-million deficit was in last fall’s economic outlook.

“People know these are extraordinarily challenging times,” Deputy Premier George Smitherman told reporters yesterday.

“I look to the deterioration in the finances of the government of Canada from surpluses in the fall as far as the eye could see to, within months, a very substantial deficit.”

Progressive Conservative Finance critic Tim Hudak accused the Ontario government of embarking on a spending spree when times were good and its coffers were awash in cash. Revenues rose 41 per cent during Mr. McGuinty’s first five years in office, he told reporters.

“You took all that money and you blew it,” he told the Premier during Question Period. “You chewed up every last cent in one gluttonous spending spree and now the cupboards are bare.”

Mr. McGuinty defended his stewardship of the province, saying his government has restored confidence in public services while also investing in innovative businesses to spur economic growth.

Finance Minister Dwight Duncan will reveal the size of the deficit on March 26, when he unveils the budget, and lay out a plan for getting the economy back on track.

Mr. Drummond said he plans to deliver more bad news to Ontario government officials today when he meets privately with them to share his latest prognosis for the economy. He said gross domestic product will shrink 2.6 per cent in the coming fiscal year, an estimate that is more pessimistic than those of other private-sector economists.

Red ink is nothing new for Ontario, Mr. Drummond said, noting that the province has been in deficit during 12 of the past 15 years. But this time around the province appears on track to surpass the record deficit of $9-billion during the last recession in the 1990s.

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