OTTAWA—Ottawa will reveal a deeper deficit of $19 billion Friday, $507 million more than expected, a difference that officials say is due to an accounting change.
Acting on recommendations from the auditor general, the federal government has changed how it accounts for future liabilities, an official said Thursday.
But it means a change for the worse in Ottawa’s bottom line — in addition to a deeper deficit for the 2017-18 fiscal year, the debt is up $20.2 billion to $671.3 billion and the federal debt-to-GDP ratio now stands at 31.3 per cent, up from 30.4 per cent.
The numbers will be revealed in Friday’s release of the Annual Financial Report and the government is keen to avoid the perception that more spending is the reason for the revised numbers.
“It’s not the result of more cash being spent. It’s how we assess and measure those long-term assets and liabilities,” said the official, who spoke on background because he was not authorized to speak publicly in advance of the report’s release.
“It doesn’t do anything for our economic prospect, for our fiscal prospect. You will see a change in numbers but not in track,” the official said, referring to the government’s goal to shrink the size of the debt in relation to the country’s economic output.
The federal official said the change acts on a long-standing recommendation by the auditor general to adjust what are known as discount rates to more accurately reflect the value of long-term liabilities.
In its comments on the government’s 2016 financial statements, the auditor general’s office said the discount rates used to value “significant long-term liabilities” were at the higher end of the acceptable range compared to market trends. As a result, the government could be understating its long-term liabilities.
For example, under the new methodology, the present value of the government’s pension obligation has increased even though the estimated amount of future payouts has not.
Looking in the past, the restated numbers also would have meant the 2014-15 surplus of $1.9 billion posted by the previous Conservative government would have been a deficit of $550 million.
A similar accounting issue is at the heart of an ongoing political controversy in Ontario. The province’s Auditor General Bonnie Lysyk argues that $11 billion in government co-sponsored Ontario Public Service Employees’ Union Pension Plan and Ontario Teachers’ Pension Plan holdings should not be counted as government assets. The Liberal government argued they should and used them to put the deficit at $6.7 billion. The PC government has excluded the pensions and says the deficit is now at $15 billion.
With the fall federal economic statement expected in the coming weeks, Friday’s report will refocus attention on Ottawa’s fiscal plan and the deficit.
The Liberals campaigned in the 2015 election on a promise to have a “modest” deficit of less than $10 billion in each of their first two years in power. And they vowed a balanced budget and a debt-to-GDP ratio of 27 per cent by the 2019-2020 fiscal year.
The Liberals broke their deficit vow in their first budget in 2016, and have steered clear of making deficit-ending promises since then. Instead, they’ve pointed to a declining debt-to-GDP ratio as evidence of the government’s improving financial picture.
But the accounting change darkens that outlook and perhaps puts the election target of 27 per cent even further out of reach.
With files from Robert Benzie
Bruce Campion-Smith is an Ottawa-based reporter covering national politics. Follow him on Twitter: @yowflier