The Peters Report
Erik Peters' mandate
On October 9, 2003, Premier-designate Dalton McGuinty asked former Ontario Provincial Auditor Erik Peters to conduct an independent review of the government's finances. Mr. Peters was asked to review and report on the province's current budgetary position as compared to the one released on March 27, 2003, and address the following matters:
- To compare the fiscal outlook for 2003-04 presented in the March 27, 2003, budget with the current fiscal outlook as at October 24, 2003;
- To evaluate reasons for variances between the outlook in the March 27, 2003, budget and the current one as at October 24;
- To identify new risk factors that came to his attention during his review; and
- To suggest improvements for fiscal accountability.
The Peters Report's findings
Mr. Peters' report confirms that the deficit for the current 2003-04 fiscal year is at least $5.6 billion. Mr. Peters also identified additional risks that could total $1 billion, and the need to reinstate a budgetary reserve and the contingency fund.
Spending higher than revenues
In March 2003, the previous government forecast a "balanced" budget for 2003-04. The current forecast of a $5.6 billion deficit for the current fiscal year, which ends March 31, 2004, largely results from:
Major revenue changes
Removal of unspecified asset sales
Impact of slower economic growth on tax revenue
Lower-than-budgeted income from Crown corporations
Total revenue shortfall compared to March budget
Major expenditure changes
Removal of unspecified program review and year-end savings targets
Various in-year approvals and other expenses
Net impact of SARS ($720 million less federal offer of $250)
Drawdown of contingency fund
Total expenditure increase compared to March budget
Increase in stranded debt
Elimination of budgetary reserve
Total other changes compared to March budget
Rapid growth in program spending has outpaced revenue growth in recent years. Between 2000-01 and 2003-04, tax revenue growth of $0.9 billion (1.8 per cent) has been much lower than program spending growth of $10.7 billion (21.2 per cent).
If the current spending pattern is left unchecked, the deficit would grow to $7.7 billion in 2004-05 and $8.6 billion in 2006-07.
Transparency and accountability
The Peters Report also recommends a new focus on fiscal responsibility and the need to improve the accountability and transparency of the province's budget.
"...I urge the new government to consider legislation dealing with fiscal responsibility. The objective would be to improve accountability through greater transparency in and quality of budgets and updates such as the quarterly Ontario Finances. This approach would be more effective in ensuring fiscal accountability than legislation that limits government's flexibility in responding to fiscal challenges."