June 29, 2011 / 1:19 PM / in 6 years

Ontario government spending plans optimistic: auditor

TORONTO (Reuters) - Ontario’s latest spending forecasts are optimistic and aggressive, the province’s auditor general said on Tuesday, which may make it difficult for the government to meet its fiscal targets.

<p>Ontario Auditor General Jim McCarter presents special report on the Electronic Health Record, also known as eHealth, in Toronto October 7, 2009. REUTERS/Mark Blinch</p>

The auditor’s report comes just three months ahead of an October election. The governing Liberals are trailing the main opposition Progressive Conservatives in recent polls.

Under legislation introduced in 2004, the Ontario government is required to release a pre-election report on the province’s finances, including revenue and spending projections for three years. It also requires that the fiscal plan should be based on modest assumptions.

“It’s going to be very challenging ... this is a fairly optimistic and aggressive set of assumptions. Really, things have to go right,” Auditor General Jim McCarter told reporters.

“The risk would basically be you have a much higher risk of not meeting your fiscal targets if things that you hope are going to happen don’t happen,” he added.

McCarter pointed out that the government’s plan is largely reliant on its ability to freeze public sector salaries, which make up half of government spending.

However, since the government’s announcement to freeze salaries in 2010, he noted that about 60 percent of compensation agreements with the public sector have resulted in pay raises.

The forecasts were in line with the estimates made in the March budget, when the government projected it would take until 2017-18 to eliminate its C$16.3 billion ($16.6 billion) deficit.

McCarter concluded that estimates of revenues and of interest costs on the provincial debt were in fact “prudent and cautious.”

Expenditures however -- the other half of the equation that the government actually has control over, versus economically driven revenues -- were viewed with more skepticism.

The auditor’s report notes that the government says it will spend an average of just 1.8 percent more in each of the next three years, even though its annual spending growth over the past eight years, after adjusting for large one-time expenses, averaged almost 7 percent.

Ontario Finance Minister Dwight Duncan said in response to the report that he himself has characterized the expenditure assumptions as aggressive, adding the province’s deficit targets are not at risk.

“In fact, we have overachieved and he doesn’t say that. I think what he says is he talks about reserves, he talks about contingency. He talks about the conservative nature of our revenue projections,” Duncan told reporters.

“On balance, I thought his report was fair ... I think we’re on target moving forward.”

($1=$0.98 Canadian)

Reporting by Claire Sibonney; editing by Rob Wilson

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