TORONTO—Demand for public services in Ontario could exceed the government’s planned spending by just shy of $5 billion by 2021-22, a new analysis by the province’s financial accountability officer suggests.

The $4.8-billion gap is what’s left between the fall economic statement’s planned program spending and the FAO’s projection, after accounting for $6.6 billion in cost-cutting measures that the government has announced, such as the recently-passed public-sector wage cap — which education unions have said that they may challenge in court. The impact of Bill 124 alone was estimated by the FAO to be around $1.6 billion. The $4.8-billion figure has the potential to fluctuate higher if measures like Bill 124 are overturned, or lower if other cost-saving measures are announced.

“This presents a risk that government’s fiscal plan will not provide sufficient resources to meet future ongoing demand for key public services, specifically in the areas of health and education,” Financial Accountability Officer Peter Weltman said after the report was released on Monday morning. While his office’s baseline projects show a “rapid improvement” coming in Ontario’s fiscal position, with an almost-balanced budget in 2021-22, he said that change was primarily driven by a plan to “significantly limit” program spending growth to a 1.4 per cent annual average.

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That target has some precedent, according to Weltman — with the former Liberal government holding that line for several years in their term. But, Weltman noted, “it’s an exception as opposed to the rule. It’s difficult to do.”

“To reduce spending growth on a permanent basis is difficult. It means either making program changes or really changing the way you deliver on a sustainable basis, and not just sort of letting the schools, etc., rust out and then having to fix that up after four years,” Weltman said. “Importantly, the government’s budget plan includes tax cuts and spending programs that have not been publicly disclosed,” he later added, noting that as a “normal” budgeting practice. Those measures were not included in the FAO’s projection, and Weltman said that unannounced policies could delay the balancing of the budget and result in an additional $13.5 billion in the province’s net debt by 2023-24.

“We still have three budgets left, and so we’ll have announcements to make in that regard,” Finance Minister Rod Phillips said on Monday, when asked about measures like tax cuts coming down the line in their term. “We’ll have a budget coming up in the spring. We’ll speak then to further plans, but as the FAO said, that kind of plan is very typical of governments, to use those budgets to make various announcements — and we’ll have announcements to make.”

The FAO’s assessment lacks some adjustments for recent government walk-backs, including its pitch for changes to class sizes across the province. The PC government is currently in the throes of negotiations with several teachers’ unions, and have during that process altered their original proposal to increase Ontario’s funded class size averages to 28 students. Now, the province’s offer stands at a funded class size average of 25. The FAO had assessed the impact of changing the class size to 28 as saving around $900 million on an ongoing basis.

“There’s always a question to be determined as to whether the larger class size is a good thing or a bad thing from a policy point of view, but that is certainly one mechanism that can be used to pull costs out,” Weltman said. He noted that it was an example of a way the government could continue delivering a program while reducing spending.

Neither Education Minister Stephen Lecce nor Phillips would provide reporters an estimate of how much a funded class size average of 25 would save the province, when quizzed on the subject after Monday’s question period at Queen’s Park. Lecce insisted that the proposed change was “not driven by fiscal exercise,” a claim that opposition members quickly cast doubt on. “That is just laughable. It has always been about money,” NDP education critic Marit Stiles responded.

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The smaller proposed increase in class sizes is one of several walk-backs the Ontario government has announced since tabling its budget earlier this year. The PCs have also backtracked on measures like retroactive funding cuts to municipalities.

The Monday morning FAO report additionally quantified a downward trend in proportional spending by the provincial PCs, finding that after the effects of inflation and factoring in population growth, program spending per person in Ontario is set to decline over the next five years by more than $1,000 per person.

How the government could fill the gap between demand for services and planned spending, Weltman said, was “the five-billion-dollar question.” He declined to provide reporters with specific measures that could fill the hole, saying his office wasn’t in the business of pitching policy alternatives or giving policy advice to the government.

“What we’re articulating in the report is that, on current programs, given current demand and the way we project demand to grow, there’s going to need to be some more measures found to reduce the spending,” Weltman said. “To pull costs out of the system is really the best way to do it. It’s very difficult, it takes a lot of concerted effort to do, and those are really some of the ways of addressing this.”

The report noted that, in the absence of $5 billion in higher spending, the government could announce additional program changes, find further efficiencies in the delivery of public services, or “restrict access and underfund current programs.” From a fiscal position, Weltman noted that health care and education were the two largest programs “by far.”

“If you are a government looking to rein in spending, or control spending, or whatever word you want to use, you have to look at your biggest programs, and you have to understand the mechanics that drive the costs in those programs,” Weltman told reporters at Queen’s Park. Given their findings, he added, “there are risks that demands in those key programs might not be met, given the spending projection the government has put forward.” NDP MPP Peter Tabuns alleged to reporters on Monday that the provincial government was setting the stage for cuts to education and public healthcare services.

“There’s a five billion dollar hit waiting to come at us,” he claimed.

Phillips, meanwhile, told reporters that it was “not a surprise” to see funding challenges identified several years down the line — given expected demographic changes and inflation. “We will make sure we’re making those critical investments,” he pledged. Asked about healthcare and education, he told reporters that their “current trajectory and record speaks for itself.”