Deficit leaps with new pension adjustment
Finance Minister Wes Sheridan delivers the P.E.I. provincial budget
The P.E.I. government deficit is projected to be more than $50 million for 2013-14, despite a $25 million boost from Ottawa for adopting the harmonized sales tax.
Finance Minister Wes Sheridan is projecting a deficit of $51.9 million in 2013-14 on total revenues of $1.59 billion.
The HST compensation boost was cancelled out by a pension adjustment that amounts to an extra $20 million in employee benefits costs. The money was promised by Sheridan as part of a major reform of public sector pensions last year.
Included in that reform was a raising of the retirement age, a partial de-indexing of pensions, and a one-time contribution to the pension fund by the government. That contribution was recommended by the auditor, to make up for lower than expected gains in the portfolio, which had still not fully recovered from the recession of 2008.
This is the second time since the 2008 recession the P.E.I. government has seen its deficit plans thrown off the rails by the need to contribute to the pension plan. Sheridan told media in the budget lockup this would be the last time.
“We have fixed it,” he said.
“That is the exact reason we did the reform.”
Sheridan said the removal of guaranteed indexing brings down the liability of the fund significantly, adding that the hyperfunding of the pension fund will still provide a high probability of indexation.
Tracking the deficit
Keeping track of the government's deficit projections over the last year has been made more complicated by changes in the accounting for HST compensation.
At budget time last year Sheridan predicted a deficit of $58.9 million, but that did not include $25 million in HST compensation that would eventually be applied to revenues. Total compensation for HST was $39 million, and Sheridan originally said $25 million would be counted as revenue in 2012-13, and $14 million in 2013-14.
But the auditor general ruled all the compensation should be applied to 2013-14, the year HST was implemented. That should have lowered the deficit to $33.9 million, but the pension adjustment bumped it over $50 million again.
And the hurt goes on
The extra $20 million for employee benefits is still not enough to cover the cost of the unfunded liability in the pension fund.
Covering that liability requires a promissory note worth about $275 million. Starting next year the government will start paying interest on that note. As a result interest charges on the government's debt will be up about $10 million in 2014-15. That will remain as a continuing cost.
That is not the only item affecting interest costs. The province will begin paying charges on a number of other capital projects, adding a further $6 million to interest payments.
Sheridan is projecting a $39.7 million deficit for 2014-15, and a return to a balanced budget in 2015-16, with a slim $100,000 surplus.The province last had a balanced budget in 2007-08.
For mobile device users:Click here for a chart showing the history of three-year deficit reduction plans