If the province's wage-cap legislation is struck down by the courts, Ontario could be on the hook for $8.4 billion — wiping out the surplus and then some — the province's fiscal watchdog found.

As part of a larger report on public sector compensation released on Wednesday, the Financial Accountability Office (FAO) estimated the impact of Bill 124, which limits government-paid wage increases to one per cent per year for three years.

Public sector workers — who make up one in 10 of all paid workers in the province — have seen lower wage increases compared to the federal public sector and private sector employees over the past 11 years, the FAO noted.

Despite 82 per cent of Ontario Public Service workers being unionized, their average 1.6 per cent wage increase hasn't kept up with inflation (1.8 per cent) over that time span, the FAO found.

The Ford government brought in Bill 124 in 2019 as a cost-saving measure. Public sector unions were outraged. During the pandemic, health-care workers saw it as a slap in the face.

Now, it's the subject of a constitutional challenge by those unions.

READ MORE: Lawyer argues in court there’s ‘fatal’ flaws in PCs’ justification for Bill 124

Because the bill only kicks in when employees negotiate a new contract, it could last until 2026-27. About 30 per cent of public sector workers have yet to feel the effects because their contracts haven't expired while the law has been on the books.

If it stays in place for that long, the province could save $9.7 billion, the FAO estimated. Public sector wages will grow at 1.7 per cent annually — still under inflation.

But if the court strikes it down, the province could spend $8.4 billion more than it planned to over the next five years, the FAO said.

The $1.3-billion difference is because Bill 124 also affects non-unionized workers, who would not get a retroactive payment if the law is struck down, FAO head Peter Weltman said.

.@InfoFAO estimates that #Bill124 will take $9.7 billion out of the pockets of unionized and non-unionized public sector employees from 2019 to 2026-27. This is an underestimate of the total cost to workers as it does not include the impact on the broader public sector 9/9

— Sheila Block (@SheilaBlockTO) September 28, 2022

Another risk to the province's pocketbook is inflation. If it remains high over that period, public sector workers could get higher wage settlements — costing the province an extra $6.8 billion by 2026-27.

Weltman said the employee shortages are what worries him the most.

Nearly every industry in the world is having a hard time hiring (including the FAO, Weltman noted). But a lack of nurses, teachers and other public sector workers could mean higher wages for the ones who remain, costing the province more, he said.

The FAO estimated Ontario will need to hire 138,669 more public sector workers over the next five years.

The NDP and Liberals said the report illustrates why Ontario is having such a hard time attracting health-care workers. They repeated their calls for the government to scrap Bill 124.

READ MORE: Public sector finds hope as Ford doesn’t rule out axing Bill 124

Ontario is in a global competition for workers and the bill is making it a less attractive place to work, Liberal interim leader John Fraser said.

"Look, Bill 124 is not the only reason we have this challenge, but it is something that's under the government's control," Fraser said.

"The bill will come due" either now or later, Liberal finance critic Stephanie Bowman said.

Bill 124 may have saved the province money but it's made health care worse, NDP interim leader Peter Tabuns said, pointing to hospital closures and staffing shortages.

"That’s a lot of people who have been underpaid for a long time. No wonder they’re leaving our hospitals," he said.

READ MORE: Unions continue call for repeal of Bill 124, saying wage cap legislation is ‘especially cruel’ amid pandemic

The province does plan to hire more public sector workers than average over the next five years, the FAO noted. That's driven by the push to hire more health workers.

Weltman noted Ontario recently posted a surprise $2.1-billion surplus, which could be weaponized to deal with Bill 124 costs.

"Can I brag a bit?" he said. "On the spending side, we pretty much nailed it" in terms of the FAO's provincial fiscal projections, while the government missed the mark, he said.

The office's revenues estimate was off, but revenues across the country were "crazy," he said, noting many provinces got surprise surpluses due to higher than expected income. The FAO's estimate was closer than the government's again, he noted.

As for how long that surplus will last, Weltman was tight-lipped. The next FAO update will come at the end of October, he said.

While some believe a recession is "inevitable," the FAO doesn't, Weltman said. That may change, but for now, the office isn't building a recession into its projections, he said.

A Bill 124 court loss could cost Ontario $8.4B: FAO

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