#1Jul 18th, 2014
I refused to play the Conservatives’ fiscal game. So should Wynne
Critics on the right are now claiming that Kathleen Wynne’s Ontario government is on the road to fiscal rack and ruin – that it could, in one commentator’s words, push Ontario “back to the Bob Rae years.” That provokes these comments.
One would have thought that the experience of the last few years would have made the right wing narrative look pretty goofy but, no, these guys just can’t help themselves. In 1990, interest rates were kept deliberately high, the dollar rose predictably, U.S. companies shut factories in Canada as the newly minted free-trade agreement encouraged rationalization, and a bloated real estate market plummeted. All in one go, all at one time.
The shock to the Ontario economy was sharper and more severe than in 2009, and, as a direct result, public spending increased and revenues fell. This is what happened to Prime Minister Stephen Harper and Ontario premier Dalton McGuinty in 2009. It would have happened in Ontario even if Mike Harris had been elected in 1990. Remember that Tory premiers Bill Davis and Frank Miller ran deficits after the 1980 recession as well.
So, to compare 1990-91 with 2014-15 is to ignore where we were in the cycle, and what governments since the 1930’s have done when faced with such a drastic drop in prosperity.
What many commenters gloss over is that the government I led maintained public investment, saved tens of thousands of jobs and, yes, made difficult decisions on expenditure restraint – for the simple reason that most of what any provincial government spends goes to wages – and that we chose to restrain take-home pay instead of cutting jobs and services.
We had a transit plan, which the Conservatives cancelled. We would have had a train to the airport and a subway to York University, as well as an integrated GO and TTC a full fifteen years ago, if underground tunnels had not been filled in with concrete. We had a housing plan, which the Conservatives cancelled, and affordable housing has languished terribly since 1995. We did not, admittedly, slash income-support programs, or fire thousands of nurses or teachers. Those events were to come.
Ontario had the fastest rate of growth in the G-7 after 1993, and as corporate profits and incomes improved, the tax base strengthened after 1995, when the Conservatives took over. They succeeded in temporarily balancing the books by selling the 407 for far less than it was really worth. But Ontario fell back into deficit – with low unemployment and reasonable growth before the Conservatives were defeated by Mr. McGuinty in 2003.
The right has filled the airwaves about Ontario being “bankrupt” then and now. This is arrant nonsense and propaganda. Ontario always has, and always will, pay its bills. The debt and deficit bogeymen were used to justify decisions – like the subway and housing cancellations – that were shortsighted and for which we are still paying a heavy, and completely unnecessary, price.
The challenges facing the Wynne government are different. Interest rates are low, but the debt is far higher. It is more than triple what is was in 1995. More than $200-billion has been added to the provincial debt in the last twenty years.
But the economy has also grown, and with wise management we can meet the challenge.
To the mortgage we owe must be added the deficit in investment on infrastructure, which has grown tremendously since the transit cancellations of 1995, as well as the persistence of unemployment among young people and in parts of Ontario where manufacturing jobs have gone and not enough has taken their place.
The housing deficit is also massive, and no level of government has taken the lead in pulling everyone together to deal with a gap in affordable housing which every other industrial country has met with greater investment.
Just as we did in 1990, Ms. Wynne faces not just one challenge, or one deficit, but many. And, just as we did in those years, she faces it without the reliable support of the federal government. Ottawa has behaved more like an absconding debtor than a steady partner. This has been an issue since the late 1980’s when a cap was placed on Canada Assistance transfers just as social assistance costs rose to deal with the cuts in unemployment insurance and the sudden jump in joblessness.
The current budget sets out a path of continuing investment in infrastructure, and restraining growth in other spending. The opposition parties pummel away in the legislature, but they don’t really have an alternative.
There are other things that can be done, but they are not easy. Let me suggest that the next budget, if not before, is the time to do them. Climate change makes these decisions even more necessary, and Ottawa is providing zero leadership on this critical issue. Ontario should fill the gap. A tax shift from income to consumption, which could lead to significant reductions in tax levels for lower and mid-income families, is one key direction. Road pricing and congestion charges are another. Tinkering around the edges on tax policy won’t do it. And an “adult conversation” won’t do it either.
Putting tolls on highway 407 was done without too much pain. It’s like taking out a sliver. Thinking and talking about it is usually much worse than actually doing it.
The real answer to the deficits we face today is growth, together with a willingness to shift some unproductive and sluggish revenue sources and hold back on current spending. You can’t just restrain yourself to prosperity any more than you can, alone, spend your way out of it. Much of the growth in our economy in Ontario will depend on events elsewhere, but in the meantime, it is better to light a candle than curse the darkness.
We should not make the mistake of only playing in the Conservatives’ sandbox. The policy debate on jobs, growth, and sustainability needs to start with a vigorous exploration of all the options, and a willingness to see our past and future in a different light.
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I refused to play the Conservativesâ€™ fiscal game. So should Wynne - The Globe and Mail