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Discussion: Will the new budget fix Ontario's ills?

Columnist Jeffrey Simpson will take your questions at 9 a.m. ET

  • Good morning, Jeffrey.
  • Good morning, Chris
  • Let's start off with a big question: What were the Liberals trying to accomplish with this budget?
  • Accomplish? Survive politically, one presumes, as survival is a political instinct and necessity in a minority legislature. Second, keep the ratings agencies at bay, because they have been signalling in no uncertain terms their unhappiness with Ontario's fiscal mess. Should Ontario's credit rating decline, it would mean higher borrowing costs. Third, finally start dealing with reality, namely that the cost of public services in Ontario -- although low per capita by Canadian standards -- are too high for the revenues of the province.
  • What we have witnessed in recent years in Ontario (and this observation could be extended across the country) is that in better economic times governments inject large amounts of new money into the economy in the form of new programs and higher wages for providers of public services (doctors, nurses, teachers, police, administrators) and then when the economy weakens, revenues shrink, deficits piled up, interest payments rise, and governments then have to try to claw back some of the gains they offered the providers who, naturally, consider those gains to be new entitlements enshrined in collective bargaining agreements. So governments stand Keynes on his head by spending greatly in the good times and cutting back in the bad.
    by Jeffrey Simpson edited by Chris Hannay 3/28/2012 1:09:47 PM
  • On the our first point, the politics, which party is more likely to support the budget? And what kind of compromises or accommodations do you expect?
  • As for which party will support the budget, I rather think the Liberals will. the Conservatives have already denounced the budget, and the NDP is wisely taking some time to reflect and presumably to consult with the big battalions of the public sector unions whose leadership is in tight with the NDP. The unions thus far have been remarkably quiet. Their leadership is presumably trying to figure out where their members are, where the public is, and whether they have the stomach for a fight. I think, as I wrote in my column this morning, the government should have imposed a surtax on high-income earners -- not that it would have raised much money but as a signal of sacrifice and as a way of secure NDP support. They should have raised the sales tax to occupy the space the Harper Conservatives so unwisely created (see federal deficit) by lowering the GST by two points.
  • Can you speak to the opposition parties' bargaining tactics? Despite the fact that it reads as a right-leaning budget, Hudak's PC party has already rejected it. Whereas Horwath says she'll 'wait and see' after 'talking to Ontarians.' What do you think the potential benefits or downfalls of the two leader's strategies may be?
  • Melissa: The Conservatives look like meatheads: blindly opposed to everything. I heard their spokesman on Steve Pakin's program TVO last night -- the best public affairs show on television -- saying the government should have taken their party's advice and review all "600" boards, agencies and commissions in Ontario as an answer to the deficit. Get real. This is the kind of illusion that inspires opposition parties everywhere. In the face of a $15-billion iceberg of a deficit, that exercise would represent the shavings of the iceberg. Sure, go ahead and do it, starting with the Ontario Municipal Board that is unique in Canada for the powers it exercises. The last campaign featured a Conservative platform that was widely derided (and not just by me) as an intellectual hoax. As for the NDP, who knows? The party, provincially and federally, seldom sees a government program that it does not like. Instinctively, the NDP is not equipped to cut programs but to add, and there does not seem to be any virtue in opposition in thinking about tradeoffs and choices. So all the NDP can think about is raising corporate taxes which in a very blunt and quite likely ineffective instrument to deal with a deficit problem. If they align themselves too closely with the public sector unions, which they instinctively will want to do, they will be offside I suspect with the public.
    by Jeffrey Simpson edited by Chris Hannay 3/28/2012 1:22:34 PM
  • What is your view of that $12.0 billion of the cuts are not really cuts (if you accept that) to current spending but are cost containment from future increases and what is the outcome in two years when these costs start to raise again.
  • Bruce: Well, if you assume, as is reasonable, that public sector employees were going to get some kind of increase -- say, 2 per cent as arbitrations have awarded -- then the government is "Saving," albeit in the short term. The trick would be not to allow "catch up" down the road that would wipe out the short-term gains. Having observed many cost-containment exercises by federal (and some provincial governments), there is to me an iron law of restraint. Only if the government stops doing things in whole or in part are there long-term savings. Otherwise, over time wages and benefits catch up, new programs are added, classification creep drives up overall remuneration costs. It's been fascinating for those who care about such things to observe how fast after a containment exercise the costs resume their upward march. It means that every decade or so we get yet another spending review exercise of the kind we are witnessing in Ottawa and have just witnessed in Ontario with Don Drummond's report and now this budget. There is something else to note. In a table that accompanied the budget, it showed that over twenty years, Ontario's debt-to-GDP ratio had gone from 13 per cent to about 40 per cent. The big jumps were recessions in the early 1990s and 2008-2009. Those recession drove up the ratio, and no government was able to reverse the ratio, just stabilize it for a while, which illustrates the point that when times are better, governments at best hold the line and at worse spend lots of additional money (as McGuinty has) and then get clobbered when times get bad, as now.
    by Jeffrey Simpson edited by Chris Hannay 3/28/2012 1:31:43 PM
  • Did the Libs actually do anything from the Drummond Report?
  • Doug: Yes, they did quite a lot: public sector pensions, eliminating certain programs (see horsetrack subsidies), curtailing health-care, where they went beyond what Drummong bhad recommended, although I am from Missouri about whether health-care can be kept to a 2.1-per cent increase (I say that having just written a book on health-care). But they obviously opposed some of the major recommendations in which he took aim at some of their prized political initiatives such as smaller class sizes (for which there is no pedagogical evidence), subsidies for higher power rates etc. They picked and chose, as could have been expected since, after all, it was for Drummond to promise and for an elected government to dispose. Still, the Drummond report, the most comprehensive look at a provincial spending framework I have ever seen, will remain the yardstick by which future decisions will be made. A last point: some of Drummond's recommendations, even if accepted, would take two or three years to implement. They could not have all been done at once, even a stomach to do so existed.
  • It seems that Ontario's Green Energy plan has been largely absent from the discussion surrounding the budget. Is this a strategy by the government to avoid getting into a heated debate with the opposition party?
  • Tyler: There was so much in the budget, perhaps not all areas got immediate attention, but there are substantial changes in the Green Energy Plan, although not to the hydro rebate for residential users, although it disappears for business. Municipalities will be given back more say over the location of wind turbines -- something that riled up some people in rural areas.
  • Jeffrey: What do you think of the decision to dismantle Ontario Northland? Is it an outdated agency whose time has come (and whose time might have come years ago had it not been based in Mike Harris' hometown)? Or was it politically easy to pick on thinly-populated northeastern Ontario when the time came to scrounge for pennies? Are there any other provincial agencies which stand out as candidates for privatization, elminiation, etc.?
  • True confession: I don't know enough about the Ontario Northland to offer an intelligent comment, although critics would say that hasn't stood in my way on many other issues.
  • We have to wrap up the discussion now. Thanks, everyone, for reading and leaving your comments and questions. Stay tuned for more on the Ontario budget and tomorrow's federal budget.
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