It not only tanked in 2009 — it’s still performing far worse than anyone imagined. And will continue to underperform.
And just as a poor economy hurts working families, it also hits a provincial budget hard: Burns a hole in revenues, boosts the deficit, bulks up the total debt.
Against that gloomy backdrop, Ontario had good reason to brace for a bloodletting Ontario budget Tuesday. For months, Finance Minister Dwight Duncan had been laying the groundwork for major cuts in government spending. Egged on by the influential Drummond Commission’s report last month, he promised to rein in a runaway deficit.
Yet there are no deep pools of blood on the floor.
All the tough talk of cutting some ministries by up to 30 per cent has been forestalled. Instead of welfare cutbacks recalling the Mike Harris Tories, rates will be frozen.
By any standard, this is a tough budget. It threatens a wage freeze for teachers and other public servants, rejigs the way health dollars are spent, postpones child benefit increases and tackles pension shortfalls.
And yet, despite opposition bravado on Tuesday, the budget is unlikely to trigger the defeat of the minority Liberal government. Barely six months after Ontarians trudged so grudgingly to the polls (with a paltry 49 per cent turnout), voters won’t stand for it and the opposition parties are too deeply in debt to withstand it.
They lack a pretext, let alone a poison pill, to provoke fresh elections.
For all of Tory Leader Tim Hudak’s criticisms, this budget slashes overall government spending, partially addresses his fixation on arbitration for public servants and threatens legislated wage freezes.
For all of Andrea Horwath’s face-saving talk of holding a “conversation” with NDP supporters before casting her party’s vote, the freeze on future cuts to corporate tax rates and other business levies allows her to claim victory.
And the Liberals have decoupled their most controversial proposals from the budget bill — the threat of a legislated wage freeze and tougher pension provisions. That allows the NDP to hold its nose and buy into the budget now, then noisily vote against any future wage legislation (at which point Hudak’s Tories might prop up the Liberals in a looming showdown with teachers’ unions).
Opposition rhetoric aside, this is a relatively balanced effort to balance the budget by 2017-18. Almost everyone is being asked to share in some of the pain, albeit with little gain for anyone anytime soon.
Politically, however, the fixation on the deficit is the weak underbelly of the budget. Cost-cutting plans are rarely political winners because there are no clear beneficiaries able to shout down the many obvious losers and special interests.
Politicians instinctively like to fight elections by promising to create jobs and boost the economy, not by pledging to trim deficits. That’s why no party leader broached debt in the last campaign, or wants to debate it on the doorstep now.
But after sidestepping the deficit for years, and piling on more debt, there is no avoiding it now. The $260 billion debt is what drives this budget.
Progressive economists prefer to understate the debt by restating it as a percentage of the overall economy, which makes it sound more manageable. But by any measure, Ontario’s debt load is more daunting than ever: It will hit a record-setting 41.6 per cent of GDP in 2014-15 — even worse than recent predictions — as it approaches the $300 billion mark over the next few years.
The debt load is rising inexorably because Ontario’s economy is now predicted to grow by only 1.7 per cent this year — far more sluggishly than the 2.7 per cent expected only 12 months ago. Also, interest on the debt is now $10 billion a year — more than the province spends on higher education and training. As record-low interest rates fade away, that bill is projected to reach $12 billion within two years. And any rating downgrades could boost interest rates even higher.
Hence the government’s narrow margin of manoeuvre, made more limited by a minority Legislature. Yet for all gloom and doom and debt, there is light at the end of this fiscal tunnel.
The Liberals have quietly redefined the revenue equation, finding extra billions by freezing planned tax cuts on businesses, raising user fees (including higher drug charges for the most affluent seniors), boosting their take from sin taxes and betting on more lucrative gambling operations. That fiscal recalibration helped forestall more severe budget cuts. Overall, spending will increase by less than 1 per cent this year (with more leeway given to health, education and social services).
Transformation was the buzzword in the Drummond report, yet there is relatively little evidence of it in the current budget. Understandable, perhaps, given that the final report landed only last month.
Transformation takes time to incubate. The treasurer was running out of time to deal with the deficit.
A year after Duncan signalled that he wanted to turn around a sinking fiscal ship, he has produced a more robust plan to stay afloat. And change course.
Now he needs to avoid running aground on the political shoals of a minority Legislature. And that’s where accidents can happen, no matter how skilled the navigation.
Original Article
Source: Star
Author: Martin Regg Cohn
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