VANCOUVER – Opinion – On May 1st Ontario Finance Minister Charles Sousa will stand in the provincial legislature to deliver this year’s budget speech. Rather than present a bold fiscal and economic plan to jumpstart Ontario’s lacklustre economy, Sousa seems poised to deliver a budget with increased spending, higher taxes, and more government debt.
In other words, he’ll likely keep the province on the same course, steadfastly refusing to recognize and reverse failed policy decisions that are currently hurting the economic prospects of Ontarians.
But imagine if Sousa were to surprise us all and take a different track – one that sets out a new agenda to return Ontario to its historical position as the economic engine of the country.
Here’s what he would say.
Sousa would start by acknowledging the source of Ontario’s fiscal woes: a decade of government spending increases that, on average, outpaced reasonable benchmarks such as economic growth. After all, it is this failure to control spending that has resulted in persistent deficits with no end in sight and government debt virtually doubling from $138 billion to $272 billion (nearly 40 per cent of the provincial economy).
The immediate consequence of Ontario’s growing debt is that interest payments now cost $10.6 billion and consume over 9 per cent of government revenues. Sousa’s predecessor pointedly called Ontario’s interest payments a “ticking time bomb” given their potential to increasingly displace spending on important government programs such as healthcare and education.
In our fictitious world, the enlightened finance minister would show leadership and make the tough decisions to eliminate the deficit and rein in government debt.
To that end, Sousa would announce a series of spending reforms to balance the budget and create the room for tax relief that improves Ontario’s competitiveness. A good starting point is to tackle the largest component of spending: the compensation of government employees. Government workers in Ontario currently enjoy a 14 per cent average wage premium compared with similar positions in the private sector. This comes on top of more generous pensions, an earlier average age of retirement, and much greater job security. A phased-in plan to bring government employee compensation into line with private sector norms would be a major source of savings.
Another area ripe for spending restraint is healthcare, which already consumes over 40 per cent of total program spending and faces further cost pressure as the population ages and places greater demands on the system. Here, Sousa might consider adopting policies common in other countries with universal access healthcare (like the Netherlands and Switzerland) that promote greater competitive pressures between suppliers and better incentives for patient decisions, while producing better quality care.
Sousa would also eliminate special subsidies to businesses and particular industries such as green energy; the evidence clearly shows that corporate welfare doesn’t help economies grow.
He would stand strong in his position that such reforms are necessary because a solid fiscal foundation must be the basis for a plan to revive Ontario.
The revival plan would also move ahead with the government’s previous commitment to lower the provincial corporate tax rate and reverse recent personal income tax hikes. Sousa would explain to his fellow politicians that more competitive taxes will better position the province for attracting and retaining investment, entrepreneurs, and skilled workers such as doctors and engineers. The minister would acknowledge that while some factors are outside the government’s control (such as the value of the Canadian dollar), the government must focus on things it can influence like making the province’s tax regime internationally competitive.
He would emphasize that Ontario must become more competitive in other policy areas, namely on provincial labour laws, which need to be reformed to give Ontario workers more freedom to choose whether to join a labour union, and on energy costs, which are among the highest in North America.
To the surprise of many, he would inform the legislature that he’s abandoning plan for a “made-in-Ontario” pension program and accompanying payroll tax in light of the reality that there’s no retirement income crisis in Canada.
Finally, the minister would level with Ontarians about the serious challenges facing the province. In an aspirational tone and visionary mindset, he would articulate that Ontario’s recent economic malaise can be remedied with the right set of policies.
This is all a big if. And while we’re not holding our breath, this is precisely the type of positive plan that Ontario needs to get back on track.
Sean Speer is the associate director of fiscal studies and Charles Lammam is resident scholar in economic policy at the Fraser Institute