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Ontario's 2012 budget a missed opportunity

Appeared in the Financial Post
Authors:
Release Date: March 28, 2012

On Tuesday, Ontario Finance Minister Dwight Duncan had one of those rare opportunities of which politicians can only dream. With his province heading toward a fiscal crisis caused by mounting debt and out-of-control spending, an opposition sympathetic to dealing with the problem, a public that clearly wants his government to address the debt, and news outlets that understand the need for significant fiscal restraint, everything lined up for Duncan.

Call it his "Paul Martin" opportunity. Unfortunately, unlike Martin, his friend and mentor, Duncan didn't seize the opportunity as did Martin in 1995, when he put forth a budget that proposed cutting actual program spending - not simply reduce spending growth - by almost 9% over just two years. The proposed cuts were substantial: Spending on transportation was to decrease by 51% from 1994-95 to 1997-98; natural resource sector spending by 31%; industrial, regional and scientific-technological support programs by 38%; and heritage and cultural programs by 23%.

As a result, the Liberals surpassed their goal, reduced program spending by 9.7% and balanced the budget in just two years.

What Ontario needed on Tuesday was similar action by Dwight Duncan. But while Duncan labelled his government's fiscal plan as "Strong Action for Ontario," it was nothing of the sort.

Instead, Duncan stuck with his original plan to run deficits for another five years (until 2017-18). Another five years in which Ontario's debt will increase to more than $315-billion from $238-billion today - this after the debt has already increased by over 70% since the McGuinty Liberals took office in 2003.

This added debt will stifle economic growth, unfairly saddle young Ontarians with the heavy burden of debt repayment, and increases the risk of future economic slowdowns, negatively affecting the government's finances.

Despite all the talk of deep spending reductions, as the nearby graph shows, Duncan's plan doesn't actually cut overall spending. Instead, Duncan chose to tinker, increasing spending but at a slower rate. In the hope of balancing the budget by 2017-18, his government is pinning its hopes on optimistic revenue growth forecasts (averaging 3.7% annually).

On the spending side, Duncan proposes holding program spending growth to an average rate of 0.7%, less than that proposed by his government's own commission, without enacting anywhere close to the level of reforms the commission proposed.

But in some of the government's bigticket areas, spending will increase significantly over the next three years. The budget forecasts spending increases in health care of 6.3%, in K-12 education of 5.2%, and in social services an 8.0% increase.

In addition, Ontarians should be skeptical of the government's ability to hold the line on spending. For example, in last year's budget, it promised to hold spending growth to 1.0% for 2011-12, but then nearly tripled the growth in spending to 2.8%. Not to mention increased program spending at double the rate of economic growth from 2003-04 to 2011-12.

Had Duncan actually seized the opportunity to balance Ontario's books, he could have done so in just two years - the same time horizon achieved by the federal Liberals in the 1990s. In fact, if Duncan emulated Martin and actually cut program spending by 9.7% over two years, projected program spending for 2013-14 would decrease from $117-billion to $103-billion and the projected $13.3-billion deficit would be erased.

This, however, would require bold reforms that asked tough questions, like whether government involvement in specific areas is actually necessary. If Ontario's Liberal government was willing to face the truth, Duncan should have eliminated or significantly cut business subsidies that cost Ontario taxpayers and successful businesses approximately $2.7-billion per year. He should have cut Ontario's costly electricity subsidies, which cost taxpayers an estimated $1.1-billion a year.

Rather than freeze wages for a narrow group of public-sector workers, executives and teachers (and for only two years), he should have committed to aligning overly generous public sector pay with wages and benefits paid in the private sector, saving Ontario taxpayers $3.8-billion annually.

He could have changed hospital funding to encourage competition and looked at other health policies that are common in other nations with universal access health care.

Unfortunately, none of these happened.

To avoid a crisis in Ontario, significant action is needed. With $10-billion in increased spending, five more years of deficits, and $77-billion in added debt, Duncan needs to find the same resolve Paul Martin did in 1995.



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