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Compared to other provinces, Ontario and Quebec governments do poor job of managing provincial finances

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Release Date: September 13, 2011
VANCOUVER, BC—The governments of Canada’s two largest provinces, Ontario and Quebec, led by premiers Dalton McGuinty and Jean Charest, are among the worst managers of provincial finances according to a new analysis of the fiscal records of 10 Canadian premiers, released today by the Fraser Institute, Canada’s leading public policy think-tank.

The McGuinty government in Ontario ranked ninth overall with a score of 34.0 out of 100 while the Charest government ranked sixth with a score of 45.5 out of 100.

“With Ontario and Quebec making up nearly 60 per cent of the entire Canadian economy, it’s critical for our country’s success that these provinces have strong economies,” said Charles Lammam, Fraser Institute senior policy analyst and study co-author.

“Since sound fiscal policy is a key determinant of long-term economic success, it’s unfortunate to see premiers of Canada’s two biggest provinces ranked so low.”

Measuring the Fiscal Performance of Canada’s Premiers, 2011 is an annual report that examines the relative fiscal performance of 10 Canadian premiers in their management of government spending, taxes, and debt and deficits during their time in office up to the 2010/11 fiscal year. Some former premiers are included in the rankings while some current premiers are excluded either because they assumed office part way through the last fiscal year or they have yet to table a provincial budget. Each premier received an overall score (out of 100) and rank (out of 10) based on their performance on three components of fiscal policy: government spending, taxes, and debt and deficits.

Former BC premier Gordon Campbell had the best record overall, scoring 83.1 out of a possible 100. Former Newfoundland & Labrador premier Danny Williams ranked second with a score of 72.9, while Nova Scotia’s Darrell Dexter ranked third at 60.4. Saskatchewan’s Brad Wall (53.8) ranked fourth and Alberta’s Ed Stelmach (52.7) ranked fifth.

All other premiers scored below 50.0. Quebec’s Jean Charest (45.5) ranked sixth; New Brunswick’s former premier Shawn Graham (35.1) ranked seventh; and Manitoba’s Greg Selinger ranked eighth with a score of 34.3.

Ontario Premier Dalton McGuinty (34.0), and Robert Ghiz (27.0), premier of Prince Edward Island, rounded out the bottom two spots.

“While Mr. Campbell left office several months ago, the reality is that he pursued better fiscal policies during his tenure than his provincial counterparts. Indeed, other premiers should follow his lead on reducing personal and business taxes and restraining government spending,” said Lammam.

“Perhaps most troubling is the continued poor performance of Ontario Premier McGuinty, whose record on government spending and controlling debt is among the worst of all premiers. For Ontario to regain its position as an economic powerhouse within Canada, Premier McGuinty needs to curtail spending increases, quickly balance the provincial budget, and lower taxes on personal income.”

Government Spending

A large body of academic research shows that excessive increases to government spending can hinder an economy’s performance.

Nova Scotia’s Dexter ranked first on the government spending component with a score of 94.8 while Campbell was second (83.7) and Williams third (67.4). With a score of 62.8, Charest was fourth and the only other premier to score above 50.0. McGuinty ranked eighth with a score of 20.1 while Wall of Saskatchewan was last with a score of 9.8.

“Seven of 10 provincial premiers have increased spending at a faster rate than the growth of their economies, an unsustainable approach to managing government finances,” said Niels Veldhuis, Fraser Institute senior economist and study co-author.

Taxes

Tax rates and the structure of the tax system have a significant impact on incentives that influence whether businesses and individuals engage in productive economic activity.

Campbell topped the rankings on the taxes component, with a score of 87.0. Graham (81.0) ranked second followed by Stelmach (64.4), Williams (55.1), and Wall (51.7). The remaining five premiers all scored below 50.0, with McGuinty finishing sixth with a score of 49.0 while Charest was eighth at 29.1. Dexter was last with a score of 11.5.

“To improve the economies of Canada’s two largest provinces, both Ontario and Quebec must reduce taxes to improve the incentives for hard work, saving, investment, and entrepreneurship.” Veldhuis said.

The report notes McGuinty has a mixed record on taxes; he increased business taxes shortly after coming into power in 2003 but later realized this was an error. Since 2009, the McGuinty government has improved the business tax regime in Ontario but personal income taxes remain high, particularly the rate on high earners which tend to be the skilled professionals the province wants to attract and retain.

One major failing of Charest’s, according to the report, was his inability to make Quebec’s high marginal tax rates on personal income more competitive during his tenure. Additionally, he increased the province’s corporate income tax rate, which is a deterrent to businesses investment.

Debt and Deficits

Debts and deficits are a critical aspect of fiscal performance because annual deficits increase the overall level of government debt, requiring more and more tax dollars to be spent on debt servicing (interest costs). This ultimately reduces the amount of money available for public services and tax relief.

Premier Wall earned a perfect score of 100, due to his record of running budget surpluses while in office. Williams (96.1) ranked second followed by Campbell (78.6) then Dexter (74.8).

The other six premiers (Stelmach, Charest, Ghiz, McGuinty, Selinger, and Graham), each of whom averaged a deficit during their tenure, failed to score above 50.0. New Brunswick’s Shawn Graham ranked last with a score of 12.3.

“Annual budget deficits in Ontario are worrisome and leave a huge burden for Ontario’s next generation. If this continues, and the government’s current plan indicates that it will for another six years, Ontario’s youth will eventually face either drastic spending cuts, increased taxes, or a combination of both to get the province’s fiscal house in order,” Veldhuis said.

“The recent recession and ensuing global fiscal crisis have underscored the importance of controlling government spending and debt, lessons to which Canadian provincial leaders need to pay closer attention.”


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