Ford government’s upcoming second budget should include real fiscal reform
It’s no secret that Ontario faces a large debt problem. At $24,000 per Ontarian and climbing, Ontario’s in a deep hole. That, combined with the absence of plan to meaningfully reduce the province’s debt burden over time, is why in recent years several credit rating agencies have downgraded Ontario’s creditworthiness. These downgrades may increase the cost of future borrowing.
The challenge is daunting, but it’s not intractable. Other governments in Canadian history have eliminated far larger deficits than Ontario now faces—and reduced large debt burdens quickly. If it studies and learns from these lessons, the Ford government has a good shot at repairing Ontario’s finances.
Consider the 1995 federal budget tabled by then-prime minister Jean Chretien.
Like Ford, Chretien walked into a disastrous fiscal situation he did not create but was, by virtue of being in government, responsible for fixing. The Chretien Liberals put forward one tentative budget in 1994 (not unlike the tentative Ford budget of 2019), but it in their second budget, in 1995, the Chretien government began to take decisive action to fix the problems.
Starting in ’95, the Chretien government reduced nominal spending by approximately 10 per cent over two years, quickly eliminating a much larger budget deficit than the Ford government now faces.
A fiscal consolidation on anything resembling this scale in Ontario today would not only quickly slay the deficit but would create fiscal room for overdue tax relief. That’s what happened in Ottawa—once Chretien’s government slayed the deficit, it embarked upon a major program of tax relief and reform designed to help the economy grow. These pro-growth tax measures contributed to strong Canadian economic performance in the years ahead.
For instance, Ontario currently has an economically-harmful top marginal personal income tax rate of 53.53 per cent, the second-highest in North America. In today’s Ontario, growth-enhancing tax relief can’t come soon enough.
Very often in Canadian history, governments set out their approach to governance in very broad terms in their first budget. Alberta’s United Conservative Party under Premier Jason Kenney is a good example. It’s first budget marked a meaningful departure from the approach of its predecessors, with nominal spending reductions (albeit small ones), thereby at least partly matching its campaign trail rhetoric about fixing the province’s finances.
But again, it was Chretien’s second budget—not its first—that began the process of setting federal finances right. The Ford government can learn from that example and follow up last year’s status-quo budget with a reform-oriented budget this year, aimed at achieving balance quickly and creating fiscal room for tax relief and reform.
We are now more than a decade removed from 2008/09 recession and excuses for why the budget can’t be balanced quickly have worn thin. If the Ford government is as committed as it sounded on the campaign trail about fixing the fiscal mess in Ontario, it should heed the lessons of the Chretien government and use its upcoming second budget to produce plan to return to balance quickly, create fiscal room for tax relief, and thus help spur economic growth in the province.
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.