Ontario in the grip of short-term policy thinking
Public policy decisions are frequently biased towards short-term thinking. Governments make decisions that will affect people’s lives for decades, but must operate within a political context in which the next election is never more than a few years away.
This can’t be solved completely—but it can be mitigated by politicians with courage and strong communication skills willing to tell the public when it’s a bad idea to create significant future costs.
Unfortunately, in Ontario, policymakers have recently been willing to impose long-term costs on Ontarians rather than make hard choices today.
Nowhere is this clearer than fiscal policy.
It’s true that the government has faced some tough circumstances when it comes to public finances. The province was hit hard by a nasty recession in 2008/09, which caused spending in some areas (social assistance, for example) to go up, and revenues to dip. Running budget deficits back then may have been necessary.
It has been a matter of discretionary choice, however, for the provincial government not to work quickly in the years following the recession to reduce spending. Rather than bring spending back down during the recovery approximately as quickly as it went up during the recession to return to balance quickly, the province chose to merely slow the rate of spending growth while waiting for revenues to gradually catch up.
Crucially, deciding to shrink the deficit only very slowly will have important future consequences—specifically, a veritable mountain of debt that will need to be serviced indefinitely.
What adds insult to injury is that the government sometimes justifies the rapid run-up in debt as something done for the benefit of future generations. This argument is implicitly embedded in claims that rising debt is necessary to finance investments in growth-enhancing infrastructure.
But in reality, infrastructure investments haven’t driven the big debt run-up. A recent study shows two-thirds of the new debt accumulated between 2009/10 and 2014/15 was due to current expenses exceeding revenues—not long-term capital spending on infrastructure projects such as roads and bridges. In other words, the debt was run-up by spending on items being consumed today, but future generations will be stuck with the bill.
It’s within this context that the government’s decision last week to spread out the repayment of debt resulting from the government’s management of Ontario’s power system must be understood.
The provincial government has made a number of well-documented mistakes, which have contributed to skyrocketing hydro bills. The political fallout has been damaging for the government, which is now trying to put out the fire by spreading the province’s repayment schedule of debts over a longer time period, allowing hydro rates to fall in the short term.
Again, the costs of our energy policy mistakes are being pushed onto future taxpayers who will have to pay billions more in interest payments.
Policymaking in Ontario is in the grip of short-term thinking. To bring sustainable economic prosperity back to the province, Queen’s Park should refocus on policy fundamentals that encourage long-term growth. That includes making meaningful commitments to tax competitiveness and fiscal responsibility.
The only other option is to keep kicking the can down the road, all the while worrying about how on Earth we’re going to explain our choices to our kids.
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