Ontario should go for growth in 2017
A new year has arrived, and many Ontarians are resolving to make changes. Whether it’s shedding a few pounds, socking away money, or spending more time with loved ones, people are setting goals to improve their lives.
For the government of Ontario, an appropriate goal would be a policy framework that addresses a serious problem facing the province—weak economic growth.
Consider that between 2003 and 2014, inflation-adjusted per-person economic growth in Ontario averaged just 0.3 per cent annually. This is abysmal—it’s about a third of the economic growth rate in the rest of Canada, and it directly affects the lives of Ontarians. As recently as 2000 average disposable household income was 10 per cent higher in Ontario than in the rest of the country. But thanks to weak economic growth, incomes in Ontario fell below the national average for the first time in history in 2012. That means lower living standards and less opportunity.
And yet, there are signs that the Wynne government still doesn’t get it. In recent months, it distributed upbeat media releases boasting that economic growth has ticked up. And it’s good news there are finally some green shoots. But that shouldn’t distract us from the severity of Ontario’s long-term challenges.
For the government, the first step is recognizing the province’s serious economic problems and that a change in direction is needed to create the conditions for sustained growth.
What would this change look like? For starters, the government could boost growth by reforming personal income taxation.
Research shows high personal income tax rates discourage work and entrepreneurship—two things our economy needs more of, not less. And yet the Wynne government maintains some of the highest personal income tax rates in the developed world. Ontario’s top personal income tax rate (federal and provincial combined) is now 53.5 per cent. Once you add in the 13 per cent HST and other taxes, government takes more than half of new income earned by many professionals and skilled workers. That’s not a recipe for a dynamic economy.
Reducing damaging taxes would help drive growth. So would developing a serious plan to reduce provincial government debt. Ontario’s big public debt creates several challenges for the province’s growth prospects. Firstly, it creates a burden for future generations who will have to service and repay the debt. Further, it may dampen investment by sowing uncertainty and instability in the economy due to the potential of even more tax increases to pay for past spending. Reducing the debt would remove a dark cloud hanging over Ontario’s economy.
Finally, if the government is serious about growth, reorienting electricity policy would help. Recent policies such as the Green Energy Act have contributed to rising power prices, which hit Ontarians in the pocketbook and make it harder for businesses to compete. Now the new cap-and-trade program will put more upward pressure on energy prices. A new approach to electricity policy focused on affordability can help make Ontario more attractive for investment.
The damage caused by more than a decade of economic stagnation will not be repaired overnight. Restoring the province as an economic leader in Canada will require many years of strong economic performance. In 2017, the government can help create the conditions for this type of turnaround if it’s willing to change direction and enact pro-growth policy reforms.
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