Ford government should heed lessons of recent fiscal history
In last week’s fiscal update, Ontario Finance Minister Vic Fedeli had a little bit of good news. Ontario’s budget deficit for this year is now forecasted to be $1 billion less than previously thought, at $13.5 billion. The update sets the stage for the upcoming provincial government budget.
As budget day approaches, the Ford government faces one big question. How long will it take to balance the budget? For answers, the government should look recent Canadian history, which shows us that successful fiscal consolidations have often been fast-moving, eliminating daunting budget deficits over two- or three-year periods. History is clear—a determined government can quickly eliminate even large budget deficits.
The mid-1990s provide the most instructive examples. At that time, the federal government and provincial governments from coast-to-coast faced big deficits and ballooning debt interest payments. So some governments took decisive action to repair their finances quickly. The first to move was the Saskatchewan NDP government of then-premier Roy Romanow who oversaw substantial spending reductions that brought the province back from the brink of insolvency. In Ottawa, Jean Chretien’s Liberal government similarly implemented significant policy reforms that reduced government spending and eliminated the deficit in short order. In Ontario and Alberta, Progressive Conservative governments also eliminated significant budget deficits.
While each government addressed their fiscal challenges in different ways, one thing they had in common is that they aimed for rapid deficit-reduction. In each case, the deficit was completely eliminated over a period of either two or three years, quickly slowing the accumulation of deb and sparing taxpayers the burden of additional debt interest payments.
Furthermore, with the books balanced, governments across the country were able to provide substantial tax relief, helping to drive economic growth and leaving businesses and individual Canadians with more money in their pockets.
Compare this record of success in the 1990s with the “go slow” approach that has been in vogue in recent years. Ontario’s example is especially instructive. After a big deficit emerged during the recession of 2008/09, the Liberal governments of McGuinty and Wynne gave themselves long timelines to balance the budget, with a target balance date of 2017/18.
The poor results speak for themselves. Ontario’s net debt approximately doubled (in nominal terms) over a decade, and ultimately neither the McGuinty or Wynne governments balanced the budget. And far from being able to provide tax relief like governments in the ’90s, McGuinty and Wynne introduced and maintained a “temporary” increase to the top personal income tax rate—an increase still with us and still harming the provincial economy today.
Clearly, Canadian history suggests that when it comes to eliminating large budget deficits, slow and steady does not win the race. Instead, a go-slow approach often leads to more debt and higher taxes. As Minister Fedeli and Premier Ford’s government prepares its 2019 budget, it should heed the lessons of history and avoid the mistakes of its predecessors while emulating the more successful deficit-elimination efforts of the 1990s.