Rivers on the budget

Rivers 100x100By Ray Rivers

April 13th, 2018

BURLINGTON, ON

 

After finally balancing the budget why are the Liberals now taking us back into the red? The liberal bible on economy was written by the English economist John Maynard Keynes, widely quoted as one who prescribed borrowing (run a deficit) in a recession and pay it back (run a surplus) in a boom.

Ontario was in a bad way following the 2008 market collapse, so borrowing to restart the economy was essential. And the medicine worked and today the Liberals can take pride in having delivered the lowest unemployment rate in almost two decades and a growth rate second to none among G7 economies. And they got to a balanced budget two years in a row.

ONdebt_chart 1

 

So what is with this projected deficit in their latest budget? And why a list of public goodies including:

1. Continued free university for students in need;
2. Full pharmacare for youth and now seniors;
3. Free preschool for two and a half year olds;
3. Money for hospitals to reduce wait times;
4 Dental and drug care for those who can’t afford it;
5. More senior places; and
6. More transportation including a high speedToronto/ Windsor link.

John Robarts - one of the best Premiers the province ever had: knew how to balance a budget.

John Robarts – one of the best Premiers the province ever had: knew how to balance a budget.

This is a huge social contract, second in history only to John Robarts introducing OHIP. And if a single payer system works for OHIP, providing low cost health care, the argument goes that pharmacare, pre-school and other social programs would work that way as well. After all you pay for these services one way or another if you or your loved ones use them.

Skeptics say the Premier is just buying votes with the voters’ own money. That would be a valid perspective for a libertarian – those who hold that government should be as small as possible, the cost of government and taxes as low as possible and everyone fend for themselves – the so-called right wing perspective.

So this upcoming provincial election will be a contest of ideologies. Doug Ford having upturned Patrick Brown’s red Tory vision and now campaigning to wind back government, slash social, health care and environmental programs… and spending. Meanwhile the Liberals and NDP will be promising to further expand the social safety net.

Most Ontario voters are modern progressives who appreciate the way our society has evolved and how we help each other, even if we occasionally grumble about getting the short end of the stick. In our first-past-the-post electoral system with two centre-left parties competing for the largest portion of the vote, the single party on the right can slip up the middle to win a majority of seats.

Tim Hudak - with flagTo avoid this from happening the Liberals have typically relied on strategic voting, whereby solid NDP supporters vote Liberal just to keep the Tories from winning. And their biggest asset is an extreme right wing leader, like Tim Hudak in the previous election – and possibly Doug Ford in this one.

Of course the strategic voting could go the other way, particularly as the Liberals have been in power for almost two decades and their leader is facing a combination of general voter fatigue and discontent over her style. She needs to outflank the NDP, and has obviously anticipated that their election platform would also encompass a package of rich election promises. Ergo the 2018/2019 budget.

It’s the same playbook Mr. Trudeau used in his last campaign. While the Tories and even the NDP had been promising restraint and perhaps a balanced budget, Trudeau promised more deficits. His rationale was that, given low interest rates, there was no time like the present to invest in the economy. The public bought his argument, Trudeau won the election and today Canada’s economy, that was tottering on recession under Harper, has been turned around.

Wynne, like Trudeau, has also meddled with income taxes, slightly increasing what the wealthy have to pay and reducing them for the lower classes.  Trudeau had hoped the result would stimulate the economy and shift more of the tax burden to those best able to pay, which it has.

But re-balancing tax points at the federal or provincial level will not pay for new government expenditures.  And as Keynes would tell you were he here, greater spending in a full employment economy carries the danger of inflation – akin to pouring gasoline on a fire.  As we know, where there is inflation, higher interest rates to carry the debt cannot be far away.  So Wynne needs to seriously consider increasing taxes to pay for her new programs.

kathleen-wynne-post-debate-scrum-june-3-2014

Liberal Premier Kathleen Wynne

Former PC leader Patrick Brown had proposed funding his package of goodies by applying a retail carbon tax, as Alberta and B.C. have done.  Of course that notion has now been retired to the dustbin of PC history, in  exchange for drastic program cuts.   An additional carbon tax would further stimulate Ontario’s renewable energy sector, reduce inflationary pressure and pay for the expanded social services in Wynn’s budget.

Even in an election year we need to pay the piper or suffer the consequences of an outstanding liability.  And that means raising the money now rather than just leaving more debt for our children.  Pay as you go is a gutsy move for any politician, even if it means being labelled as just another ’tax and spend Liberal’.

Rivers hand to faceRay Rivers writes weekly on both federal and provincial politics, applying his more than 25 years as a federal bureaucrat to his thinking.  Rivers was once a candidate for provincial office in Burlington.  He was the founder of the Burlington citizen committee on sustainability at a time when climate warming was a hotly debated subject.     Tweet @rayzrivers

 

Background links:

Ontario Budget –   More Budget –    Ontario Debt

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10 comments to Rivers: Pay as you go is a gutsy move for any politician; Ontario budget didn’t get some of it right.

  • craig gardner

    great column very informative

  • Hans

    Leaving some debt for the next generation doesn’t seem like such a bad thing, since that generation will benefit from the infrastructure paid for by their predecessors in the continuum.

  • Joseph Gaetan

    Amazing how us mere mortals can conveniently invoke John Maynard Keynes when it suits us. Keynes is often portrayed as being a deficit-loving interventionist, when in reality he was not.Keynes also believed that in times of relative prosperity sovereigns and sub sovereigns (Ontario) I suppose, should also create budget surpluses.Lets leave it at that for now or do we want to skim across the waves and talk about debt to GDP ratios that few people understand.

  • Marnie Mellish

    Looking forward then to Joseph Gaetan’s article about “Debt to GDP ratios” in words that I can understand.

    • Joseph Gaetan

      Marnie: Tried to make the point,an article cannot begin to do justice to complex economic matters. Yet, they are tossed out as though they are and we should all understand them and the implications thereof. Sorry,hope you are not too disappointed.

  • Stephen White

    There is a qualitative difference between John Robarts’ launch of OHIP, as well as the many other improvements and initiatives initiated under Bill Davis, versus the recent measures introduced by Kathleen Wynne. First, the former were carefully considered and evaluated prior to introduction, whereas many of the latter’s appear to have been proposed as part of a pre-election campaign jaunt. Second, the former were thoroughly costed prior to introduction. No one is quite sure how much Kathleen Wynne’s latest forays into daycare and healthcare will end up costing Ontario businesses and taxpayers. Third, the former were proposed in the Legislature, and members were given an opportunity to carefully review and make amendments. The latter got rolled out during a dizzying array of campaign speeches in between photo ops showing the Premier taking a rumba class or visiting a daycare and playing with toddlers.

    Here’s the biggest difference. In 1965 when Robarts was Premier the provincial debt was $1.6 billion, and the provincial debt equated to 6.9% of GDP. By 1971 under Davis the deficit was $2.2 billion, and the provincial debt was 5.2% of GDP. Fast forward to life in Ontario under Bob Rae when his NDP government ballooned the provincial debt to $17 billion and 30.4% of GDP. Under Ernie Eves the provincial debt as a percentage of GDP declined to 27.5% By 2014 it rose again to 40%. The Ontario government debt is now estimated at $6.6 billion, and over 40% of our GDP. But the real kicker: Ontario now has the highest sub-national debt of any jurisdiction in the world.

    Yes, Kathleen Wynne has left us a really great legacy, even if, like her election promises, they aren’t properly costed, and we likely can’t afford them anyway.

    • Joseph Gaetan

      Very good Stephen, Econ 101 and 102 did not prepare me to become the next B.O.C governor, but did help me to recognize bad government policy when I see it.

  • steve

    And the kooky energy policies that insist on investing in super expensive, totally unreliable electrical production, all the will, ignoring the, reliable, cheap and very plentiful, natural gas will eventually destroy what is left of our major manufacturing. How long till, GM, Ford, Honda…etc etc leave south where the costs will be going down down down down.

  • Ray Rivers

    Steve – I appreciate your comment but I have yet to find any evidence of companies leaving Ontario in droves. Electricity rates vary widely but rates in Michigan, New York and California were mostly at least as high as those in Ontario even before the Premier mortgaged them.

    I suggest that our manufacturing sector has been impacted more by the very same factors that Donald Trump speaks to – companies shifting to lower labour cost jurisdictions in Mexico and China. And the previous federal government’s exchange rate policy only exacerbated that shift.

    Also I would argue that our energy supply has been consistently reliable since the Liberals came to power, except for acts of God like is happening this weekend. Renewable energy is hardly a kooky policy but, rather, the pathway to a more sustainable future. And you are right that natural gas should have a place, at least until we can find an affordable and practical way to store electricity.

  • Townhouse Living

    Wynne needs to go, she is spending us out of house & home! Eleanor McMahon only shows her face when she can attach herself and her name to a government handout – never around for the difficult situations, or when the citizens of Burlington actually need her.

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