Three big things economists were watching in the debate

The leaders offered laundry lists of policies and priorities without giving voters enough of the details


Policy wonks were likely disappointed by last night’s Ontario leaders’ debate. I know that I was. Too often in the debate, the leaders would give laundry lists of policies and priorities, without giving the viewer enough details or time to be able to follow the conversation. But if you dig deeper into the debate, a few important policy themes emerged. Here are three that caught my eye.

1. Corporate tax cuts

Outside of one discussion of “dead money,” I was surprised that neither NDP Leader Andrea Horwath or Premier Kathleen Wynne seriously challenged PC Leader Tim Hudak’s tax-cut claims by suggesting that money would go to “big corporations” rather than “Ontario families.” It is for the best that neither leader did since, in small open economies such as Ontario’s, corporate taxes are largely paid for by workers through lower wages.

Hudak has not received enough credit for deciding to cut corporate taxes instead of cutting a more reviled tax such as the HST (though the logic of cutting taxes at all when the deficit is so high is questionable). While other tax cuts may be more progressive, a corporate tax cut is likely to provide the biggest bang for the buck in productivity increases. It is strange, however, to see corporate tax cuts being touted as a job creation strategy, as the benefits of higher productivity are mostly higher wages and profits, not increased employment. At best, increased employment is a small side effect of a corporate tax cut. Or, as economist Nick Rowe would put it, “most economic policies aren’t about jobs.”

2. Per capita program spending

At one point in the debate, Wynne defended her government’s spending record by stating that the Ontario government’s per capita program spending was the lowest of any province in the country, to which a surprised Tim Hudak responded, “fair enough.” Program spending by province is presented in the chart below, taken from Budget 2014 (Chart 1.15), which shows Ontario’s expenditure of $8,453 per capita as being the lowest in Canada. The province also has the lowest per capita revenues, at $8,369, partly due to relatively low levels of transfers from the federal government. It is unusual that Wynne has not mentioned these facts more often, as I believe most Canadians believe Ontario is a relatively high-spending province when it comes to health and education. All three parties have all framed the deficit issue as largely being an expenditure problem, despite a lack of evidence to support that position.

Program spending by province

3. Support for the automotive sector

Wynne gave a spirited defence to Hudak’s not unreasonable “corporate welfare” description of the Liberal 10-year, $2.5-billion Jobs and Prosperity Fund (JPF) by stating that if Tim Hudak were premier, he would have let Chrysler and GM’s Ontario plants close during the 2008-10 automotive industry crisis. While this could be treated as simply an interesting historic “what if” debate, it has significant policy relevance today with the future of Chrysler’s plant in Windsor, Ont., in doubt. While Hudak has not said unequivocally and specifically that he would not provide financial support to Chrysler, it would appear to go against his entire platform. It is unclear what level of financial support the Liberals and New Democrats would be willing to provide Chrysler, except that the amount is significantly higher than zero. There are more questions than answers here. Can the Liberals provide adequate financial resources while still being able to fund their other JPF priorities? Where would the New Democrats find the funding for Chrysler? Perhaps more important, how do we simultaneously avoid large-scale structural unemployment in Windsor without creating the conditions for the next bailout?

Although it is possible to extract some substance from the debate, the format left the leaders talking about too many issues in too short a period of time. Perhaps it is time to adopt Andrew Coyne’s suggestion of multiple debates, each with an individual theme. Perhaps then voters will be given enough details to make a more informed decision.

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Three big things economists were watching in the debate

  1. And economists wonder why to some people they have no credibility.

    Moffatt writes today:

    It is strange, however, to see corporate tax cuts being touted as a job creation strategy, as the benefits of higher productivity are mostly higher wages and profits, not increased employment. At best, increased employment is a small side effect of a corporate tax cut.

    I guess the wind is going south today.

    Just under one week ago, May 29, Moffatt was touting a pice by Jack Mintz, economist, in the National Post where he was claiming 82,000 jobs from CIT.

    Mike Moffatt
    Great piece by Jack Mintz RE: corporate taxation and jobs.

    And then the next day, in a twitter discussion, tweeted:

    Mike Moffatt
    @acoyne @aradwanski @terencecorcoran FWIW, I find Mintz’s analysis far more plausible than the CBoC’s.

    Allan W. Gregory ‏@awg_allan May 30
    @MikePMoffatt Mintz also is unequivocal lower corp tax leads to more jobs

    Mike Moffatt ‏@MikePMoffatt May 30
    @awg_allan Yep. I find his numbers more plausible than the CBoC’s.




  2. Really? No mention of the fact that Hudak’s Million Jobs Plan has completely collapsed under scrutiny? Why isn’t the the grand bull moose of policy “themes” that were under-represented in the debate?

    Hudak lobbed it across the plate – “Ontario needs competent fiscal management” and “I’m the only one that will tell you the truth.” The fact that Wynne didn’t knock those out of the park is just astounding. Consider:

    “Mr. Hudak has said that he represents competence and honesty in leadership. Well, Tim, I am amazed and disappointed that you continue to tell Ontarians that you have a Million Jobs Plan. Maybe it was an accident that you neglected to subtract the hundred thousand jobs you plan to eliminate from your million jobs. Maybe it was an accident that you multiplied your job creation by 8 times.

    But now, it can be no accident. You don’t have a Million Jobs Plan, you have never had a Million Jobs Plan and every time you say it, you are misleading Ontario voters. You don’t represent competent fiscal management and you simply don’t represent honest leadership.”

    Was that so hard? The most important thing Wynne had to do was gut that smarmy talking points machine, drive home the collapse in his credibility.

  3. To clarify :- “economists”, as defined by the Maclean’s merry
    band of economists. Kinda like when Tony Clement tells us that
    Canadians know something or other.

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