What a real fiscally conservative plan for Ontario would look like

Parties of any political stripe can be fiscally conservative—it’s a matter of simple arithmetic, not radical theories

Queen's ParkDespite the mathematical mysteries that have bedevilled the current Ontario election campaign, one thing has been clear throughout: Ontario needs a fiscally conservative plan to address its budgetary challenges.

No party has a monopoly on being fiscally conservative. If we look to recent history, we can point to New Democrat Roy Romanow in Saskatchewan, Progressive Conservative Ralph Klein in Alberta and Liberal Gordon Campbell in B.C. as good examples of fiscal conservatives.

Being a fiscal conservative means aiming for budget balance in normal circumstances and returning to balance quickly if economic circumstances require running a deficit. It means working toward a sustainably low level of government debt so that more tax dollars can fund services and the burden of current spending is not passed on to future generations. These are goals that all parties can embrace despite differences about the appropriate role of government or how to fairly share the tax burden.

What are Ontario’s fiscal challenges? As a result of a deep recession and slow recovery, Ontario has run six consecutive deficits. The most recent equates to more than $800 per person. Although eight of 10 provinces are projecting deficits for 2013-14, only three are planning to take up to three more years to return to fiscal balance.  Ontario’s tax burden is relatively low—provincial revenue as a share of GDP is third lowest in Canada behind oil provinces Alberta and Saskatchewan. Net debt per capita and debt-to-GDP ratios are relatively high, second only to Quebec. At current tax rates and with modest growth in health spending, non-health program spending must be cut by about $4 billion from current levels to balance in 2016-17 or about $800 million to balance a year later. In sum, while the sky is certainly not falling, there are storm clouds on the horizon, especially if the private sector economists’ modest growth forecast does not materialize.

How would fiscal conservatives address these challenges? On the revenue side, they would set taxes at a competitive level and in a way to share the tax burden equitably.  They would avoid the temptation to raise taxes to increase revenues when in deficit.  Taxes are the most important automatic stabilizer the government has and should be allowed to rise in booms and fall in recessions. They would also avoid cutting taxes in an effort to stimulate economic growth. In open economies like Ontario, much of such stimulus simply flows to neighbouring jurisdictions. Once taxes are set at competitive levels, future demand will be the most important factor in business investment decisions. Fiscal conservatives would focus most of their economic policy on the fundamentals that drive economic growth like open markets, skilled workers and efficient infrastructure.

On the expenditure side, spending is the lever governments control most directly, so fiscal conservatives would set spending targets and stick to them “come hell or high water,” as a successful Canadian finance minister famously remarked. Cutting spending is hard work. After the first four to five per cent, waste and inefficiencies have been eliminated and services must be cut. This is why many deficit-reduction exercises really just offload deficits to other governments. This is not a strategy fiscal conservatives would employ.

In allocating spending cuts, fiscal conservatives know that sacrifices are best borne if they are shared equitably and don’t target particular groups. They also know not to blame their public servants for the government’s fiscal problems, just as no private sector CEO turns a firm around by blaming the staff. Fiscal conservatives would look to enlist public servants in the effort to re-establish balance.

Wherever possible, fiscal conservatives would let markets work and government managers manage. Wage and hiring freezes would be unnecessary if deputy ministers had firm targets that included all their costs, including labour. When looking for spending reductions, fiscal conservatives would ask themselves hard questions. Is this program a must-have or a nice-to-have? Could someone other than government provide this service? Finally, they would understand the need to report regularly and celebrate milestones as they are achieved. Returning to fiscal balance is a long haul that requires sustained support from citizens and public servants.

Our history shows that parties of any political stripe can be fiscally conservative. It’s a matter of simple arithmetic, not radical theories about how the economy works. What’s essential is a real commitment to balanced budgets and a willingness to stay the course until the job is done.

Paul Boothe is Professor and Director of the Lawrence National Centre for Policy and Management at Western’s Ivey Business School.  Formerly he served as Deputy Minister of Saskatchewan Finance and Associate Deputy Minister of Finance Canada.




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What a real fiscally conservative plan for Ontario would look like

  1. So, Ontario has the third lowest taxes in the country after resource rich provinces of Alberta and Sasketchewan. The way Hudak has been shouting, one think that Ontarians are the most overtaxed in the country.
    If Ontarians want better health care and education, then be prepared to fork out more. Or move to Alberta or Sasketchewan for low taxes.

    • or perhaps they could just stop throwing billions away on cancelled gas plants, incompetent management and ridiculously expensive “green energy”

    • Ontario’s tax competition is not Quebec, it is south of the border. And thanks to Wynne and McGuinty, we are paying sky high electricity bills only to sell all that wind and solar to the Americans for basically free.

      Electricity is a large fixed cost for business, especially for the manufacturing and advance manufacturing, and the big data cloud computing server farms of the future.

      The whole alternative energy this is an economic fiasco. It is a product of Bay Street bankster financialization. The people making the investment and taking the risk is the taxpayer and consumer, and the people making the profits are the Bay Street Banksters sitting in the middle.

      i.e. it is a private public partnership where ordinary people and small business pay for the investment by sky high electricity rates, and the Bay Street Banksters (Liberal cronies) skim the profits. Public risk. Private profits. At least with the NDP, the public would have owned the whole thing and public would have taken the risk and reaped the profits.

      Instead a few Liberal friends on Bay Street reap the profits, and every taxpayer and non-electricity business is left paying for it.

  2. Ahhh the economists holy grail….equilibrium.

    However….just balancing the books, and then sitting around waiting….

    http://cafehayek.com/wp-content/uploads/2014/03/miracle_cartoon.jpg

    Leadership requires forward thinking….and investment. Not just Accounting 101….because the only number you actually have to pay attention to is….GDP

    • Yes…the GDP is important, but the end number depends entirely on what you do to sustain or grow it.

      If taxes are too high, then GDP will go down due to the resulting unemployment. If the red-tape is too onerous, then businesses will not start-up in Ontario, or they’ll move elsewhere; again resulting in a reduction in GDP.

      As for debt….it must be kept low. Right now, we can handle the debt in Ontario, but it is still far too high. An increase in interest rates will be bad news for any government which carries too much debt. All of the money paid as interest, is simply lost for programs that people expect.

      The Liberals……have done a terrible job, and their policies have cost this province dearly. It is not a surprise that McGinty, and Wynne have doubled our debt in a few short years. If we knew of all their policies before they took office……the result would have been entirely predcitable. And remember, whenever a Government mentions “Investments” what they are really saying is “spending” and if their “investments” are too generous, then what you are really going to experience is higher taxes.

      • I’m afraid none of that has anything to do with it.

        Everybody in the world has taxes and debt and red tape. It’s not unique to us.

        GDP depends on education and innovation. And you won’t get that by hunkering down and pinching pennies.

        Of course investment means spending…..you have to spend money to make money.

        Cons and Libertarians want everything…..they just want others to pay for it.

        • Emily again showed her ignorance of anything economic with this tidbit:
          “I’m afraid none of that has anything to do with it.”

          Actually, emily…..this has EVERYTHING to do with it.

          Another moment of Emily’s genius:
          “Everybody in the world has taxes and debt and red tape. It’s not unique to us.”

          Correct to a point, Emily. The goal of course, is to have LOWER taxes, and LESS red tape. That is how you attract private investments, which as you may not be aware, make up the majority of the GDP. Private companies, Emily…not government jobs.

          More half-considered points from Emily.
          “GDP depends on education and innovation”

          It depends on the education being sought, and the type of innovation.

          If by education you mean learning about business, or creating a product folks want to buy..then yes. If you mean any form of education, then you have to consider the useless degrees as well. How much does a women’s studies, or gender studies degree provide for an increase in GDP. Not much….unless of course, you are talking about the folks with those degrees who are serving up your coffee at the local Starbucks. As for innovation, again, it depends on what your inovation entails. Are you creating a product that makes life easier for people; one they are willing to pay for, or are you speaking of innovation that means you can pat yourself on the back for being “clever”….but still need a government grant to pay the rent?

          As for investments….of course it means spending money. The goal of an investment of course, is to see a return on your money that makes the investment worth while. If you invest $1000, you would like to see at least $1100 come back to you. If you mean investment as in the contracting for Billions of dollars worth of wind turbines that rely on subsidies to operate…then no. it is not an investment. It is a waste.

          As for your last line…ummm…no. We want people to spendd THEIR OWN money, at their own risk and not rely on the rest of us to provide for their living.

          Not surprisingly, emily……your ignorance about how an economy actually works, explains your continued postings on a subject you just can’t seem to grasp. My bet is that you have one of the “educations” that forces you to rely on others for your subsistance.

  3. Being a fiscal conservative means aiming for budget balance in normal circumstances and returning to balance quickly if economic circumstances require running a deficit.

    This is what I thought. Or even running surpluses and paying off debt over time.

    But I see some advocating that the goal should be keeping a constant debt/GDP ratio (ie allow debt to grow by running deficits as the economy grows).

    • It’s not a goal, it’s SOP. Deficits/debts don’t ‘end’, they just go up or down over time.

      Canada started with a debt…so did the US. Neither has ever been paid off. Not likely to be either.

      There is nothing wrong with ‘debt’ as such….it’s a financial tool.

      • Thanks for the history/finance lesson. Whoda’ thunkit?

        AB paid off its debt in the 90s. It is now back in debt. Some claim there should be no debt. Others claim that it os ok to carry a mortgage.

        Some people like to own their houses outright. Some like to carry mortgages.

        This blog concerned fiscal conservatism. The point I was making was, yes you can run deficits – but is that fiscal conservatism? I was suggesting not.

        What say you?

        • Fiscal conservatism is about being careful with money….’careful’….not ‘dead stop’

          The ‘dead stop’ means we’d be like an anthill. Food in, ants out….who then bring food in….

          Equilibrium. Ants have had it for 100M years.

          • Interesting.

      • Emily wrote:
        “There is nothing wrong with ‘debt’ as such….it’s a financial tool.”

        The caveat of course, being, if the “tool” becomes too large to fit in your tool box (tool box being the GDP)…..you need to get a bigger tool box.

        The problem of course, is that the Liberals are vastly increasing the size of the “tool” but are shrinking the size of the tool box. It just doesn’t work.

  4. Ontario still hasn’t recovered from the Harris government. They’d be insane to bring back even a pale imitation.

    • Well, that’s true.

  5. 1,000,000 TFW’s with have canadianjobs, but with NO pensions, no healthcare, no cpp, no UI,…., but hey,
    like Hudak said about the rest of Ontario: “…let them all eat cake…, at Tom Hortons.”
    :(

  6. I spent my 40 year career with a large company and most of that as a manager. My experience has shown me that when you have not done much to really examine the efficiency of the various processes, which you use to run your business, there is in the order of 30% waste, not the 5% as noted in the article. And, I believe, a thorough look at Ontario’s government processes has never been done. At my company, starting from a perspective that we were pretty darn good,we reduced costs by 32% over a 10 year period. This included reducing our staffing from 9000 to 6000. And, over this period, we grew our number of businesses, increased sales and improved customer service to be the best in Canada. I doubt either the Liberals or the NDP will start such an efficiency investigation and the PC’s won’t do it in the best way. But even a poor way is better than none.

    • Oh it’s been done….repeatedly. It’s a popular vote-getter.

      Our last round of cuts resulted in Walkerton.

      • No, Emily,

        Walkerton had nothing to do with Mike Harris’ policy, no matter how many talking points you take away from Wynne and her Liberals.

        Walkerton, was the result of two incompetent, public sector unionized, alcholic brothers who held a job they did have competency in doing, but being unionized, it was “their turn” at the trough.

    • All our parties are statism parties. Cons are not an exception, as we have a much larger governemtn today than in 2006, governemtn never did get a depression or layoff like the people did.

      But you are right, more government takes, the less business and people have. Get more efficient as employment taxes and high wage demands means get lean or go under. Employees are paid plenty, problem is after taxes and in dealing with a debt-tax inflated economy. To illustrate:

      You have to earn $1,400,000 to pay $700,000 in taxes, $300,000 in fair interest, to buy a $400,000 home that is $200,000 in labour, fees, tariffs and other taxes to biuld the $200,000 home.

      Mexican earns $200,000 to pay $40,000 in taxes, $40,000 in interest to buy a $120,000 home. (Also pays a whole lost less in city/utility/education taxes too).

      So who is your slave master? Mexicans can work 1/6th as much in monetary terms as they don’t have tax as inflation and slavery. And no options on my ballot for less governemtn waste, less bailouts of uncommon good and less taxes as inflation….

  7. Reality is its immoral and unethical to borrow from the unborn for todays tax-spend greed. Forget NDP, Conservatives or NDP, forget left-middle-right, they are all statsim anti liberty parties of governemtn bloat, lobby driven bailouts of uncommon good and the back room deals.

    Left-middle-right is one dimensional thought. There is also liberty, center and statism dimension, and all out parties are statism parties.

    You have to earn $1,400,000 to pay $700,000 in taxes, $300,000 in fair interest, to buy a $400,000 home that is $200,000 in labour, fees, tariffs and other taxes to build the $200,000 home.

    Mexican earns $200,000 to pay $40,000 in taxes, $40,000 in interest to buy a $120,000 home. (Also pays a whole lost less in city/utility/education taxes too).

    And people wonder who their slave masters are? Modern day taxation is high enough to call it modern day slavery and the cause of losing jobs to other countries. Hey, less tax as inflation means less uncompetitive wage pressures.

    All the options on my ballot are for less economic liberty, for fiscal statism slavery. Lots of back room money and media assures we will only be able to vote statism.

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