Budget 2024

Tax and spend fiscal plan will inhibit growth

As published in the Ottawa Citizen, March 5, 2011

Dear Minister,

As you prepare your 2011 budget and weigh the challenges confronting Ontario and the country, you face many demands. Having been in your shoes at the federal level, I know you have no shortage of advice. Nevertheless, I offer these thoughts. The single most important thing you could do to secure the future of the province is to rally your caucus and the population of Ontario behind a declaration of war.

Wars require political support, but they also require strength of will, determination and strategy. I’m not suggesting a war on Ottawa, by the way. I am proposing a war on the provincial debt, before it is too late.

In the current fiscal year, Ontario’s debt will hit $237 billion. Interest on that debt will cost taxpayers $9.7 billion — more than your government’s total spending on post-secondary education and training.

And it’s going to get worse. Inflation is not now a significant concern in Canada — but it is becoming so elsewhere. Inevitably, interest rates will rise, which means Ontario’s debt will exert ever more pressure on your budget. And don’t forget that — as events in Europe have made all too clear — investors don’t have to buy your bonds. If the market becomes jittery about your ability to repay, the interest burden will soar.

These problems are (mostly) not your fault, but it is you who must deal with them. Here are a few suggestions:

  • Your government’s revenues have not kept up with spending. That’s sustainable for a while — during a recession, for example — but not for long. Thus it is imperative that you commit to spending controls that have teeth, and that every department and agency of government be subject to rigorous ongoing reviews. On the revenue side, there can be no doubt that the least damaging source of revenue for the Ontario economy is the HST. Please resist the siren call to lower the HST, even by one point. The province cannot afford it and to do so would be irresponsible in the extreme.
  • There is a need for courage in looking at new ways of meeting public needs. Services that can be delivered effectively by, or in partnership with, the private sector should be transferred to it. Don’t listen to the rhetoric that decries the profit margin in the private sector. The need to make a profit will drive efficiencies that cannot be realized otherwise.
  • Your fastest growing expense is health care, which is gradually crowding out other areas of the provincial budget. You are in urgent need of a review of this, our most important social program, because it will require more money in the years ahead, and you will not be able to afford to borrow that money. Why not name a high-level provincial task force to look at options going forward?
  • Ontario’s twin challenges of an aging population and weak productivity growth will limit the future growth of government revenues. Don’t rely on projected rates of revenue growth based on outdated assumptions. The situation calls for extreme prudence.
  • You need a strategy for growth. Minimizing the tax and regulatory burden for business is vitally important. You deserve credit for reducing the regulatory burden by handing over to the federal government the responsibility to collect both corporate income tax and sales tax. The introduction of the HST has significantly improved Ontario’s investment climate. But much more remains to be done. Why not commit to an ongoing review of the province’s regulatory environment with help from a thoughtful outside panel?

Minister, we simply can’t keep muddling through. I haven’t even mentioned the challenges of rising electricity costs and meeting the obligations of public sector pensions. We need the kind of courage and determination we usually only see in wartime.

Declare war, Mr. Minister. Your province needs you!

Sincerely,

John Manley