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Charles Lammam

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Will Wynne Untangle Ontario's Fiscal Mess?

Posted: 01/30/2013 4:48 pm

Having won the Ontario Liberal Party's leadership, Premier-designate Kathleen Wynne has a golden opportunity to chart a new course and undo Dalton McGuinty's legacy of fiscal mismanagement. As Wynne contemplates priorities for her leadership she should seriously consider putting Ontario's deficit and debt problem on the top of her to-do list.

First off, Wynne should take little comfort in the government's recent announcement that the provincial deficit will be lower-than-expected this year ($11.9 billion instead of the $14.8 billion originally planned). This news is not as positive as it seems; the reduced deficit this year is largely the result of one-time revenue boosts and expenditure savings -- not a deliberate plan to restore fiscal sanity to provincial finances.

While it's good to see the government coming under its deficit target this quarter, a deeper problem remains: the province is struggling with persistently large deficits without an end in sight.

Consider the context. Ontario has been in deficit since 2008/09 and currently has the second largest debt-to-GDP ratio in the country. Provincial debt will grow to $255.1 billion this year from $156.6 billion in 2007/08 and on-going deficits until 2017/18 mean the debt is on track to double in the span of just a decade.

The reality is that the Ontario government does not have a concrete plan to eliminate the deficit and rein in debt. This was thoroughly highlighted in last year's high-profile report led by noted economist Don Drummond -- a report commissioned by the McGuinty government. The report explicitly said that to realistically balance the budget by 2017/18, the government had to implement no less than a total of 362 reforms.

Nothing of the sort happened. Ontario's 2012 budget came and the McGuinty government did not enact anywhere close to the level of reforms proposed in the Drummond report. In fact, many major reforms were taken off the table outright.

After essentially ignoring the Drummond report's recommendations, outgoing Finance Minister Dwight Duncan in a recent speech acknowledged that the road ahead for his successor will require tough decisions. He even warned that interest payments on the debt are "a ticking time bomb."

Interest on Ontario's debt will reach $10.5 billion this year and consume 9.2 per cent of government revenues. If the trend of growing interest payments continues, proportionally less of what the government takes in will go to funding important public programs and tax relief while more will go to servicing the debt.

For Wynne, the McGuinty government's legacy of overspending, persistent deficits, and growing debt will not be easy to overcome. However, Canada's own history with slaying deficits in the 1990s suggests it is certainly achievable and that same record also shows governments of various political stripes have successfully done so.

Both history and academic research indicate the key ingredient for balancing the budget is to do so swiftly and rely more heavily on spending reductions than tax increases. Fortunately Wynne has many options to reduce spending but doing so will require fundamental reforms in many areas.

One reform that would permit meaningful reductions in spending is aligning overly generous public sector pay with wages and benefits paid in the private sector. Roughly half of Ontario's government spending is on public sector wages and benefits. In a 2012 publication entitled "Avoiding a Crisis: Fixing Ontario's Deficit," Fraser Institute researchers calculated that matching wages with the private sector alone would save $3.8 billion annually (this figure excludes the potential savings from matching benefits).

Another option is to eliminate business subsidies that cost Ontario taxpayers and successful businesses approximately $2.7 billion per year. Cutting costly electricity subsidies would save an extra $1.1 billion per year.

Ontario could also improve the quality of public health care while reducing costs by implementing policies that are common in other nations with universal access and portable health care.

Solving Ontario's fiscal problems will not be an easy task, but history shows it is achievable. Ms. Wynne has an opportunity to correct past mistakes and plot a new course for Ontario. Let's hope she's up to the challenge and puts forth a realistic plan to balance the books and halt the growth in government debt in the next provincial budget.

This column was written with assistance from Hugh MacIntyre, Fraser Institute policy analyst
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  • Ontario Premier Dalton McGuinty, right, congratulates incoming premier Kathleen Wynne at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Kathleen Wynne reacts after becoming the new leader of the Ontario Liberal party at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013. The 59-year-old Toronto politician will be the province's first female and openly gay premier.

  • Sandra Pupatello, right, congratulates Kathleen Wynne after Wynne becomes the new leader of the Ontario Liberal party at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Kathleen Wynne, left, and her spouse Jane Rounthwaite stand together on stage at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Ontario Liberal Party leadership candidate Kathleen Wynne celebrates with fellow candidates Eric Hoskins (left), Gerard Kennedy (right) and Charles Sousa after they gave her their support at the convention in Toronto on Saturday January 26, 2013.

  • Ontario Liberal Party leadership candidate Kathleen Wynne reacts to the results of the second ballot at the convention in Toronto on Saturday January 26, 2013.

  • Sandra Pupatello, right, talks on her phone next to Ontario Finance Minister Dwight Duncan, left, at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Before and After

    What the street outside the convention usually looks like and what it looked like during a <a href="http://www.huffingtonpost.ca/2013/01/26/ontario-liberal-convention-protest_n_2556296.html?utm_hp_ref=canada-politics">protest held by Ontario teachers and unions</a> on Saturday afternoon.

  • An Ontario Liberal Party delegate is heckled as protesters gather outside Toronto's Maple Leaf Gardens on Saturday, January 26, 2013 while the party gathers to vote for a new provincial Leader and in turn a new premier of Ontario.

  • Supporters of Sandra Pupatello look on as Kathleen Wynne gains momentum at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • A look at the size of the <a href="http://www.huffingtonpost.ca/2013/01/26/ontario-liberal-convention-protest_n_2556296.html?utm_hp_ref=canada-politics">protest outside the Ontario Liberal Convention</a> in Toronto on Jan. 26, 2013.

  • Sandra Pupatello, left, gets endorsed by Harinder Takhar, right, at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Ontario Liberal Party leadership candidate Sandra Putatello celebrates with former prime minister John Turner at the convention in Toronto on Saturday January 26, 2013.

  • Ontario Liberal Party leadership candidate Kathleen Wynne speaks at the convention in Toronto on Saturday January 26, 2013.

  • Ontario Liberal Party leadership candidate Kathleen Wynne waves with fellow candidate Eric Hoskins (right) and his wife Samantha Nutt (front left) after he arrived to give her his support after the first ballot at the convention in Toronto on Saturday January 26, 2013.

  • Ontario Liberal Party leadership candidate Sandra Putatello celebrates with fellow candidate Harinder Takhar after he gave her his support at the convention in Toronto on Saturday January 26, 2013.

  • Ontario Liberal Party leadership candidate Sandra Putatello speaks at the convention in Toronto on Saturday January 26, 2013.

  • Kathleen Wynne dances on stage at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Ontario Liberal Party leadership convention delegates are greeted by hundreds of protesters as they arrive at convention in Toronto on Saturday January 26, 2013.

  • Gerard Kennedy waves on stage at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Harinder Takhar waves on stage at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Charles Sousa waves to supporters while on stage at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Eric Hoskins waves to supporters on stage at the Ontario Liberal Leadership convention in Toronto on Saturday, January 26, 2013.

  • Outgoing Premier Dalton McGuinty waves from the stage with his family after speaking at the Ontario Liberal Leadership convention in Toronto on Friday, January 25, 2013.

  • Outgoing Premier Dalton McGuinty speaks at the Ontario Liberal Leadership convention in Toronto on Friday, January 25, 2013.

  • Outgoing Premier Dalton McGuinty speaks at the Ontario Liberal Leadership convention in Toronto on Friday, January 25, 2013.

  • Premier Dalton McGuinty and his wife Terri McGuinty take their seats at the Ontario Liberal Leadership convention in Toronto on Friday, January 25, 2013.

  • Interim federal Liberal Leader Bob Rae greets Premier Dalton McGuinty at the Ontario Liberal Leadership convention in Toronto on Friday, January 25, 2013.

  • Ontario Liberal Party leadership candidate Sandra Pupatello departs after voting at the convention in Toronto on Friday January 25, 2013.

  • Ontario Liberal Party leadership candidate Kathleen Wynne talks with a delegate as she registers to vote at the leadership convention in Toronto on Friday, January 25, 2013.

  • Ontario Liberal Party leadership candidate Gerard Kennedy talks on his phone at the leadership convention in Toronto on Friday, January 25, 2013.

  • A cameraman is silhouetted against a projection screen at the Ontario Liberal Leadership convention in Toronto on Friday, January 25, 2013.

  • Ontario Liberal Party leadership candidate Charles Sousa and his wife Zenaida arrive to vote at the leadership convention in Toronto on Friday, January 25, 2013.

  • Ontario Liberal Party leadership candidate supporters hang banners at the site of the convention in Toronto on Thursday January 24, 2013.

 

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