02/23/2012 04:52 EST | Updated 04/24/2012 05:12 EDT

Step Aside Drummond: Let's Vote on the Budget


There was really nothing new in the scathing Drummond Report about Ontario's fiscal mess to those who follow finances. But its value is that an esteemed expert, Drummond has shamed the Ontario Liberals publicly and itemized 362 concrete steps they must, and can, take.

But will they? Will Greece? Will Congress?

The reality is that politicians overspend because of the flaw in our political system. The flaw is not democracy, as some would argue. The flaw is representative democracy or a version of democracy based on the principle of electing individuals to represent the group. The alternative is direct democracy where the group votes on important issues and has the elected on a very short leash.

Direct democracy has surfaced occasionally in Canada and the United States in the form of referendums or voter recalls.

This is the only exit from the vicious cycle that has plagued public finances everywhere: Politicians buy our votes through over-spending and, most costly, garner support from a huge chunk of the electorate who belong to public sector unions. Once in power they can actually manufacture support by over hiring union workers.

Canada's unionization of its public sector represents the country's single biggest competitive disadvantage. Always has. And always will unless direct democracy is invoked.

Voters in every jurisdiction should vote every year on one simple, multiple-choice question: How much of a budget increase, if any, should the city/province/federal government be permitted next year? The choice should range from negative to positive. For example, the ballot choice would go as low as minus five per cent but only as high as the rate of inflation. Emergency spending would also have to be approved.

This would impose discipline and actually make politicians' lives easier, believe it or not.

A relative of mine, mayor of a small municipality in the U.S., was grateful for the zero-increase budget edict passed by his electorate for two reasons: It forced his city's managers to work backwards and justify every expenditure item. This is known as zero-based budgeting. And it enabled city council to respond to the endless demands for more services, public sector wage increases, business subsidies, or tax cuts by saying "that's a good idea but we can only give you what you want if you tell us what we can cut to do so."

The onus was reversed and costs controlled.

This is the only way to curb profligacy. The other way is to elect fiscally responsible politicians. But they are eventually replaced by a spendthrift regime eager to use up the improved credit rating they inherited. This is precisely what happened in Ontario after the Liberals replaced the Conservatives.

Representative democracy doesn't work and budget limits are the only fix. So are tax and spending limits. Unfortunately, both measures require approval by the same spendthrifts who made them necessary.

So in the absence of introducing direct democracy into the budget process, little will change. The report stirred readers of the country's business pages but elsewhere got scant attention. The usual cycle of punditry ensued ranging from the usual applause and shaming by conservatives to the usual Liberal, union, and NDP claptrap.

Warren "Smokey" Thomas, president of the Ontario Public Service Employees Union (OPSEU), dismissed and demonized Drummond, a former bank economist who had been a high-ranking federal civil servant. "Being a banker he has a natural hatred for unions," Thomas sneered.

This was typical from public sector union leads who have been like kids in the fiscal candy store, helping themselves for years, especially when their politicians have been elected to sit behind the counter next to the cash register.

Here's the extent of their spree, according to Drummond:

  • Spending has outpaced economic and revenue growth dramatically since the Liberals were elected.

  • Half the Ontario budget goes to one million public sector employees whose pension benefits, featherbedding, and wages must be decreased.

  • By 2018, Ontario's debt will be higher than Ottawa's or $411 billion.

I applaud Drummond and his commission for exposing the degree of mismanagement. But it also points out that any political party that panders to unions has a conflict of interest and cannot stop overspending.

This means, the only remedy will come from capital markets, as Greece has learned. Eventually, Ontario and Quebec (in even worse shape) will be downgraded until neither can borrow money at all. The party will end and the unemployed union workers will fill the streets.

The column previously appeared in the Financial Post