02/16/2012 12:13 EST | Updated 04/17/2012 05:12 EDT

What the Drummond Report Didn't Tell Us

There are certain courses of action not outlined in economist Don Drummond's report about the Ontario economy that could help achieve long-term fiscal stability and redefine the way a Canadian province interacts with the rest of the federation and with the world.

The much-anticipated Drummond Report has been released, with the biggest conclusion being that unless public spending is radically curbed, Ontario's deficit will balloon to $30.2 billion by 2017-18. Dalton McGuinty's Liberal government maintains that it will balance the books by that same fiscal year.

The report's recommendations will require the Grits to make some very difficult choices. At a critical time in the province's history, the expenditure-related challenge lies in finding the appropriate balance between reducing spending on unsustainable programs and investing appropriately in long-term initiatives.

Yet an additional challenge lies in finding creative ways to increase revenue for the government. Don Drummond was told for his report to exclude tax increases as an option for fixing the province's finances.

Some of the report's suggestions appear frankly unachievable -- such as capping annual health care spending increases at 2.5 per cent, down from the 6.3 per cent average over the past five years -- simply due to the sheer demographic shift that is to take place over the years and decades ahead. While the feds can easily cut transfers to the provinces, the latter has the responsibility to deliver many of these services.

Others appear difficult due to potential public backlash. For instance, the government has already announced that it will not back down from full-day kindergarten for fear of breaking another election promise, despite Drummond saying that scrapping the program should be considered.

There is a silver lining however that goes beyond finding ways to get a better bang for our public buck. There are certain courses of action not outlined in Drummond's report that could help achieve long-term fiscal stability and redefine the way a Canadian province interacts with the rest of the federation and with the world. Just a couple of ideas:

First off, tax reform. Not just simplifying the tax code, but fundamentally altering the balance of taxation in the province. A phased plan to reduce income and corporate taxes could be paired with significant increases in consumption taxes and with the introduction of a carbon tax. The result in absolute terms would not be a tax increase, but additional revenue for the government.

The corporate tax system costs a significant amount simply to operate, and the revenue generated from it is unreliable. Premier McGuinty, who has already laudably reduced taxation on business transaction, could try something bold -- a sweeping plan to phase out corporate taxes altogether in order to attract businesses from across the world to Ontario, create jobs, and get people spending money in the province.

The newly-introduced carbon tax would contribute to environmental sustainability while the increased HST would ensure economic sustainability, the revenue from which could pay down debt and address economic inequality.

Second, hike energy prices then push for a common energy zone in North America to keep the rate stable over the long term. Such a move would be unpopular, and hence the government would need to focus its messaging on the tax reductions outlined above.

High energy prices should be embraced, as we already live beyond our means. They'll encourage conservation, help the government acquire much needed revenue and hence allow us to focus on the longer-term questions: How does Canada become a true energy superpower? How do we become energy independent as a nation? How can the provinces work together to achieve for Canada a more prominent role than the one our country currently enjoys?

These questions are important ones -- some more difficult to answer than others. But the answer will determine whether Ontario and the rest of Canada can develop an economy that encourages making (i.e. creating wealth) more than it does taking (i.e. from the government).

Oh, and while we're at it, one more piece of advice to Queen's Park from someone who grew up in Toronto and had to deal with self-entitled, well-paid, unionized bus drivers and ticket collectors on a daily basis -- privatize the TTC.