Behind the Numbers

Completing the job started by Mike Harris

March 27th, 2012 Hugh Mackenzie · 5 Comments · Ontario

The crowning irony of Premier Dalton McGuinty’s ninth budget is that it completes the job of cutting government down to size started by the Mike Harris Conservatives in the 1990s.

You won’t find the direct attacks on public services and the people who deliver them that featured so prominently in the Harris budgets, but the result is the same.

This budget virtually abandons the provincial commitment to reduce child poverty by 25% in 2013 — the budget speech doesn’t even bother to talk about the poor other than to say social assistance rates will be frozen. Combine that with a slow-down in planned Ontario Child Benefit increases and there is no way this government can meet its promised target. It doesn’t even address it in this budget.

This budget ignores the child care crisis it created last year, without a single mention of child care funding.

It cuts education and post-secondary education by a total of over $660 million and points to another plan to force more school closures.

And it sets the scene for major labour unrest in 2012.

Just like Mike Harris would have done.

The math tells the story: The McGuinty Liberals inherited two structural deficits when they defeated the Conservatives: a gap in fiscal capacity, the legacy of eight years of tax cuts we couldn’t afford; and a gap in public services, between what was being provided and what Ontarians needed.

The fiscal capacity gap was measured in dollars by former Provincial Auditor Erik Peters at $5.6 billion.

The services gap was measured in a struggling health care system, underfunded schools, impoverished colleges and universities, deteriorating public infrastructure, persistent and growing poverty among families with children and fundamentally weakened environmental protection.

The government never mustered up the political courage to address the fiscal capacity gap left behind by Mike Harris. And now, post-recession, the McGuinty government is doing exactly what Mike Harris would have done: cutting public services so that it can avoid doing anything about Ontario’s fiscal capacity problem.

The budget’s fails to address the need to enhance the province’s capacity to pay for the public services we need. In doing so, it ignores the shift in public sentiment that has led higher-income Ontarians to urge the government to raise income taxes on high-income earners making $250,000 or more. Doing so could raise $250 million. This budget also ignores obvious possible revenue sources found in pointless and expensive exemptions in taxes like the Employer Health Tax, exemptions which cost $1.4 billion a year.

With this budget the McGuinty government confronts the poor with rate freezes rather than ask more from the rich and powerful.

In describing its budget, the government uses words like “based in Ontario’s economic reality”, “balanced”, “fair”,  “transparent”, “prudent” and “responsible” — a “tough” budget for the government to put together.

The budget as it was delivered is none of these things.

The budget is not rooted in a coherent and reasonable assessment of Ontario’s fiscal position. It reflects a continuation of the manipulation of the public debate over Ontario’s fiscal options that began with the McGuinty government’s pre-election plan to put off all the important issues until after the election. That was aided by the decision to exclude revenue options from the Drummond review and culminated in the systematic effort in Drummond’s fiscal framework to exaggerate the extent of the fiscal issues faced by the province.

Ontario is not in a fiscal crisis. It is recovering — more slowly than we would wish, but recovering — from the deepest recession to hit the world since the 1930s.

Most notably, the budget ignores the proverbial elephant in the corner of Ontario’s fiscal room — the structural fiscal capacity gap left behind by tax cuts implemented since the late-1990s that Ontario could not afford.

The budget reduction strategy is not balanced. On its own numbers, the government’s strategy is based on four dollars of expenditure reductions for every dollar of revenue increases. Upon closer look, nearly half of the amount claimed on the revenue side is not a revenue increase. Instead, it is the value of a delay in implementation of a tax cut. The budget increases fiscal capacity by a mere $1.6 billion, compared with $10.7 billion in expenditure cuts. And of that $1.6 billion, roughly one third comes from increased gambling revenue and another third from “revenue integrity measures” — McGuintyspeak for requiring more people to pay the taxes they actually owe.

The budget is decidedly not fair. High-income Ontarians, those who have benefited most from Ontario’s growth and from Ontario’s tax cuts, will contribute nothing, except high-income seniors who will pay more for prescription medicine. The corporate sector does even better. Its pain will be in the form of a brief delay in future tax cuts. At the other end of the spectrum, by the end of the 2012-13 fiscal year, Ontarians who rely on social assistance and disability benefits will have lost $200 million to inflation, thanks to only a 1% increase in benefits in 2011 and none in 2012.

The budget is not transparent. It is an often-confusing mixture of trivial and meaningless detail. We are told, for example, that Ontario will reduce its office space requirements by one million square feet. And the budget features uninformative vagueness when it comes to anything significant.

Often the vagueness itself is threatening. The government professes its commitment to collective bargaining and then threatens vaguely dire consequences if it doesn’t get what it wants. Public sector employees’ pensions are under threat as are sick leave benefits, but all the government will tell us is that it thinks they are too expensive that benefits have to be cut.

Children’s Aid Societies already struggling to meet growing needs with less money will be concerned about the government’s desire to make them more efficient. Ontarians responsible for the care of developmentally challenged adults and children will be concerned to read that already woefully-inadequate services will be made more “efficient” and restructured to give them more “choice”.

The budget is far from “prudent”. It cancels or delays badly needed investments in new and renewed public infrastructure assets. It is blind to the need for the province to enhance its response to the issue of climate change. It ignores the pressure of unmet needs for affordable housing and improved public transportation. It fails even to address the very real fiscal pressures created by our aging population, except to assume, implicitly, that those pressures can be offset by reducing expenditures in other areas.

Worse than abandoning the effort to reduce poverty, it moves Ontario backwards. Ontario Works and Ontario Disability Support Plan benefits are lower, after inflation is taken into account, than they were when the Harris government left office. This budget makes it plain that the government is giving up on its poverty reduction strategy — a commitment to reduce child poverty by 25% by 2013-14.

It offers nothing for Ontario families whose own recovery from the recession is every bit as slow as that of the economy or the budget. Growing inequality, and its corrosive impact on Ontario society, isn’t even on the government’s radar screen.

The budget is irresponsible. Like the Drummond report, it considers public services as nothing more than costs to be curtailed or eliminated, without reference to the benefits Ontarians receive from those services. Ontarians wouldn’t cut back on their own budgets without considering the value they get from the things they buy, but the Ontario government thinks that approach is responsible.

It also fails to consider the impact on Ontario’s economy of cuts of the magnitude being proposed. A cut of $10 billion in expenditures, $8 billion of which takes place over two years, equates to a reduction of 1.5% of GDP and at least that amount of fiscal drag. In the current economic environment, that is irresponsible.

And Ontarians should spare their sympathy for how “tough” the budget was for the government to put together. The budget is certainly tough. It is tough on public employees. It is tough on the poor. It is tough on families looking for child care. It is tough on the public services Ontarians depend on.

And by avoiding the issue of Ontario’s fiscal capacity and the adult conversation about taxes and public services that must accompany it, the budget is a coward’s budget.

The government claims it continues to meet its previous commitments. That is not true. It has clearly abandoned its child poverty reduction strategy. Child benefits increases are delayed. Social assistance benefits are frozen. And buried in the details of “expense management measures”, social assistance recipients will lose nearly $100 million in housing and other assistance.

It touts its commitment to its initiatives in education. Yet elementary and secondary education will lose over $500 million in cuts identified in the budget. Post-secondary education will lose another $160 million. Child care gets not a mention in the budget, a clear sign that the government intends to walk away from the chaos it created in the child care sector with its ham-handed implementation of full-day kindergarten.

It stresses its continued commitment to health care, but it ignores the real impact on our aging population on health care costs.

It talks a good game about job creation, with the announcement of its Jobs and Prosperity Fund, but the reality is that there will be less funding for jobs after the budget than there was before and the budget itself will lead to the loss of thousands of jobs across the province.

It talks about the benefits from mining activity in the ring of fire in Northern Ontario as if it put the minerals in the ground itself, but Northern Ontario comes in for well over $100 million in budget cuts.

The juxtaposition of the numbers is telling. The increase in drug costs for seniors with incomes over $100,000 will save the government $30 million; a new 2% tax bracket for Ontarians with incomes over $250,000 would have generated $475 million. Social assistance recipients will have lost $200 million to inflation over the past two years, and Ontario’s child poverty reduction strategy is history.

Perhaps the most potent symbol of this budget is that it will leave social assistance recipients worse off than they were at the end of the Mike Harris government’s second term — by 5.5% when inflation is taken into account.

Hugh Mackenzie is an economist and research associate with the Canadian Centre for Policy Alternatives.

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5 Comments so far older updates

  • Edward Lee

    I agree with this article.The message I get is the rich stay rich and the poor get poorer.I would have liked to see the rich pay a greater share and the poor get a bigger share,Then maybe we could say a balanced approach.The poor are already contributing by being poor.Get my point

  • Marianne

    I’d like to see the stats on the millions of dollars that could be saved by cutting the salaries, pensions, expense accounts and frivolous spending of government employees and departments. Are there any government employees earning $10.25 per hour? Has anyone calculated the average pay of a government employee? Maybe the social recipients need a union or a federation. Just a thought.

  • Jeremy cox

    Excellent analysis, of the budget,it is certainly a budget for the 1 per cent and not for the 99 per cent who will be affected. It would be interesting to see how this budget is received in the house. I wonder who the liberals were trying to woo in this budget considering that Mr. Hudak states that he would not support it.

  • Terry Moore

    A transparently class-biased budget that if nothing else proves the Liberals are true to their word of creating a smaller government/GDP ratio than Mike the Knife. This is not just a callous game plan to further shift the burden of the economic crisis onto those least able to bear it, it’s an outright attack on the capacity of the public sector to put a human face on capitalism. It should result in McGuinty being driven from office. But look whose lurking in the wings Hudak and the harder, deeper faster crowd. Disgusting.

  • Robert Payne

    someone has to pay for ORNGE

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