Ontario Budget Emulates Drummond

Perhaps the most striking feature of today’s Ontario budget is how close it comes to last month’s Drummond report. Drummond’s preferred scenario for 2017-18 was $134.7 billion of provincial revenue, $117.5 billion of program spending and $15.3 billion of interest payments.

By comparison, today’s budget envisions $135.9 billion of revenue, $118.9 billion of program spending and $15.4 billion of interest payments (Table 2.24). In other words, the McGuinty government aims to come within one per cent of Drummond’s proposals. It would do so through a similar combination of unduly pessimistic revenue projections, slight revenue increases and radical spending restraint.

The budget strangely assumes flat corporate tax revenues despite rising corporate profits, the cancellation of future corporate tax cuts and promised improvements to corporate tax compliance (Table 2.15). The government brags about beating its previous deficit targets, but expects Ontarians to take seriously its gloomy projections for future years.

On the spending side, McGuinty rejects a few of Drummond’s specific recommendations but goes further in threatening to legislate a pay freeze for Ontario’s broader public sector. Over the next three years, the budget would cut wages and pensions by $6 billion and other components of public services by $12 billion.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

UPDATE (March 28): Quoted in The Globe and Mail and Hamilton Spectator

Here is the United Steelworkers’ press release:

Steelworkers Challenge Liberal Cuts

TORONTO, 27 March, 2012 – The United Steelworkers union (USW) is concerned that today’s provincial austerity budget will hurt Ontario workers.

“The McGuinty government is threatening to legislate a pay freeze for workers in the broader public sector, including the staff of institutions like universities that receive less than half of their funding from the provincial government,” said Wayne Fraser, USW’s Ontario director. “Slashing important public services will also reduce spending needed to support private-sector jobs and risks pushing Ontario back into recession.

Today’s provincial budget proposes to cut wages and pensions by $6 billion and other components of public services by $12 billion over the next three years. By 2017-18, the McGuinty government would slash program spending to within one per cent of the draconian level advocated by Don Drummond last month.

“The government brags about easily beating its previous deficit targets, but now expects Ontarians to take seriously its gloomy projections for future years,” noted Ken Neumann, USW’s national director for Canada.

Like the Drummond report, today’s budget exaggerates the need for cuts by assuming that provincial revenues will grow slower than the provincial economy. In particular, it assumes flat corporate tax revenues despite rising corporate profits, the cancellation of future corporate tax cuts and promised improvements to corporate tax compliance.

“The budget includes some welcome measures to collect more revenue, including a long-overdue review of Ontario’s mining tax,” said Fraser. “But it’s not enough. Ultimately, the Liberals plan to cut four dollars from important public services for every dollar of additional revenue.”

USW has proposed to restore a 14-per-cent provincial corporate tax rate, collect more tax from personal incomes in excess of $250,000 and maintain existing restrictions on HST input tax credits. Such revenue-enhancing policies, combined with more realistic revenue projections, would allow Ontario to balance its books with far fewer cutbacks than proposed by today’s provincial budget.

“Both provincially and federally, we need a balanced approach to balancing the budget rather than slashing and burning needed public services,” concluded Neumann.

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