Archived columns and blog posts by Matt Elliott

Ontario is not Greece or Detroit, nor inevitably on the road to fiscal ruin

By: Matt Elliott Metro, Metro Published on Wed Jun 18 2014

In the days following the election of Premier Kathleen Wynne’s majority government, disappointed conservatives worked themselves into a panic about Ontario’s fiscal future.

Because voters rejected the kind of government cutbacks offered by Tim Hudak, they reason, the province is destined to be mired in deficits, debt and financial ruin that will leave us indistinguishable from the cautionary tales of Detroit or Greece.

Hell, the way some tell it, we might even become an unholy Frankenstein’s monster combination of them both — call it Detreece — as the entire province circles the drain toward bankruptcy. And all because voters didn’t want to listen when Tim Hudak told us we needed to get rid of some public sector jobs.

It’s a cool story, but there’s a problem. It doesn’t seem to be based on anything resembling actual budget numbers.

Let’s start with a comparison. From their 2014-2015 budget, here’s the Liberal plan to eliminate Ontario’s deficit by 2017-2018.

And from Hudak’s Million Jobs Plan Backgrounder, here’s the Progressive Conservative plan to eliminate the deficit one year earlier, by 2016-2017.

The Liberals have government revenues growing by $19.1 billion by 2017-2018. The PCs had revenues going up by $16.4 billion in the same period — lower than the Liberals, thanks to some tax cuts. Liberals will grow government spending by $7.8 billion before they reach balance. The PCs said they’d reduce, then flatline, spending for a couple of those years, before increasing it a bit in 2017-2018, for a $1 billion net spending increase over 2013-2014.

And before you ask, the PCs couldn't really accuse the Liberals of being too optimistic in their revenue growth projections, because Hudak’s team used the very same projections as the basis for their balancing strategy. They just grabbed them right out of the Liberal budget. They included a footnote citation.

The big difference, though, is that Hudak’s plan built in significant revenue cuts, immediately taking $1.4 billion out of government coffers in 2014-2015 by nixing the Liberal increase in personal income taxes for those making more than $150,000 per year and giving $600 million back to corporations through tax cuts.

Hudak’s plan further cut projected revenue by $1.74 billion in 2015-2016, $1.765 billion in 2016-2017 and a cool $2.735 billion in 2017-2018, with the promise of more revenue cuts to come through a reduction in personal income tax rates.

That first-year revenue cut would have been accompanied by $1.8 billion in 2014-15 spending cuts. All told, the vast majority of Hudak’s immediate cutbacks wouldn’t have gone to reducing the deficit, instead funding tax relief for higher-income earners and corporations. Effectively, only $400 million of the 2014-2015 savings from his cutbacks would have gone toward deficit reduction, despite deficit reduction being bandied about as the top priority. This trend continued throughout Hudak’s budget plan, with austerity measures — said to be necessary to balance the budget — also being used to make up for revenue decreases caused by tax cuts.

Ideological conservatives argue that tax cuts for higher-income earners and corporations are necessary to help the economy recover, but the problem with that line of thinking is that it runs into a troubling lack of evidence.

But even if you decide to set aside the evidence, the PC revenue cuts point to an important point. Their motives weren’t pure of heart. This wasn’t an election all about reducing the deficit through tough medicine budget cuts. Voters last week did not simply reject the notion of spending restraint or balanced budgets. If anything, they rejected the idea that it’s worth sacrificing government services to provide tax cuts to corporations and higher-income earners.

Does that put us on the road toward becoming Detroit or Greece? Nah. Ontario is seeing population growth, a rebounding GDP, an increasing per-capita household income and — most critically — year-over-year increases to government revenue. That puts us on an entire different road. That doesn’t mean that this province is a beacon for fiscal health, nor does it mean the Liberal budget plan is perfect (or even particularly good) but there’s no reason to panic — and no reason to think that the ideological path presented by Hudak’s plan was the only way to balance the budget.

This post was originally published at on 2014-06-18T00:00:00.000Z

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Matt Elliott

City Hall watcher, columnist and policy wonk in Toronto.
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