Cuts aren't the only answer
Ontario’s new debt-reduction report ignores the province’s need to increase revenue in favour of sweeping service cuts
Don Drummond’s 668-page deficit-reduction report is intended to help the Ontario government contain its skyrocketing public debt, which Drummond said could explode to more than $30 billion by 2018.
But while the Feb. 15 report is right to advocate for strong debt-reducing measures, it presents an incomplete solution that fails to encapsulate Ontario’s need to increase revenue.
Speaking at Queen’s on March 1, Drummond outlined several measures in the report that would most impact students, such as his recommendation to axe the brand-new 30 per cent off Ontario tuition grant.
Measures like these, he says, will allow the province to limit expenditures and avoid a public finance disaster. In Drummond’s view, the government could, and should, provide better services at a lower cost by implementing so-called efficiency gains into existing services.
Don’t be fooled: there’s not a single sensible person who believes that a $30-billion deficit can be eliminated quickly that way. His recommendation to restructure the health care system, for example, would take years to implement. Any gains in efficiency would take a long time to bear fruit and wouldn’t be the quick fix we require.
In fact, sharp readers may have noticed some serious discrepancies between what Drummond said in his speech at Queen’s and what’s actually written in the report. On paper, he mainly suggests containing the growth in public expenditures through broad cuts in public services and by increasing service-user fees. Ontarians who rely on public services the most should thus expect to be affected.
But Drummond also proposes to “revise the research funding structure” for universities. This plainly means that, in his view, universities should devote significantly less resources to research. He believes — wrongly, in my opinion — that professors are doing too much research, which allegedly harms students’ educational experience.
Several aspects of Drummond’s speech at Queen’s are troubling. As I already mentioned, he carefully avoided discussing cuts in services to citizens. But more importantly, he presents his recommendations as a complete assessment of all possible measures that would allow the government to balance the budget.
This is problematic as there are technically two ways to eliminate a public deficit: reducing expenses, or increasing government revenues. His commission only addressed the former, as its mandate specified that it couldn’t suggest any tax increases.
Again, it’s ludicrous to think that Ontario’s current public financial problem can be addressed only by cutting everywhere. In the end, the solution will necessarily have to be a combination of both service cuts and revenue increases.
As Drummond painted a disturbingly incomplete picture of what should be done to balance the budget, it’s worth examining some additional measures not included in the report.
First, it’s time for Dalton McGuinty’s government to fight tooth and nail for the province to get more equalization payments. Ontario has been the victim of a violent economic shock in the last few years. Its core industrial sector — including the automobile industry — has been greatly affected and may never fully recover.
It’s true that Ontario is now a so-called “have not” province and has received equalization payments since 2009, but the current payment structure doesn’t go far enough. Ontario has given a lot in equalization payments in the past, and is now entitled to receive more.
The province could also ask for the Canadian Health and Social Transfers to be adjusted in its favor.
Second, the provincial government has been reducing the corporate tax rate since 2010 and intends to reduce it further over the next few years. It’s nonsense to enact this policy while health-care beneficiaries and students are asked to make sacrifices.
Ontario’s current corporate tax rate is competitive, and there already exists tax exemptions for both small businesses and for those developing in Northern Ontario. There is no need to further reduce the corporate tax rate.
Third, if more revenue is needed, the government should increase personal income taxes. Times will be tough, and there’s certainly room for a bit more solidarity in this province.
What would Ontarians prefer: reducing the number of social workers in schools or paying a bit more in taxes?
Drummond delivered a charismatic and interesting talk to Queen’s students. He properly identified the task ahead, which is that of reducing the public deficit. But his solution was incomplete.
The government will have to raise revenue, which will require political courage. The beneficiaries of public services aren’t the only ones who should bear the burden of an economic downturn — especially when they aren’t responsible.
If the Ontario government truly wishes to handle its rising debt, it needs to examine measures beyond those stated in the Drummond report. If it doesn’t, Ontarians will likely see the level of public debt continue to rise.
Jean-Denis Garon is a PhD candidate in the Queen’s department of economics.