Jim Stanford is Harold Innis Industry Professor of Economics at McMaster University.
Ontarians watched with fascination as provincial Progressive Conservatives demonstrated their proficiency at counting leadership ballots. Now, voters are waiting to see if the PCs are any better at counting billions of dollars in their fiscal platform.
Indeed, Doug Ford’s most pressing policy task is to present a convincing fiscal plan for the imminent election. He needs a budget true to his aw-shucks conservative populism – but also one that adds up at the bottom. This will not be easy.
Mr. Ford says he’ll ditch Patrick Brown’s People’s Guarantee, which carefully costed out the first three years of Conservative budgets. Mr. Brown’s platform was surprisingly centrist: hoping to convince voters that a PC government would be moderate and caring. But as soon as Mr. Ford threw his hat in the ring, he started jettisoning key planks – starting with the proposed carbon tax (meant to raise $10-billion over those three years).
Mr. Ford’s platform will have neither cap and trade nor a carbon tax. That throws climate policy into confused limbo, and leaves Ontario out of step with other jurisdictions (including neighbouring Manitoba, where a conservative government is using carbon revenue to cut income taxes). More troublesome for Mr. Ford is the $10-billion hole it leaves in the PC fiscal plan.
Other planks of the People’s Guarantee will likely survive under Mr. Ford. For example, he spoke positively of the promise to save $6-billion over three years through unidentified efficiency gains. This fiscal trick has been tried by many campaigning politicians, but never works; implementing austerity on that scale is actually much harder than just finding “a few cents on the dollar.” Mr. Ford will move ahead with the private-sector energy cuts ($1.9-billion a year) implied by cancelling cap and trade. He will also maintain $10-billion in income and GST cuts promised in the People’s Guarantee – and possibly go further (like axing the foreign-buyer real estate tax).
The People’s Guarantee pledged to balance the provincial budget by 2020, and then run a small surplus. With no carbon tax, and no concrete plan for “efficiency” savings, how will Mr. Ford square that same circle?
Arithmetically, he has three options: increase taxes; tolerate a deficit; or cut spending. At door one, Mr. Ford could seek other sources of tax revenue. That’s a non-starter, given his rhetoric about long-suffering taxpayers. Door two is to tolerate deficits, converting lost carbon-tax revenue and the likely failure of the efficiency audit into higher debt. That also clashes painfully with Mr. Ford’s pledge to wrestle the debt to the ground.
Almost certainly, Mr. Ford will choose door number three: still-deeper cuts in provincial spending. He needs $10-billion in cuts over three years to offset carbon tax revenue; $6-billion more to meet the efficiency target; and still more to pay for any additional tax cut promises. All that’s on top of $1.9-billion in annual spending cuts from cancelling cap and trade. All told, he will need to cut spending by close to $25-billion over three years – and around $10-billion in the third year alone. Cuts of this magnitude would significantly damage government services (all the more so given continual inflation and population growth).
Ten billion dollars a year is a major chunk of purchasing power: more than 1 per cent of provincial GDP. We don’t know, of course, the precise composition of the cuts, but they would inevitably include a combination of direct staff and program delivery, income-support programs, and private-sector activity (including the cancelled cap-and-trade projects). And that’s just the direct first-order impact. Cuts this big would also spill into consumer spending and other forms of aggregate demand.
Moreover, reducing provincial spending by more than 1 per cent of GDP cannot but have a parallel impact on provincial labour markets. It is reasonable to expect job losses (both direct with government, and indirect via private-sector actors also affected by the austerity) to total at least 1 per cent of Ontario employment: or around 75,000 lost jobs. That estimate is conservative: since government services are relatively labour-intensive, the final impact on employment would likely be proportionately greater than the impact on GDP. In 2014, then-PC leader Tim Hudak pledged to cut 100,000 jobs in a war on the deficit, and went down in flames. Let’s see if Mr. Ford’s tough love fares any better at the ballot box.
Mr. Ford won the leadership by stoking populist resentment against government, taxes, sex-ed and environmentalism. That mobilized enough grassroots party support to put him over the top. Completing a similar journey from centrism to austerity in a provincial budget, however, will be much harder. And many Ontarians will pay a steep price for the trip.
SPECIAL TO THE GLOBE AND MAIL
The Globe and Mail, March 19, 2018