Dalton McGuinty’s pretend economics

NationalPost.com – Opinion/Editorial
Published: Monday, April 19, 2010

Ontario’s government is in the midst of developing a new school in applied economics as it seeks to deal with the financial cavern it’s dug for itself. You might call it “pretend economics.”

Queen’s Park applied pretend economics last week when it ruled that landlords would not be allowed to raise rents to recoup extra expenses they’ll face when the Harmonized Sales Tax takes effect this summer. The tax will boost costs on utilities, maintenance, property management, renovations and other normal upkeep. Landlords estimate their bills will rise by about 5%, on top of inflation at about 2%. Since they’re still not allowed to print their own money, they were hoping to offset some of the added expense via rent increases above the guidelines that tie them to the consumer price index (CPI).

No way, said Premier Dalton McGuinty. Rent increases might displease the 1.3 million Ontarians who have to

pay them. So the government simply refused to let landlords make back their costs. The CPI guideline for this year is about 0.5%, and property owners will have to be happy with that.

One would think the government would have realized that introducing the HST would mean more costs for everyone, but under the rules of pretend economics you’re allowed to make believe it’s easier for landlords to come up with the extra money than it is for their tenants. And when landlords stop cutting the grass or painting the halls, everyone can pretend that the building isn’t going to pot.

The province’s wholesale takeover of the Ontario electricity market likewise betrayed a willful subversion of market principles. The government controls the price, the supply and — it hopes– the demand for electricity.

This month, Ontario unleashed another great example of pretend economics when Health Minister Deb Matthews announced a ban on the $750-million in “professional allowances” that generic drug manufacturers pay to pharmacies to stock their products. The government will also move to cut prices on generic drugs by 50%, to about a quarter of the price of name-brand drugs.

The goal, which is entirely laudable, is to save the province about $500-million a year on its drug bill. That’s part of its pledge to get health-care costs under control, which no one denies is necessary. It’s the approach that’s worrying: Mr. McGuinty and Ms. Matthews apparently reckon the province’s pharmacies can lose $750-million a year in revenue and not notice the difference.

Ontario’s drugstore industry has gone into the corporate equivalent of a heart seizure as it tries to make its case, though its efforts so far seem to have succeeded mainly in angering the Premier and his Minister. Arguing that the lost revenue will force reductions in services — which is self-evident — drugstores decided to cut back immediately, starting in London, Ont., which, by sheer coincidence, happens to be the home of the Health Minister.

The industry says it is equally opposed to professional allowances, but has no alternative to them as long as the government limits the amount they can charge in dispensing fees. Industry officials say Queen’s Park tolerated the allowances for years because it allowed governments to under-fund pharmacy costs. Now it wants to end the allowances without giving pharmacies a means of replacing the revenue. The net effect may be to drive business to chain stores able to subsdize pharmacy costs through grocery or other sales, squeezing out independents that are more likely to provide personal service to elderly or low-income customers.

If the expansion of the industry has been fuelled by stocking fees from the generic firms, it’s time to reintroduce reality. But Mr. McGuinty and Ms. Matthews aren’t dealing in reality. Rather than give the industry time to adjust to the massive change being forced on its finances, the province prefers to grandstand, announcing sudden changes and then pretending there won’t be any pain. Mr. McGuinty’s government has increased its own expenditures every year its been in office because it is incapable of even the most basic restraint on spending, yet expects drug chains and landlords to swallow millions in revenue cuts at the drop of a hat.

How? It’s easy. Just follow the Premier: Close your eyes, whistle a merry tune and pretend it’s not happening.

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