Deficit numbers in perspective

TheStar.com – Opinion/Editorial – Deficit numbers in perspective
Published on Fri Oct 23 2009

The numbers released on Thursday by provincial Finance Minister Dwight Duncan in his fall budget update are staggering. A record $24.7 billion deficit, roughly double the peak during Bob Rae’s NDP government ($12.4 billion), and a net provincial debt rising to $184.1 billion, again about double the level during Rae’s days.

Progressive Conservative Leader Tim Hudak called it a “shameful” record for the Liberal government.

But the numbers must be put into perspective. Ontario is not an island. The global recession, apparently unnoticed by Hudak, has driven the province’s revenues down (by almost $6 billion from the forecast in March) and expenditures up (by almost $5 billion from the forecast, most of it for the auto bailout).

And as Duncan pointed out on Thursday, Ontario’s deficit, while high by historic standards, is roughly proportional to Conservative Ottawa’s $55 billion and Conservative Alberta’s $4.7 billion.

As well, Ontario’s net debt, expressed as a percentage of the provin-ce’s GDP (30.4 per cent), is actually lower than it was during the first term of the Mike Harris government, in which Hudak served.

Still, the deficit and debt numbers are daunting, and Ontario can’t count on the end of the recession and a return to growth to balance the budget. That’s a fact that Duncan tacitly acknowledged Thursday in promising to do a top-to-bottom review of government spending and to return in next spring’s budget with a plan to eliminate the deficit.

Duncan hopes to use the intervening months to consult with Ontarians on what government spending should be cut or programs eliminated. “It is incumbent on all of us to participate in this vital conversation – to help us build consensus on how to manage through this challenge,” said the finance minister.

Some interesting advice has already been supplied by TD Bank economists Don Drummond and Derek Burleton in a report released earlier this week entitled, “The Coming Era of Fiscal Restraint.” Among other things, they advise against a “slash and burn approach,” with across-the-board spending cuts. Better, they say, to “eliminate the weak program and properly fund the good ones.”

The two economists also recommend against selling assets (such as the LCBO or Hydro One) to balance the budget.

Instead, they say, the government should find a way to rein in spending on health care, which now accounts for 42 per cent of overall program spending by the provincial government. “The alternative to successful action (in holding down health-care spending) is particularly undesirable – that being the need to find deep cuts in other areas of provincial program spending,” they say.

But restraining the health budget will be especially difficult as the population ages and visits to doctors’ offices and hospital wards increase exponentially.

This poses a dilemma for the Liberal government, which came to office six years ago and pledged to restore public services plundered by Harris and the Tories. It will require all the ingenuity the Liberals can summon to maintain those services while also balancing the budget.

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