Move carefully on provincial deficit
Published On Wed Mar 24 2010
Six years ago, the newly elected provincial Liberal government was hyperactive about the $5.6 billion deficit it had inherited from the previous Conservative regime.
Premier Dalton McGuinty and his ministers spoke often about the urgency of eliminating the deficit. There was talk of “reinventing government” to focus on core areas, imposing a “fat tax” on fast foods, selling off the LCBO, means-testing the seniors’ drug plan, and slapping tolls on highways (none of which happened).
Today, the Liberal government is reacting much more calmly to a deficit of $24.7 billion, more than four times higher than it was in 2004. “It’s going to take us time to recover from that,” says Finance Minister Dwight Duncan, who brings down a budget Thursday.
Instead of a full-out assault on the deficit, then, Duncan’s budget will reportedly include a plan to eliminate it over seven years.
One can argue over whether a seven-year plan is meaningful for any government, given that 2017 is at least two elections away. But the Liberals are right to adopt a more measured approach to the deficit today. With the economic recovery still in a fragile stage, it would be a mistake to hike taxes sharply or cut spending deeply right now. As the Canadian Centre for Policy Alternatives said in its pre-budget report this week, “Now is not the time to withdraw economic stimulus.”
Indeed, some spending ought to be increased – to replace the withdrawn federal funding of daycare, advance the government’s goal of reducing child poverty, invest in the knowledge economy by expanding post-secondary education, and rebuild crumbling infrastructure.
As for the sale of public assets like the LCBO, that could mean trading a short-term fix of the deficit for lost government revenues over the long haul. Any privatization schemes need to be fully thought through, with the costs and benefits carefully measured. The government should avoid any panicky moves such as the Conservatives’ unloading of Highway 407 in 1999 for what is now generally considered a fire-sale price.
This is not to say that restraint on public spending should be ignored in tomorrow’s budget. For example, the government will want to begin making the case to public sector workers, who have largely escaped the pain of the recession, that continued pay increases in the 3-to-4 per cent range are no longer sustainable. In this respect, there may be some symbolic restraint on pay for senior civil servants.
But any more substantive moves should be put off until the economy is back on its feet.