The uncomfortable truth behind deficit politics

BehindtheNumbers.ca – 2014/02/10 – A Blog from the CCPA – Economy & Economic Indicators, Ontario, public services, Taxes and Tax Cuts
February 10th, 2014.   Hugh Mackenzie

In the lead up to Budget 2014, the Wynne government is caught in a transition between two mutually exclusive messages: the doom and gloom fiscal narrative her predecessors handed her and the end of austerity narrative her government floated with its Fall 2013 economic update.

What makes the story even more complex is that, with a minority government, Wynne doesn’t have the luxury of time to set up the basis for that new narrative.

In the narrative of fiscal politics, the opening question is typically: what can we afford? The existence of a budgetary deficit is taken as proof that we cannot afford to do even what we are doing now. As a result, the range of legitimate debate is limited to this question: what should be cut? But of course there is room for an alternative approach.

The alternative narrative starts with this question: what do we need? That opener brings issues of fiscal capacity and long-term economic management into the debate – as measures to support the provision of the public services we need.

Revenue options come into the discussion as part of the adult conversation Ontario needs to have about the relationship between the public services we all rely upon and the revenue we must generate to pay for them. That’s why the CCPA Ontario office has joined forces to spark an #ihearttaxes discussion across the province, in conjunction with former Privy Council Clerk Alex Himelfarb, Ontario social planning councils, and the Metcalf Foundation. This story talks about our latest stop in Cambridge and this one in Kitchener-Waterloo might make you think twice not only about taxes, but also Brussels sprouts.

In the absence of an adult conversation about revenue generation in Ontario, the fiscal conversation about what’s possible won’t mature. To listen to the rhetoric coming from Queen’s Park in the lead-up to the anticipated 2014 provincial election, it’s easy to imagine the political narrative remaining stuck in the doom and gloom scenario waged by Wynne’s predecessors. But I predict something different will happen: if the previous election is any indication, the moment the election writ is dropped will signal a kind of fiscal armistice among the major political parties.

Despite months of overheated rhetoric about what the opposition described as the sorry state of Ontario’s public finances, during the 2011 election all three parties chose to adopt the fiscal projections laid out by the McGuinty government in the 2011 provincial budget.

This odd consensus held up despite the Auditor General’s report that year which featured a substantial critique of the official Ministry of Finance fiscal projections.

So this is my prediction for 2014: at budget time and in the election prelude, we can expect the government’s fiscal plans to be denounced by the opposition while they use those plans as the basis for their own campaigns. Why? Because while the budgetary deficit might be fine fodder for political potshots, there is no gain to be made in actually proposing the alternatives: either increased revenue through taxation or more cuts in public services.

Indeed, it is more likely that the deficit will be ignored as the parties put proposals on the table that will cause it to increase.

Already, Ontario Progressive Conservative Leader Tim Hudak has promised that further cuts in corporate taxes will be part of the centerpiece of his campaign – a costly and pointless venture that will simply fatten corporate balance sheets at further expense of badly needed public services.

With the deficit off the table and issues of fiscal capacity considered untouchable, the default will be an election campaign that will be about big empty promises that cost little and mean even less when stacked up against Ontario’s public service needs.

To seriously confront that challenge, the task in the lead-up to the budget is to change the question from “what can we afford?” to “what do we need?”

Put another way, the task is to shift the political conversation from “what can we get without paying for it and what can we cut without actually noticing it” to an adult conversation about what we need, as well as how and when we will pay for it.

It’s a conversation the CCPA Ontario office is happy to spark. And from a personal standpoint, I’ve been calling for that adult conversation for years.

Economist Hugh Mackenzie is a CCPA Research Associate.

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