Social Policy in Ontario

“A highly disconcerting finding,” observes economist Roger Martin, in a grim echo of Al Gore’s An Inconvenient Truth.

Coincidentally, Gore dropped by last week to give Ontario an eco-hug. But it’s an economic-hug that we really need.

After 12 years of looking ahead, Martin’s Task Force on Competitiveness, Productivity and Economic Progress took a look back and found Ontario in a stall — not just in our outputs (exports), but inputs (domestic investment).

Rather than closing a productivity gap with our American competition, Ontario is lagging further behind.

Corporate taxes have been cut to record low levels, yet our companies are sitting on unprecedented stashes of so-called “lazy cash.”

Instead of displaying entrepreneurial zeal to boost exports, our business leaders evince timidity by failing to invest in needed equipment, R&D, software, patents and other productivity tools.

Small businesses stay perversely small, the better to benefit from a preferential tax rate — even lower than the recently lowered corporate rate for bigger firms.

And our transportation gridlock is growing, not getting better. As congestion reaches “staggering levels,” our politicians offer only subway sound bites that get us nowhere. (Oh, and the government’s latest Green Bonds trial balloon? A dubious revenue tool.)

One bright spot — the Ring of Fire — has flamed out during the time the 76-page report was drafted and its scheduled release later this week:

“Northwestern Ontario is on the cusp of one of the biggest Canadian natural resource developments in a century,” Martin notes hopefully. But the northern cusp went bust last week after the biggest U.S. investor put its holdings on hold.

“Clearly, Ontario is falling behind its competitors,” the report concludes. “This story is a result of more than a decade of missed opportunities, wasted potential, and complacency on the part of business leaders and policymakers.”

The study offers a few modest proposals to stop the slide, but it’s still a downer. It notes approvingly that much of its advice to Liberal governments over the past decade has been followed — lower corporate taxes (not so smart in my view), the HST (economically efficient and unavoidable), and investing in education (smart, but still mismatched).

We can continue to heap blame on our politicians, as business leaders reflexively do. But Canada’s curse is as much the lack of a bold entrepreneurial class than a decisive political elite.

“A central problem with attitudes in the Ontario business community is that there continues to be hesitance on the part of business leaders to make substantial investments or start up new companies,” the study laments.

Despite the Liberals transforming the tax system into “one of the most business-friendly” in the industrialized world, “businesses have not fully taken advantage of the many incentives that have been created to promote growth.”

Liberals like to claim that Ontario leads in attracting foreign investment, but that boast camouflages the lack of homegrown investment by our domestic businesses. Despite generous tax incentives, spending on machinery and equipment has declined in the past five years (on a per-worker basis, which hurts our productivity). Investment in information technology has nosed up, but at roughly half the American rate. During all this time, Canadian companies have bolstered their cash reserves.

Some past advice from Martin, which is unlikely to be heeded anytime soon: A carbon tax (revenue neutral) that would put a price on pollution, forcing companies to improve their processes and competitiveness. And an end to the so-called Clean Energy Tax Benefit that knocks 10 per cent off hydro bills — a brazen vote-buying ploy that costs the treasury more than $1.1 billion a year.

A final bit of politically controversial advice from Martin’s group: Politicians from all parties must stop pandering to the powerful small business lobby that pretends to be Ontario’s sole engine of economic growth. Ontario’s export powerhouses are bigger businesses, and preferential tax breaks can’t be justified.

Another longshot: Outdated equalization and transfer payments cry out for reform, but will likely continue to bleed Ontario’s taxpayers of about $12 billion a year (a burden that would wipe out our deficits and balance the budget instantly).

The take-away message? No point worrying about Ontario’s economic stall. Better to be afraid, very afraid.

A highly disconcerting finding.

< http://www.thestar.com/news/queenspark/2013/11/26/economic_report_paints_grim_picture_of_ontario_cohn.html >