McGuinty doth protest too much

Posted on February 22, 2008 in Debates

National Post – opinion/editorial
Published: Friday, February 22, 2008

Federal Finance Minister Jim Flaherty is picking a fight with his old nemesis, Ontario Premier Dalton McGuinty. On Tuesday he set a Canadian Federation of Independent Business audience murmuring in Toronto with a strident attack on Mr. McGuinty’s economic policy, warning that Ontario is losing its traditional place of primacy in Confederation as other provinces adopt aggressive competitiveness measures. Is this merely a settling of old scores, a parochial squabble transplanted onto the larger stage? Perhaps it depends on what you think of Mr. McGuinty’s economic stewardship. It would be odd for a national finance minister to remain silent in the face of a patently existing crisis in the country’s largest province, and Mr. Flaherty would need the patience of a saint not to have grown a little impatient at the Premier’s continued pleas for federal largesse, which only seem to grow louder and more desperate as more of them are met.

Our politics reporter John Ivision quoted a Queen’s Park source as saying, “[The federal Conservatives are] getting blamed and are looking to deflect the blame by saying that Ontario is turning into a rust belt and it’s McGuinty’s fault.” Mr. Flaherty didn’t actually use the R-word, but maybe that’s because the term is now not harsh enough to be an accurate description. Labour productivity in Ontario fell behind that of the old-line U.S. manufacturing states years ago; even by rust-belt standards, the province is not doing so great. Today, the province’s workers are producing about 5% less in GDP than those in Ohio, nearly 10% less than Pennsylvanians, more than 20% less than Californians and more than 40% less than New Yorkers. And there’s no great mystery about the components of this gap. Ontarians work fewer hours than Americans, partly because marginal tax rates for poor and middle-class people discourage work. And Ontario businesses — facing high capital taxes — haven’t been able to invest in technology and equipment upgrades that make workers more effective.

Mr. Flaherty, in short, said no more than the economists have been saying for years now. Ontario needed to make its economy more limber and modern during those now-forgotten three decades when the Canadian dollar slid lower every year, granting an unearned increment to manufacturing and export businesses that have now seen the gains snatched back all at once. Ontario’s former Conservative government, helmed by Mike Harris, accomplished much, but Mr. McGuinty’s Liberals neglected to put the final keystone in place, coming to power with a pro-union, pro-central-planning agenda for the economy just as other provinces were getting religious on the need to slash taxes on capital.

Canadians in the more commodity-dependent parts of the country, which are enjoying the benefits of high world prices, can have only so much pity — especially when they witness things like Premier McGuinty’s confusing picking of industry winners through the “Next Generation Jobs” program and his stubborn refusal to use part of the new federal hardship fund for economically threatened communities in shoring up the auto industry. We all favour short-term interprovincial aid for stricken provincial economies, but Confederation has learned the danger of creating welfare traps in places where the real remedy is entrepreneurship and facilitating rapid change. One can’t help suspecting, certainly, that giving in to the North American automakers’ demands for fat government subsidies is going to be a recipe for delayed disaster once China and India follow Japan and Korea in mastering the art of making and selling inexpensive cars.

But when he’s finished attacking the Premier and trying to convince Ontario voters where the blame for the province’s economic underperformance lies, Mr. Flaherty might listen with sympathy to at least one complaint from Mr. McGuinty’s office. Over the weekend, the Premier called attention to the anomalous state of the Employment Insurance system; what was once the definitive showpiece amongst Canadian social programs has dwindled into irrelevance in Ontario, where nearly half of all workers, and perhaps as many as four-fifths in Toronto and Ottawa, are ineligible for EI. Essentially the pro-gram has become a stealthy form of equalization which appears, on the evidence, to benefit all other provinces –even wealthy Alberta — at Ontario’s expense. Although unemployment is still at historic lows in Ontario, this seems like an odd state of affairs.

Since the program is running a continuing surplus, the federal government could lower the contribution rates further for everyone, or flatten out the eligibility requirements across the country so that Ontario is less disadvantaged structurally.

But EI reform will not improve productivity in Ontario and spur needed growth in its industrial base. That is a job that lies with Mr. McGuinty, who could cut business taxes in the province tomorrow and kick-start Ontario’s economy.

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