Hello, Queen’s Park. Hello, Toronto. Hello, Ottawa. Anybody home?
Ontario continues to stagnate while provincial politicians play games in a minority government, Torontonians are fixated by the Rob Ford gong show and the Harper Conservatives remained preoccupied by their western base.
Ontario’s task force on competitiveness and productivity recently released its 12th annual report and discovered that after inflation, Ontario’s gross domestic product has grown by just 6 per cent since 2002. That paltry growth has left the province 14th among comparable provinces and U.S. states, with only Florida and Quebec lower.
Sure, the task force has recommendations and the occasional critique of government. But what really stands out is its criticism of business, whose lobbyists and bullhorns in the media are always preaching for lower taxes.
Ontario has delivered. The province lowered corporate taxes. It harmonized the provincial and federal sales tax into the Harmonized Sales Tax. It eliminated the capital tax. It reduced the marginal effective tax rate. In other words, it followed business’s prescriptions, and they haven’t worked. At least not yet.
Maybe things would have been worse had this agenda not been followed. But as it is, the task force notes, “businesses have not fully taken advantage of the many incentives that have been created to promote growth. This must change.”
Two public policy issues – the task force strangely doesn’t mention a bunch of others – are holding Ontario back. Investment in infrastructure, especially transportation in and around Toronto, is woefully inadequate. And the education and training systems are not geared to preparing young people for the job market, an ambition that universities usually resist, arguing they are not vocational schools.
Ontarians work less than people in many comparable jurisdictions – 35.3 hours compared to 38.6 hours on average elsewhere. This partly reflects a weak job market – and partly a “higher propensity to take more weeks of vacation, especially among higher-earning individuals,” the task force notes.
But back to business, as it were. Report after report has lamented the poor research and development record of Canadian businesses, despite very generous tax incentives. They also don’t invest much in employee training. Machinery and equipment investment in Ontario was 32 per cent lower per worker than in U.S. competitors in 2011.
Such a persistently low level of investment is one reason why productivity in the Canadian economy, and in Ontario’s manufacturing sector in particular, is so poor. The next time some business lobby bleats about a government policy that is “anti-business,” ask the speaker why business itself hasn’t delivered despite very favourable government policies.
Curiously, the task force has almost nothing to say about Ontario’s chronic deficits, except to note that federal-provincial fiscal arrangements discriminate against Ontario. The federal government takes far more revenue out of Ontario than it returns by way of spending, but that’s an argument no one else in Canada will believe. No federal government will therefore do anything about the entrenched inequity.
With a big deficit, Ontario is ill-placed to make the huge investments the task force recommends. For example, why and how could Ontario create three new universities, as the task force recommends, when it cannot properly finance the existing ones? (Witness to which is that students now pay around half the cost of their education, the highest share in Canada.)
The Ring of Fire, the still-undeveloped mineral deposits in far Northern Ontario, would be a boon to the region and the province. But one major U.S. company has already gone home. Others might follow, so difficult will be the demands of the area’s first nations and so protracted will be the negotiations. Training at least some aboriginal workers for the wage economy is highly desirable, yet as the task force reluctantly acknowledges, previous such dreams have often crashed against “the poor skill level and lack of interest from local workers.”
Many of the task force’s recommendations have been made before. One, however, is arresting: that Ontario needs a revenue-neutral carbon tax, such as the one in British Columbia.
A carbon tax is the right policy for combatting carbon pollution and moving taxes toward consumption. It would make Ontario more competitive, since carbon tax revenues would lower other taxes. No political party, however, will touch it.