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Headshot of Jeffrey Simpson. (Brigitte Bouvier/Brigitte Bouvier/For The Globe and Mail)
Headshot of Jeffrey Simpson. (Brigitte Bouvier/Brigitte Bouvier/For The Globe and Mail)

JEFFREY SIMPSON

Tight money kills Ontario’s ‘buy change’ illusion Add to ...

Greg Sorbara, as a newly minted Ontario Liberal finance minister in 2004, offered a shock and a prediction in his first budget.

The shock was health-care premiums, a tax by another name from a party whose leader, Dalton McGuinty, had signed an election pledge not to raise taxes. The premiums, Mr. McGuinty explained, were needed to finance health-care spending, the government’s and Ontarians’ top priority. Simultaneously, the government stopped paying for optometry, chiropractic treatments and physiotherapy.

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Then came Mr. Sorbara’s warning. The previous Conservative government had increased health spending by 7 per cent a year – $22.2-billion in 2000-2001 to $25.5-billion in 2002-2003. These 7-per-cent increases, plus the 7-per-cent increase for health care he announced in his first budget, were unsustainable.

Read Mr. Sorbara’s words from 2004: “This rate of increase is not sustainable, and can only lead to the continued ‘crowding out’ of available funding for other priorities in the future.”

Spin the wheel forward to 2010. Dwight Duncan is now Ontario’s Finance Minister. In Mr. Duncan’s budget that year, he proclaimed: “Just 20 years ago, 32 cents of every dollar spent on government programs was spent on health care. Today, it is 46 cents. In 12 years, if we don’t take action, it could be 70 cents.”

Having warned Ontarians in 2004 that 7-per-cent annual health-care increases were not “sustainable,” what did Mr. Sorbara and his colleagues do? Answer: From 2003-2004 to 2010-2011, they increased health-care spending by almost $16-billion, a 52-per-cent increase over seven years – or, wait for it, 6.2 per cent each year.

The Liberals were on a spending treadmill, and they couldn’t get off it. So, for that matter, were many provincial governments across Canada – at least until the aftermath of the brutal 2008 recession turned their surpluses into deficits – in Ontario’s case, a $15-billion deficit.

Now, belatedly, the Liberals have done an about-face. Strapped for cash and burdened by deficits, they’re slamming on the spending brakes for education and health care. So are other provincial governments that are wrestling with their most expensive program, health care, in a period of deficits.

Many were the reasons for the Liberals’ huge health-care spending increases. An obvious one was demand, which grows and grows to take all available money. Among others was the idea, articulated forcefully in the 2002 Romanow commission report, that health care needed a huge infusion of money that would “buy change.”

Following this advice, and enjoying fiscal surpluses, Ottawa and the provinces agreed that the federal government would pour an additional $41-billion into health care over a decade – indexed at 6 per cent a year. That 6 per cent sounds generous, and it is. But if yearly spending is going up by 6.2 per cent, a 6-per-cent indexation just keeps things afloat. Which is what happened in Ontario, and elsewhere. The post-Romanow money didn’t buy change as much as it bought time.

It also bought big wage settlements. Ontario physicians and nurses – the large provider groups within the system, organized in powerful associations and unions – did just what Ontario teachers did: They negotiated handsome settlements that grabbed a big chunk of the new money being injected into these public systems.

That this would happen should have been seen by any politician at the time, because such is the nature of the public sector dominated by motivated and mobilized organized groups. The money the groups got far exceeded productivity gains (an economic principle called Baumol’s cost disease).

Now, its fiscal back against the wall, the Ontario government is generating important changes to health care: altering the way hospitals are financed, allowing pharmacists to do more, scaling back providers’ income increases, trying harder to get more value and higher quality outcomes for the money spent. They’re steps in the right direction, many long overdue. Many more are required, and over a long period of time.

There are more changes being introduced now that money is tight in Ontario than when governments operated under the “buy change” illusion.

The yearly increase of the Ontario government's health-care spending from 2003-2004 to 2010-2011 was 6.2 per cent. Incorrect information appeared in print editions and an earlier online version of this column.

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