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(JOHN LEHMANN/THE GLOBE AND MAIL)

Gary Mason

The Drummond Effect is felt across the land Add to ...

The B.C. government was putting the final touches on its latest budget when economist Don Drummond released his report into the Ontario government’s fiscal difficulties.

B.C. Finance Minister Kevin Falcon said Mr. Drummond’s forensic audit of the province’s financial problems, and the tough prescriptions for recovery that flowed from it, convinced him that the tough, restraint-minded budget he was planning to bring in was the right one for the times.

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“I think the Drummond report is a real warning signal for governments across the country that if we lose discipline in controlling spending, if we think we can spend our way out of temporary short-term problems, we leave a legacy of debt and deficit to our children that is going to result in them paying a very big price,” Mr. Falcon told me after tabling his budget.

Not since Paul Revere has a warning call been talked about as much as the alarm Don Drummond sounded on Ontario’s fiscal mess. Even B.C. Premier Christy Clark acknowledged that the report made it easier for her government to bring in the tough-minded, hold-the-line-on-spending budget it did Tuesday.

In the budget lock-up, there weren’t many who didn’t mention Mr. Drummond’s review in the context of the influence it is likely to have on fiscal matters across the country.

“There is little doubt that the [Drummond]report is going to have a major impact on fiscal policy discussions in Canada at the sub-national level,” said noted B.C. economist Jock Finlayson.

“Ontario has now become a case study of what happens when you let spending growth outstrip the pace of your tax base. Now they’re in a terrible fiscal hole and only draconian measures are going to get them out of it. I think the Drummond report was a huge wake-up call for some provinces.”

We are now officially in an era of restraint – well, at least some of us.

If you live in Alberta and Saskatchewan, it’s pretty much business as usual. They’re awash in money. For that matter, those living in Ontario and Quebec haven’t felt the effect of government belt-tightening either, but not because their governments are rich – it’s because they’ve been politically timid.

Everyone is now well aware of the horribly difficult choices that lie ahead for the Ontario government. Quebec won’t be far behind. Its debt problems are even worse than Ontario’s and yet no one seems to be talking about them at the moment.

But elsewhere in the country, debt is a concern, and thanks to Mr. Drummond, it has become an even bigger one. Manitoba’s debt-to-GDP ratio is around 26 per cent. Nova Scotia and Prince Edward Island have debt ratios of 36 per cent – similar to Ontario’s. Newfoundland has money and has been running surplus budgets and yet still has a debt-to-GDP ratio of nearly 27 per cent. B.C.’s will be 18 per cent in two years before it begins trending downward again.

Of course, globally, we’re still pikers when it comes to debt. Japan’s debt-to-GDP ratio is 228 per cent. Greece is almost stable by comparison at 144 per cent; France’s debt ratio is 83 per cent and the U.K.’s is 76 per cent.

Still, Mr. Drummond has helped make debt a very dirty word in Canada – as it should be.

“We’re trying to avoid the problems Ontario has on its hands right now,” Mr. Falcon said. “And I think other provinces are going to be facing similar problems as Ontario. The thing is, it doesn’t take very long before you end up like a France or a U.K. That can happen in 10 years very, very quickly.”

Restraint programs of one degree or another have already commenced in many parts of the country. They’ll seem modest compared to the one on which Ontario eventually embarks and the one that ultimately may be forced on Quebec if it continues to do nothing about its debt problem.

“We need our political leaders to just be honest with the public,” said Mr. Falcon. “They need to tell people that when it comes to spending, sometimes the answer has to be no.”

Follow on Twitter: @garymasonglobe

 
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