Rarely has any finance minister in this country been under more pressure.
Dwight Duncan’s March 27 budget will be a make-or-break chance to chart a course out of a $16-billion deficit, before the dynamics of a minority legislature render difficult decisions all but impossible to make.
With everything from the province’s credit rating to the sustainability of social programs hanging in the balance, most everyone has an opinion about how aggressively Mr. Duncan needs to move. And the budget’s success will hinge largely on his ability to meet – or at least manage – the expectations of several key audiences.
Although Ontario isn’t on the verge of becoming the next Greece, as some hyperbole has suggested, this is the audience Mr. Duncan is most worried about.
From Bay Street, there are constant warnings that a failure to show real progress toward getting the books in order could badly shake the confidence of investors – especially if the province’s credit rating is downgraded, as Moody’s threatened late last year. If that happens, a legitimate debt crisis could be on the horizon.
The budget is unlikely to show an increase in the deficit beyond the last forecast, or deviate from the 2017-18 projection for eliminating it. But credit raters, with whom Mr. Duncan’s officials have had contact, will be looking for specific cost-cutting measures to show the government is capable of meeting its targets.
Mr. Duncan and Premier Dalton McGuinty have made a concerted effort to condition Ontarians for what lies ahead, and the tough-talking Drummond Report helped in that regard. Nevertheless, it’s unclear whether Ontarians have moved beyond abstract awareness of the need for cost-cutting to a willingness to accept specific measures that will tangibly impact their lives.
The Liberals are willing to risk a little backlash, given that they’re unlikely to next face voters before 2013, but they want to avoid permanently alienating too many supporters. And recent experiences in Europe have demonstrated what happens when there’s not enough public buy-in for austerity agendas.
Mr. Duncan has already tried to show the pain will be spread evenly, including swipes at perks enjoyed by the corporate sector. Look for more of that.
Among the secrets of Mr. McGuinty’s success has been a mutually beneficial relationship with the broader public sector. In return for labour peace, and in many cases support during election campaigns, the Liberals have been generous with salaries and entitlements.
Through some combination of wage restraint and structural reforms of workplaces, that’s about to change. The government has sent a strong signal with its aggressive approach to negotiations with teachers – the profession with which it’s most closely aligned – and officials say other “partners” have already begun adjusting expectations accordingly.
Still, it remains to be seen how much unions and other interests will be willing to repay past favours, and how much the Liberals are prepared to risk blowing up their own brand.
Counterintuitive though it may be, given Ontario’s first minority legislature since the 1980s, this is one of the easier audiences to please.
Of the three provincial parties, the Liberals are closest to being election-ready. While the Progressive Conservatives can be expected to vote en masse against the budget, they know there’s no real consequence to that, because the New Democrats have no intention of helping bring down the government.
Nevertheless, Mr. Duncan has to give the NDP some excuse to prop up the government. A cancellation of planned corporate-tax cuts – which has the added advantage of helping with the aforementioned spreading of pain – is the likeliest way of doing so.
THE GOVERNMENT ITSELF
Liberals don’t generally run for office because they want to cut things. So Mr. Duncan has been working hard to convince both cabinet and caucus that austerity is about preserving core services that would otherwise have to be cut by future governments.
He appears to be having some pre-budget success, with the likes of Health Minister Deb Matthews – a flag-bearer for their party’s left – backing him up. But he will still have to convince colleagues that they can sell new policies back in their ridings, or else internal divisions could slow post-budget implementation.
There is also the small matter of getting the provincial bureaucracy on board. Mr. Drummond’s report was aimed partly at lighting a fire under civil servants, but Mr. Duncan will have to keep stoking it in order to avoid an ambitious agenda falling prey to a risk-averse culture.