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After years of lavish spending and too few tax cuts, the Ontario Liberals have grudgingly accepted that the party is over. The economy is slowing, and revenue growth is faltering. Unemployment hovers above the national average. In response to these misfortunes, Dalton McGuinty's government has belatedly found wisdom with its 2008-09 budget, concentrating the province's scant resources on key tax cuts and on programs to retrain unemployed workers and fix crumbling infrastructure. The great shame is that it took the government so long.
The Liberals, of course, do not admit their errors, including their failure to substantially cut corporate taxes when they had the leeway to do so. Instead, their budget recites a litany of past spending triumphs. It blames Ottawa for shortchanging Ontario in federal transfers and Employment Insurance payments. And, because the Liberals' free-spending habits will not die, it allocates $2.3-billion from last year's revenues to pay for tough-luck safeguards in this year's budget. While Finance Minister Dwight Duncan praised his own "balanced pragmatic approach" yesterday, it is clear that he is positioning the province for harder times ahead.
To that end, the budget has adopted commendably precise, if small, tax cuts to ease the coming pain. The capital tax on manufacturing and resource industries will be eliminated, retroactive to Jan. 1, 2007. That will allow money-losing firms to receive a large refund of those payments, at a time when this cash will come in particularly handy. As well, the Liberals will provide a 10-year provincial income tax exemption for new corporations that bring academics' intellectual discoveries to market. It's frustrating; why didn't the Liberals devise such adroit measures when the economy was thriving?
The new spending, in turn, is mostly well-targeted, although good programs are tucked away amid a flurry of small initiatives to appease disappointed constituencies. The budget earmarks $1.5-billion over three years to retrain 20,000 workers for new careers, although details remain sparse, and it will increase access to postsecondary education. It also invests $1-billion in new municipal infrastructure, including public transit, roads and bridges. Such steps could be lifesavers in a downturn.
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The downside to this budget is its persistently optimistic assumptions. Mr. Duncan projects real GDP growth of 1.1 per cent, down from the 2.8 per cent predicted in last year's budget. A few months ago, that figure would have been viewed with dismay as the sign of a stalling economy. Today it looks too sunny, as the U.S. credit crisis spills across into Canada, choking loans to private enterprises, curbing expansion and prompting layoffs.
Despite their precarious economic position, the Liberals are still spenders. They tore through almost all of their $5-billion in unexpected revenues last year, and they are clearly struggling to limit spending growth to an average of 3.3 per cent over the next two years. This is not comforting. The Liberals wasted their chance to do well in good times. Their atonement should be to prudently manage the bad times.
