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Jeffrey Simpson (Bill Grimshaw)
Jeffrey Simpson (Bill Grimshaw)

Jeffrey Simpson

Ontario's budget will just delay the pain Add to ...

Thousands of university and college students gathered in Sacramento last weekend to protest against what's happening to them and their institutions. The students are paying 32 per cent higher fees, the professors and instructors are being laid off or forced to take furlough days, and class sizes are growing.

As part of the fight against California's huge deficit, about $1-billion has been removed from the higher education budget in the past two years. But then almost no area of state spending has been spared, as California copes with a $12.3-billion fiscal hole.

Across the U.S., state after state is cutting services, raising fees or taxes, and using whatever tools to avoid the deficits they are constitutionally not supposed to run. So while attention is focused on the federal deficit of $1.3-trillion this year, and more than $1-trillion next year, states are actually on the front line of what the recession and its aftermath are doing to budgets. Washington, after all, can go into massive fiscal hock, but states can't.

We delay pain, hoping things will improve; they inflict it now.

Forty-five states have cut services since 2008, according to the Center on Budget and Policy Priorities, a liberal think tank. Twenty-nine have cut health care, 24 have reduced services to the elderly and disabled, 29 to K-12 education, 39 to higher education. California Governor Arnold Schwarzenegger's proposed budget calls for eliminating the state's $1-billion welfare program, CalWorks, and for state employees' salaries to absorb a 5-per-cent reduction.

So there's massive groaning everywhere at the state level. Illinois faces a $12.8-billion shortfall, New York $8-billion, Florida $4.7-billion and Pennsylvania $4-billion. New Jersey's new Republican governor attacked his state's $10-billion deficits with massive cuts everywhere and vowed that, if the legislature dared to send him a budget containing any tax increases, he'd veto it.

The Center on Budget and Policy Priorities estimates that state governments need to find $180-billion in spending cuts and/or tax increases this year. Last year, the states received infusions of federal aid from the national stimulus package. Once that money expires, their fiscal situations will worsen.

A shortfall of $180-billion sounds enormous, and it is. But consider this: The $180-billion shortfall - in relative terms - is smaller than the one facing Ontario.

Tomorrow, the Ontario government will unveil a budget that is supposed to reveal a $24.7-billion deficit for this year, followed by six more years of deficits. As part of a Canadian economy roughly one-10th the size of that of the U.S., a provincial deficit of $24.7-billion eclipses the $180-billion facing all 50 states combined.

Ontario, therefore, is kidding itself. It's in terrible financial shape, has no plan to restore its health, will take no remedial action, and continues to live with an equalization regime that drains billions from the province every year, something no U.S. state suffers.

To be sure, the provinces have more spending responsibilities and taxing power vis-à-vis the federal government than do U.S. states. They tax and spend more than do U.S. states. So it's difficult, if not impossible, to make a precise comparison between Ontario and the state deficits, but you get the general idea. Ontario is in an immense fiscal hole with absolutely no idea how to climb out of it, and no constitutional requirement to do so.

The answer, therefore, is to borrow, not just today but tomorrow and tomorrow and tomorrow. Some provinces have been borrowing for years, a pattern that explains why, say, Newfoundland and Quebec are labouring under such heavy debt loads. By borrowing massively, provinces such as these and Ontario kick tax increases, spending cuts and borrowing costs down the road, past the next election, and as far as future generations.

In fairness, provincial governments can raise taxes, usually after being safely elected, as the Ontario Liberals did with higher health-care premiums and Quebec Liberals by increasing the sales tax.

In the U.S., the ideological ferocity with which many Americans respond to even a hint of a personal or sales tax increase forces governments to deal with deficits almost entirely by spending cuts.

In Canada, provinces cut a little but mostly borrow and raise taxes in a fiscal pinch; in the U.S., states mostly cut. We delay pain, hoping things will improve; they inflict it now.

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