Skip to main content

Kathleen Wynne and Tim Hudak have divergent views on how to invigorate Ontario's economy. But both will cost money that, right now, the province can ill afford.

Ms. Wynne, the Liberal Premier of Ontario, and Mr. Hudak, the Progressive Conservative Leader of the Opposition, both see kick-starting private-sector investment as a key to economic growth. Both this week talked about bold strategies to make that happen – approaches residing at opposite ends of a philosophical spectrum. Ms. Wynne's is founded in spending; Mr. Hudak's in tax cuts.

The backdrop for these pronouncements is a 2014-2015 budget, being tabled Thursday, that government sources indicate will show an even bigger deficit than last year's $11.3-billion. It will be the second straight widening of Ontario's shortfall, at a time when most provinces, and the federal government, have moved closer to balance. As a percentage of gross domestic product, Ontario's deficit is the biggest of any government in the country.

But there may soon be an election to fight – indeed, the budget has the potential to topple Ms. Wynne's minority government. And so the province is faced with its two main contenders seemingly poised to campaign on their opposing economic visions – even if the province will be hard-pressed to afford either of them.

Ms. Wynne's latest announcement is a new Jobs and Prosperity Fund that would provide $2.5-billion over the next decade to lure businesses to invest in the province. Mr. Hudak hates the idea of handing money to individual companies; he'd rather hand money to all of them. He told The Globe and Mail's editorial board that, if elected, he plans to announce corporate tax cuts in his first budget. He believes this is the better way to encourage private-sector investment.

Ottawa said the same thing when it slashed its corporate tax rate from 22 per cent in 2007 to 15 per cent in 2012. Yet growth in business capital investment has been slowing, not expanding, since 2010. Meanwhile, Canadian corporations are sitting on more than $600-billion in cash, the highest levels in history. We've led the horse to water, and it's not drinking.

But government corporate handouts, incentives and subsidies (call them what you like) don't have the finest track record, either. In his 2012 report on reforming Ontario's finances, economist Don Drummond noted that "Empirical evidence suggests that business subsidies are often not an efficient use of public resources, and have done little to raise living standards." He urged the province to reduce this spending.

What do the two options cost? Well, Ontario already spends about $2-billion a year on various business-support programs (the Jobs and Prosperity Fund, even with some new money, probably doesn't add much to this). If Mr. Hudak were to cut the general corporate tax rate by, say, 1 percentage point (to 10.5 per cent), a rough back-of-the-envelope calculation suggests that might cost about $2-billion in lost revenues (presumably offset by cuts to the Liberals' support programs). So it's a wash, more or less.

But regardless of your preference, the bigger question is whether Ontario can afford either while still staring at an eight-figure deficit, and a provincial debt of nearly $300-billion that costs about $10-billion a year in interest payments. While both leaders look willing to gamble that their approach will spark economic activity that will generate tax revenues to rescue the provincial coffers, the budget constraints give them little room to manouvre – and their margin of error, both politically and fiscally, is tiny.

Perhaps a simpler plan is in order. Ontario needs some fiscal room before it can implement economic strategies to meaningfully pursue long-term investments and sustainable growth. Just bring down the deficit, already.

Report an error

Editorial code of conduct