Niels Veldhuis and Jason Clemens are economists with the Fraser Institute.
With last month's release of both the Ontario Progressive Conservative platform and the Ontario Liberal government's 2017 economic outlook and fiscal review, Ontarians now have a better sense of what lies ahead after next year's election – the continuance of big government.
Let's start with the most important measure to gauge the breadth and depth of government activity: government spending as a share of the economy.
Last year (2016-17), Ontario government spending as a share of gross domestic product stood at 17.8 per cent. If we add federal and local government spending, the total size of government in Ontario is currently about 38 per cent of GDP.
In his book, Measuring government in the 21st century, Lakehead University economist Livio Di Matteo examines a wide range of international data to measure how the size of government affects economic growth and social outcomes. Prof. Di Matteo finds that economic growth is maximized when total government spending is at approximately 26 per cent of GDP and for social outcomes, there's little additional benefit once government reaches roughly 30 per cent of GDP.
Unfortunately, the governing Liberals have ignored this evidence and increased the size of government over their tenure, from 15.1 per cent in 2002-03 to 17.8 per cent in 2016-17. This change works out to nearly $22-billion annually, which is extracted from Ontario families through higher taxes – more than $3,600 a family each year.
Given this track record, one might have expected to see a starkly different vision from the PCs. A vision for meaningful change in Ontario would recognize that it's in the best interests of Ontario's economic and social well-being to reduce the size of government.
But actually, the PC platform proposes a larger government than the Liberals. Indeed, the only real guarantee is that Ontario's era of big government will continue regardless of who is elected.
Specifically, the PCs plan to spend $155-billion in 2018-19 compared with the Liberals' proposed $153-billion. If the PCs form the next government, the size of government (spending as a share of the economy) will be 17.8 per cent in 2018-19 compared with 17.6 per cent being proposed by the Liberals.
To be fair, if the PCs win the next election with a majority and complete their four-year term, they plan to mildly shrink the size of government – from 17.8-per-cent spending in 2018-19 to 17.0 per cent in 2021-22.
The evidence clearly suggests that Ontario would benefit from a smaller, more-focused government that would rely on families, entrepreneurs and businesses to make more economic decisions while focusing more intently on core services government is well-suited to provide. Such refocusing would also allow for personal income-tax reductions, which lead to positive economic results by providing substantially better incentives for Ontarians to work hard and succeed.
But this is not what is being proposed.
The PC platform calls for a number of new boutique tax credits aimed at particular individuals and businesses – such as a tax credit for the purchase of snow tires – and a slight reduction in the bottom two of seven personal income tax rates. All told, the PCs' proposed tax cut in 2018-19 amounts to just 1.1 per cent of total government revenue. That will hardly put a dent in the $17,800 provincial tax bill the average Ontario family will pay this year.
And there's no mention by the PCs of the most serious problem with the tax system in Ontario: the absurdly high personal income taxes on high-skilled, educated workers (entrepreneurs, business professionals, engineers, lawyers and doctors).
Consider that Ontario's top personal-income-tax rate (federal and provincial combined) is 53.5 per cent. If Ontario were a country, that tax rate would rank as the sixth-highest among 34 industrialized countries and second-highest in the Group of Seven, behind only France.
It's no wonder that over the past decade, many more Ontarians have left for other provinces than have moved there from elsewhere in Canada. For those Ontarians still contemplating their exodus, at least the future is a little more certain. Both the Ontario Liberals and PCs will continue to burden the province with an oversized government and corresponding taxes.