Greece Is The Word

February 16, 2012

This may come as a super big surprise to all the regular readers out there but I admittedly wasn’t at my most open-minded in my expectations of the province’s Drummond Report. Its arrival coincided with me reading the last few chapters of Andrew Ross Sorkin’s Too Big To Fail. Oh good. A former bank economist tapped to tell us how to put our fiscal house back in order while we’re still mired in the biggest economic slump since the Great Depression brought on by the egregious behaviour of our international banking system.

Step 1: tightly regulate your banks and never again believe that, left to its own devices, the free market is a self-correcting entity.

I’m sure that’s somewhere in Mr. Drummond’s 17 million page report.

What I don’t understand is, if this province is in such a pickle (mmmmm…. gherkins) financially speaking, why did the government hem itself in, seeking solutions from only one narrow perspective? Why not throw the doors open to get a variety of opinions and views, not just the one fixated on the capital side of things?

On top of which, “Our mandate precludes us from recommending increases in tax rates…” Run that by me again, would you please, Mr. Drummond? Our mandate precludes us from recommending increases in tax rates…

So, the government wants to tackle their deficit/debt problem with one hand tied behind its back. Despite being told in the report that “The roots of Ontario’s current fix lie in both the economy and in the province’s record of failing to keep growth in government spending in line with revenue growth” [bolding ours], the province doesn’t want to hear a word about one tool for growing revenue? That would be taxation.

Oh, I get it now.

Tap a guy who’s sure to deliver the goods, in terms of some scary, pant load filling, Greece-we’re-right-behind-you scenarios (slyly bringing up a spooky Grecian spectre while denying he’s doing anything of the sort: “By current international standards, Ontario’s debt is relatively small. We are a very long way from the dreadful fiscal condition of countries that have dominated the news over the past two years…Even Greece, the poster child for rampant debt, carried an Ontario-style debt load as recently as 1984”), Leopold to Dalton McGuinty’s Superintendent Chalmers, remove one possible option from the recovery tool box, so that when you come in less heavy with your next budget, we all breathe a sigh of relief and collectively say, well, it could’ve been much worse.

Regardless to what extent the Liberal government attempts to implement Drummond’s suggestions, it has already achieved its purpose. If this province is really serious about righting the fiscal ship, spending cuts are inevitable. Austerity, folks. It’s all the rage. So much so that, apparently, there’s absolutely no need to listen to other opinions on the subject.

Which is all a little strange because, early on in his report, Drummond summarizes how we got to this point in the game. “Ontario’s revenues now do not cover its spending. In 2010–11, the latest full fiscal year, the government ran a deficit of $14.0 billion — equivalent to $1,059 for every Ontarian and 2.3 per cent of the province’s gross domestic product (GDP), the largest deficit relative to GDP of any province. This is not because spending is particularly high; relative to GDP, Ontario’s spending is one of the lowest among the provinces.”

Ummm… ? What?

Our spending is already one of the lowest among the provinces relative to GDP and now we’re being told that only by reducing spending even further will we be able to dig ourselves out of this hole we’ve created? Does that not seem, I don’t know, a little counterintuitive? Despite the constant painting of the McGuinty government as a gang of reckless spenders, profligate in scandal, eHealth, ORNGE, etc., etc., we read that, in fact, Ontario’s something of a skinflint compared to our provincial brethren.

Further on in the report, Drummond comes right out and tells us how we got to this point. “The reasons are simple. Beginning in 2003, the Canadian dollar began a strong ascent that lifted it from the persistent lows of the previous decade (around 70 US cents) to the recent highs (around parity with the U.S. dollar) during the past four years, with only a brief dip in late 2008 and early 2009. This surge in the currency made Ontario’s exports more expensive for foreigners to buy and rendered the province’s exporters less competitive, while also making imports cheaper.”

Combined with the ongoing effects of free trade that allow companies to scurry off to lower wage jurisdictions, our higher dollar helped gut this province’s manufacturing base, and those jobs left behind inevitably paid less. There was also that nasty global recession that lingers still like a cold that no amount of Echinacea can kill off. And let’s not forget the purely ideological slashing of corporate tax rates that led to the logical conclusion of a company like Caterpillar closing up shop and taking its record profits to Indiana because its workers here refused to accept a cut of some 50% to their wages and benefits.

So yeah, there are plenty of reasons why Ontario faces a record deficit and debt. Government spending just doesn’t seem to be high on that list. Why are we so intent on setting it up as the main culprit that needs to be brought to heel?

I’d be a little more down with the austerity agenda if there was a body of evidence to back up the notion that it’s the way out of our current dire fiscal situation. But so far, I’ve come across precious little of that. Austerity has not yet proven a panacea for places like the U.K., Portugal or Greece. (h/t to The Inverse Square Blog for the info.) And while it may seem a little early in the process to pronounce failure, I think history remains on the countercyclical side, suggesting it’s still too soon to cut-and-run from the idea of more stimulus, more deficits and debt until the economic outlook is a little less bleak.

This isn’t to say we shouldn’t be looking at efficiencies and alternative methods of delivering services that give a bigger bang for the taxpayers’ buck. I just think we’re given huge space to one point of view when clearly our economic problems are multifaceted. Cutting government spending is the easiest option on the table right now as long as it’s made political palatable. That’s the purpose the Drummond Report serves. We best ignore it, however, if we’re searching for actual long term solutions.

warily submitted by Cityslikr


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