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TORONTO—Ontario’s finances are in substantially better shape than the McGuinty government’s constant cries of poverty would suggest, says a new study from the Ontario Alternative Budget project of the Canadian Centre for Policy Alternatives. That means the Liberal government has no one but itself to blame for the continuing public services crunch in this province.
The study, written by OAB Co-Chair and CCPA Research Associate Hugh Mackenzie, examines current-year forecasts and updated projections and finds that the government will have substantial fiscal flexibility as it heads into its pre-election year. The government is well ahead of schedule in its deficit reduction program—Mackenzie projects a surplus or nearly $1 billion in 2007-08.
Ontario is beginning to suffer from the same “unexpected” end-of-year changes distorting the government’s true fiscal position and budgetary priorities seen in Federal budgets for more than a decade. “By consistently underestimating revenue and overestimating spending in each budget year, the government is actually pursuing an unacknowledged program of accelerated deficit reduction,” says Mackenzie.
While the McGuinty government claims its main focus is on rebuilding public services, Mackenzie finds that current projections indicate that Ontario’s public economy—program spending and capital investments—will be smaller as a share of GDP at the end of the Liberals’ term in office than it was at the beginning, and lower than in six of the nine fiscal years covered by the Conservatives term in office.
“Far from rebuilding the public economy, the data suggest that the McGuinty government’s plan consolidates the radical reduction of the size of Ontario’s public economy engineered by the Harris-Eves Conservatives,” Mackenzie asserts.
In order to truly address the services gap, the McGuinty government must confront the issue that is the proverbial 400-pound gorilla in the room that they steadfastly refuse to discuss. Thanks to the Harris and Eves governments’ tax cuts, Ontario’s fiscal capacity is more than $13 billion lower than it would have been without the cuts—even after taking into account the additional revenue generated by Dalton McGuinty’s ‘health premium.’
“It is unrealistic in the extreme to imagine that Ontario’s public services can be met without addressing the basic revenue issue,” says Mackenzie.
However, the prospect of a Conservative government in Ottawa dramatically reduces the likelihood that any substantial progress on the infamous $23 billion federal revenue-to-expenditure gap in Ontario will be realized through increased federal government transfers.
“In this political environment, it would appear that the only viable option for Ontario in the face of a refusal to address the gap problem through increased transfers is to consider occupying the tax room being vacated by a tax-cutting federal government,” Mackenzie concludes.
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