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Status Quo Won't Work For Four More Years

Thursday, October 18, 2007

Blue dresses aside, Dalton McGuinty has successfully followed the Bill Clinton model of campaigning. Express empathy and 'share the pain' of the voter. On the policy front, offer little change other than to promise to spend more on everything. On October 10th, Ontario voters bought this approach and have again handed Mr. McGuinty the reigns of power and the keys to the treasury. However, there is one other part of the Clinton script that Mr. McGuinty needs to follow. In addressing the status quo he said, "I have news for the defenders of the status quo; your time has come and gone. It is time for change."

Change is needed now in Ontario as reports show the economy is in trouble. Only two days after the premier was handed a new mandate, the Royal Bank of Canada (RBC) issued a fiscal update which indicates that the status quo is driving Ontario to last place in Canada. RBC blames Ontario's poor performance on the government's past fiscal plan which is highlighted by punitive tax levels.

RBC has drastically lowered its Ontario growth forecast for 2008 to 1.8% which is importantly lower than the numbers used to calculate the revenues needed for the Liberals' new campaign promises. If this growth rate materializes then Ontario's finances are at risk.

The Liberal campaign policy document used private-sector forecasts to predict GDP growth to be 2.3% and inflation to be 1.9% for a nominal GDP growth of 4.3%. One of those firms it used was RBC. However, RBC now projects inflation of 1.8% driving a nominal GDP of 3.6%. This is 0.7% lower than that on which the Liberals predicated their spending plan. While these numbers can be eye-glazingly boring, the 0.7% difference translates into a 16% overestimation of GDP growth - the key driver to any revenue assumption. So for the sake of Ontario finances, something has to change or the numbers just won't add up.

Years of high taxes and out of control spending have driven Ontario to a point where it is no longer the Canadian leader in growth. RBC recommends that reducing the high tax burden would be a good start. Yet, instead of tax relief, the McGuinty plan calls for increased program spending, including $1.15 billion for corporate welfare. If spending money on job creation programs like this actually worked, then every Ontarian would have two jobs. Instead, that money would better be applied in a fair manner through broad-based tax relief for all businesses in areas like accelerating the elimination of the capital tax; or reducing the 14% business tax, which is higher than in BC, Alberta and Saskatchewan.

While he is at it, Mr. McGuinty could also offer some personal tax relief by reducing the health tax. While he did regain a majority, he did so with only 42% of the popular vote. An impressive majority - 56.4% - of voters chose a party that promised to reduce or eliminate the health tax.
While Mr. McGuinty had planned to run a status quo government for the next four years, private-sector fiscal forecasts are already showing that famed comedian Georg Carlin was right when he said, "the status quo sucks." Moreover, if Mr. McGuinty follows the status quo, Ontario will be in for a rough ride.