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Fiscal Soundness and Economic Growth: An Economic Program for Ontario

Benjamin Dachis
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Benjamin Dachis: C.D. Howe Institute

C.D. Howe Institute Commentary, 2018, issue 505

Abstract: Ontario is on an unsustainable fiscal course. The government must act to bring the long-term cost of government in line with the revenue-raising capacity of the province. This Economic Program shows a number of policy directions in areas as diverse as healthcare, labour and education policy, tax reform, housing and municipal policy, as well as electricity and greenhouse gas policy, that can balance increases in spending with the generation of new revenues and cost-savings measures. This Economic Program adopts the fiscal presentations of the independent officers of the Ontario legislature – the Auditor General and Financial Accountability Office – as the authoritative sources for the short-, medium- and long-term fiscal outlook. The medium- and long-term fiscal outlook for Ontario is dire. This Economic Program recommends that the government restate the province’s books to reflect the Auditor General’s accounting treatment of pension assets and electricity-sector debt. Further, the government should adopt a sound long-term fiscal policy – which requires surpluses, not just balanced budgets – that meets the government’s debt-to-GDP target ratio of 27 percent. In healthcare, which already consumes roughly half of the province’s own-source revenues, policymakers will face continued cost pressure. This Economic Program views progress in addressing this issue – in addition to limiting public and private gaps in coverage for prescription drugs and mental health – as a critical challenge. This Economic Program also focuses on reforms to labour and employment legislation to increase the flexibility of existing minimum wage policies and employment and labour laws. It also focuses on improving the skills of Ontarians seeking mid-career improvements, and improving the performance of Ontario’s K-12 and post-secondary education systems. With recent United States tax reform considerably raising the attractiveness of the United States for new business investment, this Economic Program takes steps to improve the competitiveness of the province as a destination for firms to make investments and for workers to live. With regard to housing and municipal policy, this Economic Program seeks to lower the cost of housing across the province by taking steps to reduce barriers to construction and eliminating economically costly rent controls and transfer taxes. It would also fundamentally change the relationship between municipalities and the province by granting cities the ability to put their budgets on a sound financial footing and allow them more flexibility in financing infrastructure. Finally, no policy area has been more controversial than Ontario’s greenhouse gas and electricity policies. This Economic Program would preserve the best parts of the current government’s plan, while cutting ineffective policies and reducing costs to households. This Economic Program would seek long-term cost savings in the electricity sector, as opposed to short-term fixes that only add to the long-term cost of energy.

Keywords: Fiscal and Tax Policy; Provincial Taxation and Budgets (search for similar items in EconPapers)
JEL-codes: H61 H68 (search for similar items in EconPapers)
Date: 2018
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