Liberals win in Ontario but don’t expect the financial problems to go away

Posted June 15, 2014

It was a brilliant strategy that re-elected a lame-duck Liberal premier to lead the province for the next four years.

A Progressive Conservative leader who ran a mind-numbing campaign that threatened, lectured and painted a doomsday scenario, that many thinking voters could not accept, helped Kathleen Wynne’s campaign.

The delicious irony is premier-elect Wynne is eventually going to be forced to adopt most of the Hudak fiscal medicine if she hopes to meet her promise of a balanced budget by 2017.

The fiscal problems remain.

The deficit is still $12.5 million and has increased by some $1.2 billion since Kathleen Wynne took office in 2013.

The provincial debt has jumped to a projected $269.2 billion. A year ago it was $252.1 billion. That’s an increase of $17.1 billion during the new premier’s stewardship of Ontario. The debt will increase exponentially as more and more annual deficits must be financed before reaching the premier’s deficit elimination goal in 2017.

It is conceivable that the Ontario debt could reach $335 billion by 2017. It is obvious that the premier must roll back the spending. The province’s debt servicing costs will consume almost as much as the cost of healthcare, the largest spending item in the provincial budget.

There is very little wiggle room left to carry out her budget plans. Known to be a quick study, the realization of her serious fiscal position will happen within her first year in office.

Since the Thursday election, the bond rating agencies, Standard and Poors and Moody’s Investor Services, are carefully examining their credit ratings of the province. These agencies determine the interest rates of borrowing by a government, business and other enterprises.

The premier’s announcement that she will call the Legislature back, July 3 and reintroduce her May 3 budget, has the lenders nervous about the Ontario government’s ability to borrow more money.

If the bond rating agencies lower the province’s rating, it means that lenders will demand higher interest rates to those needing to borrow and finance operations. Government borrowing is always at a low interest rate because of the size and composition of its assets. Plus the guarantee of repayment of the loan.

The problem Ms. Wynne now has is a moribund economy in which more than 300,000 manufacturing jobs, have been lost since the 2008 global financial collapse. These were high paying jobs mostly in automotive manufacturing. This was a major component of the economy of Ontario.

The real problem she faces is the drop in revenues. This exacerbates the problem with increased spending, and reducing revenues, resulting in potential default.

Another problem is that under the Liberals, the high cost of working and living in Ontario, has turned the province into a high-cost state in which businesses are leaving and few are arriving. Witness, at more than 50 years, the folding up of the Heinz catsup plant in Leamington. It cost more than 2,000 production workers their jobs. Also it has affected large numbers of tomato growers who were feeding the plant.

We have experienced the collapse of two major automobile manufacturers, General Motors and Chrysler, that were forced into bankruptcy. Along with the federal government, Ontario provided some $10 billion to assist the reconstituted two companies to get back on their feet.

But those jobs never returned at the high pay and benefits in the new companies. Indeed GM and Chrysler, in addition to the government’s investment, successfully reduced the cost of labour in their plants and reduced production in Ontario.

At the same time, unionized public servants, despite the struggling provincial economy, extracted regular increases in pay and benefits thanks to the largesse of then premier, Dalton McGuinty.

This was the beginning of the separation of total pay packages between private sector employees and unionized public employees.

In the private sector there is a degenerative decline in permanent jobs. New people were brought in as independent contractors with no benefits or security.

Since 2008, the exact opposite has occurred in Ontario with public servants gaining expanding pay and benefits. In many cases those same private sector employees through property taxes and user fees, paid those wage and benefit increases.

Under the 11-year Liberal government, this has created a new elite of unionized public servants. Working for governments, be it provincial or municipal, is a gateway to retirement at 55 and an assured lifetime of financial security and lifestyle.

Hey! There is nothing wrong with that except that it isolates the majority of Canadians who are outside this select, cosseted group whose pay and benefits are paid by the taxpayers.

So, in the next four years, Premier Wynne will be charged with explaining why she supports the super elite of public servants at the expense of the majority of her constituents.

How she can justify spending more money than the provincial treasury does not have? How can she continue to spend on programs believing they are still worthy, many of which were created under different financial circumstances?

It’s back to the drawing board, Premier.

 

 

 

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