Controlling spending, must be priority for next Ontario leader

Premier Dalton McGuinty (VERONICA HENRI/Toronto Sun)

Premier Dalton McGuinty (VERONICA HENRI/Toronto Sun)

John Robson, Parliamentary Bureau

, Last Updated: 11:25 AM ET

OTTAWA - The people reaching for the reins now slipping from Ontario Premier Dalton McGuinty's hands trot out the usual gooblahoy about renewal and new visions and hard-working families and the middle class. But at the hard core of governing is money - raising it in taxes, spending it on programs. And Ontario has a real problem to which those who would be premier seem strangely oblivious.

Modern administrations and their legislative lackeys have spent decades finding ways to shovel as much money as possible to every conceivable voting demographic while taking as little from them as possible without borrowing so much they 'hit the wall'. Every year politics says they must continue but economics says they can't, and every year the process gets a bit more desperate.

As a result, McGuinty's would-be successors don't face a static budgeting problem of so many dollars to spend, so many programs competing for them, and a considered judgement based on enlightened priorities. A cabinet does not, for instance, have the luxury of deciding first what health procedures they shall fund and how, and then deciding independently what it shall all cost. Quite the reverse: they promised free health care they cannot afford but dare not take back.

A quick look at spending in Ontario since, say, Mike Harris took over from the hapless Bob Rae might suggest this picture is too alarmist, that prudent judgements then and now have resulted in roughly the same allocation of spending. For instance, in 1996 public health was to get 33% of total spending and today it's 38%. Social services nudged down from 12% to 11.1%, education grew from 19% to 24.8%, general government from 12% to 14%. But debt interest fell (all these numbers are budget projections not actual results) fell from 14% to 8.4%, creating elbow room. It's a reassuring picture.

Unfortunately it's also false. Public health actually hit 42% of total spending by 2007 before a sudden surge in general government spending, then education, pushed down its budget share while its dollar cost kept growing relentlessly from $35.4 billion in 2006 to $48.4 billion today. Education just grew faster, from $17.2 to $31.4 billion.

The only reason various programs' relative shares have been fairly stable is that total spending has exploded. Like most jurisdictions, Ontario does not have a revenue problem. The government took in $49.7 billion in 1996 and a projected $112.2 billion in 2013. But spending went from $56.6 to $129.3 billion. The result, as anyone but a finance minister could predict, is a deficit that also roughly doubled, from $6.9 billion to $15.2 billion, while net debt jumped from $108.8 to $260.4 billion, which of course means that at today's record-low interest rates, debt-servicing costs are creeping back up.

Of course, the population and economy have grown and there's been inflation so 1996 numbers aren't strictly comparable to those from 2012. It still matters to a finance minister or legislator how much of the budget health consumes. But a more telling figure, especially in thinking about the long run, is how much of the economy it takes. And here the picture is especially ominous.

In 1996, provincial health spending took 5.3% of the provincial economy and total provincial spending 16.0% ($54.2 of $338 billion, roughly one sixth). Today provincial health spending is 7.4% of Ontario's GDP and total provincial spending 19.4%, nearly one fifth. Can health go to 10% and total spending to a quarter?

The problem for Ontario's next Liberal leader and premier is that economics says no but politics says yes, especially as an aging population means more and more retirees wanting plentiful services for minimal taxes. And politicians seem not to get it. Like then-finance minister Jim Flaherty in the 2001 provincial budget, they still boast of how much they manage to spend on health care, as though the goal of government was a race to bankruptcy not efficient provision of services. See, I'm riding this horse, not clinging to it.

In short, the next Liberal leader needs to answer a question he or she seems never to have heard: How do we get back in the saddle before this thing goes over a cliff?


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