The Canadian province of Ontario is a financial basket case. The provincial government pays nearly 10% of its tax revenue on interest to cover the $270bn. debt load (over $20,000 per Ontarian). To put this in perspective, the slow-motion train wreck state of California only pays out a little under 3% of its tax revenue on interest and the average Californian’s share of the state debt is around $3,000.
Never fear. Premier Kathleen Wynne is on the job and has promised to get the deficit under control and Ontario’s finances back on track.
Notwithstanding the fact that her original election platform was based on spending money the province didn’t have. When she realized this problem the solution was to get Ottawa to make cuts so that Ontario would not have to pay taxes to the federal government, and instead use that money for its own in-province expenses. That didn’t work out, so it’s on to plan “B” (or is it “C”?).
Wynne’s new plan to balance the budget is a Hail Mary. In a letter drafted to her Deputy Premier, Wynne charged her second in command to get the budget balanced.
You will…transform and modernize public sector service delivery while protecting vital public services… You will drive efficiencies and reduce costs to achieve our commitment to eliminate the deficit by 2017-18.
Pretty simple. Don’t cut vital services, and create enough new efficiencies to eliminate a $35bn. deficit (a little more than 5% of the province’s GDP). That’s about $2,600 per Ontarian: man, woman, and child.
Expenditure reductions of this magnitude are almost certainly not going to happen. In fact, since the only two certainties of this world are death and taxes, let’s look at the more likely solution.
Although she doesn’t mention it, one problem is that the province’s economy is slowing down. And this means that taxes are falling. Rather than do what any reasonable individual or business would do when their income falls – cut some expenses – Wynne’s provincial government is responding by hitting people up for more cash. Buried in her budget cuts you might remember this little doozy.
In addition to chopping spending, the government has jacked up income taxes on people making over $150,000 per year.
Wynne ran on promises she can’t keep, and now that she holds the purse strings she’s going after the easier option. Ontario is already a financial disaster. Why not face up to the reality that the province has lived beyond its means for far too long?
(Cross posted at Mises Canada.)
