Economist Jack Mintz on Ontario: cancel FIT
Special to The Financial Post
April 8, 2014
Canada’s ‘sagging middle’ hurting the rest of Canada
With Quebec’s election over, we can turn to Ontario where a scandal-plagued Liberal government will soon present its 2014 budget – and possibly trigger a spring election. Ontario is sagging under the weight of monstrous public debt, uncompetitive energy prices and rising taxes. Given Ontario’s size, other regions of Canada are being hurt.
Ontario has only one way out: economic growth. Luckily, the American economic recovery will significantly benefit Ontario. However, it won’t be enough. The government needs to get its house in order.
Pushing aggregate demand with deficit spending won’t achieve growth. Economic stimulus might provide some short-term relief but won’t generate sustained expansion. Instead, growth will be attained with supply-side policies by reducing onerous regulations, providing some smart tax reforms and shifting to growth-oriented spending, especially to address the notorious Greater Toronto Area infrastructure problem.
Nor will growth come from expansionary public programs like the proposed Ontario pension plan. Forcing people to hold assets in a government-sponsored plan might be helpful to some but it will be just another form of new taxation for others, who are already have adequate savings for retirement.
Ontario’s growth has lagged the rest of Canada, averaging less than 1% annually since 2009. Employment since 2009 has increased by 375,000 but the employment rate has fallen to U.S.-levels of 61.4% as of March 2014, far less than Alberta’s at almost 70%.
Ontario‘s fiscal picture is also not pretty, with gross debt over $290-billion (net debt is $272-billion), requiring $10.6-billion in taxes to cover interest charges. This expense is enormous, about one-half of education expenditures.
The average Ontario debt interest rate is only 4% but interest rates are expected to rise within the next few years. Each point increase in interest rates will add at least another $3-billion in annual interest expense.
Ontario’s energy prices are soaring….
Read the full article here.