The 1991 Ontario Budget

First of all, this is the worst recession in Ontario in 50 years. The downturn is much worse here than in other provinces; some analysts have noted that the recession is twice as bad in Ontario as in the rest of the country. We have lost around a quarter of a million jobs.

The recession has seriously eroded government revenues by close to $1 billion in 1991-92.

But it has done more than that. It has added to our expenditures. For example, social assistance caseloads have skyrocketed because of high unemployment. That has meant a 40 per cent increase in Provincial expenditures to keep people housed and fed until they can get back on their feet and into the labour force again.

Spending for social assistance has gone up $1.4 billion, and most of that expenditure has been unavoidable. The increase in large measure represents the stabilizers that are built into our income security system to prevent social disintegration in hard times.

The amount of discretionary spending is in the range of $400 million. About half of that went to increase social assistance rates last January to cover inflation and help with the rising costs of shelter.

We have also honoured our commitment to proceed with reform of the social assistance system. These reforms will make the system not only more humane, but more effective in helping people get out of the poverty trap.

We are putting almost $50 million into back-to-work initiatives and job creation to reduce reliance on social assistance. We are also providing $25 million to help municipalities with their cost-sharing responsibilities for welfare.

Approximately $1.7 billion of the $6.3 billion spending increase is going to maintain our health care and education systems. This is mainly for the normal year-over-year growth in programs. Don't forget that our education system costs us some $10 billion a year and health care $17 billion.

I have said many times in the past week, and I will say again, that these programs are essential to the well-being of our society. Now is not the time to starve them for funds.

That doesn't mean, however, that we believe there is no room for improved cost-effectiveness. On the contrary, we will be examining education and health programs as part of our pledge to manage the public sector effectively.

But the kind of in-depth review, reallocation and redesign of programs that we want to do across government couldn't be done in our first seven months in office.

Another portion of the spending increase is the approximately $640 million for our anti-recession employment program.

This program is creating some 18,000 jobs directly at a time when unemployment is forecast to average 10 per cent for the year.

As a government, we know we can't go out and create those 250,000 jobs that have been lost so far in this recession. But we have tried to cushion the impact of the recession, particularly in communities such as those in Northern Ontario that have been devastated by closures in the resource industry. Most of the anti-recession program dollars are being spent on capital projects which will be enduring assets in Ontario communities.

Almost $680 million is going to pay interest on the debt. That is a lot of money, I agree, but many commentators seem to be getting the Ontario Government confused with the Federal Government.

It is Ottawa which has to pay some 34 cents of every revenue dollar to service the debt. Ontario is paying 11.6 cents on the revenue dollar this year. That will rise to 12.3 cents and stabilize over the course of our medium-term fiscal plan.

Ontario is not in the debt-servicing bind that Ottawa is. And we don't intend to get into it.

I want to give credit to my predecessor in this job for leaving the Province in a sound fiscal position going into this recession. That is a major reason why we can afford to carry this deficit and stimulate the economy during this tough period when so many people are hurting.

I would like to go even farther back to another of my predecessors. In 1982-83, when the Conservatives were still in office at Queen's Park and Ontario was in the midst of the last major recession, which wasn't as severe as the current one, total debt as a percentage of GDP was 17.4 per cent. This year, it's 18.3.

I don't recall the same level of consternation back then. I think it's because it was assumed that the government would bring the deficit down when times were better. As it turned out, that is what happened.

The government now in office at Queen's Park has a plan to bring the deficit down substantially over the next few years. I will get to that plan in a few moments.

But I would like to say that we are going to bring the deficit down in spite of the Federal Government, which is off-loading its debt problems to the provinces while, at the same time, telling us we shouldn't be spending to help Ontario get out of this recession.

I would like to point out that the accumulated federal debt in Canada has more than doubled from around $200 billion in 1984-85 to over $400 billion in 199192. And the federal debt to GDP ratio is now at 60 per cent.

It is partly thanks to the Federal Government that we have the deficit we do because of the systematic dismantling of its transfer agreements with the provinces. Because of actions taken in the federal budgets of 1990 and 1991, federal transfers to Ontario have been reduced by $1.6 billion below previous commitments for this fiscal year alone.

I could spend the rest of my speech on this subject, but I want to finish summarizing the breakdown of Ontario's spending increase this year and talk a little about the implications.

So far, we have counted the following components: $1.4 billion for social assistance, $1.7 billion for health and education, almost $700 million for our anti-recession job-creation program and $640 million for interest on the debt. The total is almost $4.5 billion.

Of the remainder, approximately $700 million was spent on new programs--including increased support for affordable housing, which will have spinoff effects in employment for some 20,000 people, and labour adjustment initiatives which will provide support to people who have lost their jobs.

The inflation component of increases in all the rest of the programs in government that aren't in health, education or social assistance-adds the final $1 billion.

We estimate that the new programs announced by this government, including our efforts to keep people working during the recession and to improve social and economic equity, cost about $1.5 billion, including almost $700 million for one-time anti-recession spending.

I have said all along in this budget debate that I am convinced that the right choice under current economic conditions is to fight the recession, not this year's deficit. We estimated that if we had not provided economic stimulus in this Budget, the recovery may have been delayed for up to six months, with implications for business bankruptcies, further job losses and lagging consumer spending.

Some critics have said that I should have kept the deficit to around last year's level of $3 billion by slashing and squeezing government programs. I do not think people understand what it would have meant to cut $6 to $7 billion out of Ontario programs and services.

We spend that $6 to $7 billion supporting our public hospital system. Our hospital system employs 170,000 people, and is the lynchpin of our health care system.

We spend that kind of money supporting our school system, providing grants to school boards across the province and operating the Ministries of Education and Skills Development. Without provincial support, the entire burden would be transferred to the property taxpayer.

Alternatively, we could decimate our programs in Transportation, Northern Development and Mines, Natural Resources, Environment, Energy, Agriculture and Food, Industry, Trade and Technology, Tourism and Recreation. But even that wouldn't be enough to get the deficit down to $3 billion.

It's important to put this in perspective. You can't just nibble around the edges of programs and come up with $6 to $7 billion--it was not a matter of closing a few hospital beds or cutting back a few grants this year. That just wouldn't do it.

It also would be extremely ill-timed to cut back on services and put more people out of work during the recession.

So many of the services government provides are vital to the kind of Ontario we live in. They are not expendable services.

There is also a general tendency, I think, to assume that public sector jobs aren't real jobs, that these people won't end up on unemployment insurance or social assistance if they are laid off. These are real people delivering real services that we tend to take for granted.

They are people working in schools and hospitals. They operate our parks; they monitor the safety of our water quality, they protect our communities from crime.

I'm not claiming there is nothing that can be done in terms of effective fiscal management of government programs. I believe strongly that we can achieve real progress in making what government does, and how it does it, more efficient and more effective.

We are inviting our public sector unions to work in partnership with us to make programs more efficient and effective. The people on the front lines often know the best ways to make things work better. They also know the kinds of fiscal pressures we are under. We hope they will work with us to help us reach the targets of our fiscal plan.

The fiscal plan I am talking about covers the next three years. This government is committed to making substantial reductions in the deficit as the economy picks up. Our fiscal plan funds government services at an average annual growth rate over the three years from 1992-93 through 1994-95 of 6.5 per cent.

This government has an important social agenda; we have priorities that we want to meet. We will not be able to do so--and still bring the deficit down--with a 6.5 per cent average annual increase unless we reallocate expenditures, redesign programs and make services more effective.

To help us accomplish this task, we will be establishing a Treasury Board, which I will chair and which will include several key cabinet ministers. I know that internal bureaucratic change is not very interesting for those outside government, but those of you who manage companies understand the need for effective cost-control mechanisms.

Previously, the expenditure management function was divided between the Ministry of Treasury and Economics and Management Board of Cabinet. There was no way to engage in the kind of managerial innovation required to meet priorities within strict fiscal limits. Treasury Board will take on this role.

One example of new approaches to managing the public sector is our strategy for health care. Health care spending has been rising at over 12 per cent a year over the past decade. And health care represents about one-third of total Provincial spending.

We are bringing expenditures under control, in partnership with health-care providers. The agreement that was made public over the weekend between the government and the Ontario Medical Association is a landmark, not just in terms of expenditure management, but also in terms of our partnership with the province's doctors.

I realize there is some skepticism about any government's ability to meet fiscal targets. After all, there are many other governments like those in Ottawa and Washington which have tried to carry out fiscal plans and failed.

Under Reaganomics, with all its talk about minimizing government, the U.S. federal debt rose from just over $900 billion in 1980 to an estimated $3.1 trillion by the end of 1990.

We have tried hard to make our projections realistic. We could have forecast a lower deficit by the budget of 1994. But we wanted to ensure that we were credible in terms of what was possible over the next three years.

As any of you who have been involved with forecasting know, you can't guarantee to be on the mark 100 per cent of the time when it comes to the future.

We have tried to be--if you will forgive the expression--relatively conservative in our outlook. If revenues are stronger and we can get expenditures lower than we have projected, then we will be able to do better than our fiscal plan indicates.

Our deficit-to-revenue this year is 22.6 per cent and our Deficit-to-GDP is 3.4 per cent. By the final year of the medium-term plan, deficit to revenue is projected to be down to 13.7 per cent and deficit to GDP down to 2.2 per cent.

It has been pointed out that we will have to raise taxes over the next three years. Some people seem to be shocked by this. I'm not sure why--even conservative governments who promise they won't raise taxes, raise taxes. Again, we are trying to be realistic. The actual mix of expenditure reallocations and tax moves will depend on the strength of the economy and on what Treasury Board recommends.

Whatever specific changes are made to revenue measures, we are committed to a fair tax system. We established the Fair Tax Commission to look at a system that has not had a comprehensive review in 25 years. This review process involves the active participation of a whole range of people, including both labour and business.

Beyond our medium-term forecast, we are committed to balancing the operating account by 1997.

In this budget we have made a clear distinction between capital and operating expenditures by establishing two separate accounts this year to emphasize the importance of capital investment.

We are investing $4.3 billion in capital projects this year. These projects not only give people jobs, they also provide vital infrastructure for our society--the hospitals, schools, water and sewer systems and transit networks that form the physical foundation for growth of Ontario communities.

This infrastructure is one of the attractions for private sector investment, as well as an important ingredient in our standard of living.

Which leads me to the other major point I'd like to discuss today-Ontario's competitiveness.

This Budget represents our effort to fight the recession this year by offsetting the weakness in private investment rather than closing down facilities and cutting off services to reduce the deficit. But it also represents an investment in Ontario, to lay the groundwork for sustainable prosperity in the 1990s.

Our vision of sustainable prosperity is an economy which provides secure, well-paid jobs at high levels of employment. It is an economy which is environmentally, as well as socially, sustainable. It is an economy in which the benefits of growth are shared fairly.

Ontario's economy, like others around the world, is undergoing fundamental restructuring. In the new knowledge-based world economy, everyone is having to learn new ways to compete--to increase productivity, adopt new technologies and managerial practices, enhance workers' skills and invest in emerging businesses.

This government sees a leadership role for the public sector in supporting positive economic change and ensuring that the costs of economic adjustment are shared fairly.

There is a tendency to assume that government spending is a drain on the economy. We believe that, strategically focused, public sector investment is a strength.

Some American economists argue that there is a strong link between infrastructure investment and productivity. They calculate that if public investment had stayed at historical levels in the U.S. in the 1980s, private sector productivity growth would have been 50 per cent higher.

But governments don't just build roads that carry goods to market. They also invest in social infrastructure and human capital. In Ontario, we have a sophisticated health and social services system. Our health care system is a good example of the contribution of public sector services to the bottom line.

For an employer in the United States, the direct cost of medical coverage per employee in 1990 is an estimated $3,000 (Canadian). The comparable cost for an employer in Ontario is an average $640 per employee. That differential is a major contribution to competitiveness of Ontario business.

Public spending on education and training makes an important contribution to productivity. It is acknowledged world-wide that the key to success in the technological economy is human capital--the skills and adaptability of the work force.

In this year's budget, we have initiated important reforms of our colleges of applied arts and technology aimed at improving the fit between our educational institutions and the needs of workers and managers.

Research and innovation are also vital to competitiveness in the 1990s. Business is being challenged to change products and production processes on a continuing basis. In this budget, we have improved funding for the Innovation Ontario Corporation to invest in the growth of high-technology firms.

I want to emphasize that our strategy is aimed at a high wage, high-value-added economy. Like many of the industrialized nations with which we compete, we must redefine competition and the way we get there. We must set goals which take us away from low wage, low productivity and environmentally wasteful types of economic activity.

Workers and investors both must be assured of a fair return on their effort. Workers who are paid fairly, who feel secure, who feel they can participate in change and benefit from it will be more likely to welcome change in the workplace and contribute to innovation. This is the key to competition in the future.

We also believe that Ontario can compete on a strong environmental agenda. Trading partners like Japan have adapted to the need for greater energy efficiency and become more productive. Germany has done the same in pollution abatement and is moving ahead of other nations in environmental technology. There are real economic opportunities in the environmental challenge.

An important part of economic strategy is building partnerships among government, business, labour and communities to work out the economic solutions that work best for Ontario.

The Fair Tax Commission is a start--it is a cooperative effort to find good solutions. Business and labour in certain sectors have already begun working in partnership, particularly in the area of training.

Work force training is a good place to start working together more because it is in all our interests to ensure that the work force has the skills and adaptability necessary to improve productivity and competitiveness. This government wants to put training at the centre of economic adjustment.

I have been told that partnership won't work here because, unlike countries such as Germany and Sweden, we have no experience with co-operative models. I reject the notion that because we haven't done it here before, it can't be accomplished. There hasn't been an NDP government in Ontario before either.

Now is the time for workers and managers with foresight to grasp the opportunities and necessities of economic change.

I realize that many people in the business community disagree with our approach to this year's deficit. I think we can agree to disagree. But there is a lot that needs to be done to safeguard jobs and investment in Ontario. We must not let our relationship deteriorate into destructive confrontation when Ontario's competitiveness and productivity are at stake.

As a new government we have a few years to prove ourselves effective managers of the public sector and effective partners with labour, business and communities. We will do so.

The restructuring of the Ontario economy challenges us to come up with new solutions.

I've given an indication of where our priorities lie. • We want to keep people working.

• We want to continue to invest in public infrastructure for the future.

• We want to address issues of fairness in our society.

• We want to maintain and improve essential government services.

• We want to meet the targets of our fiscal plan. • We want to promote sustainable prosperity.

I remain optimistic about the future. I note that the latest Conference Board report says that we are in the depths of recession this year, but they are expecting a strong comeback in 1992.

Ontario has met economic challenges before and prospered. We will do so again by finding innovative responses to economic change.

The Government of Ontario has weathered credit watches in the past too. Its triple-A rating was downgraded as recently as 1985. The Province eventually won its triple-A back

If our rating is reduced again, we will earn it back through effective fiscal management.

I am concerned, however, that some of the adverse reaction to Ontario's fiscal position reflects a lack of confidence in the future.

I believe that Ontario's budget signals strong confidence in our future by investing in recovery and calling upon all Ontarians to work together for sustainable prosperity.

The appreciation of the meeting was expressed by John F. Bankes, President, The Empire Club of Canada.

Thank you, Minister.

Last Monday's Budget--the first by an NDP government in Ontario--is intended to put in place "the foundation of a new economic strategy--a strategy that has sustainable prosperity as its central goal and fairness as its guiding principle."

Minister, as mentioned in your remarks, the Budget has attracted considerable commentary, discussion and debate. Some have described it in unflattering terms. One commentator described the Budget as Treasurer Laughren's "walk on the wild side of deficit finance" and suggested that the credit watch imposed by the bond-rating services would turn into a "credit wake" by the end of this month. Yet another commented on the Budget's effect in terms of increasing Canada's foreign borrowing, resulting in a higher Canadian dollar in the short-term and a consequential adverse effect not only for Ontario, but also for the rest of Canada.

Some commentators have focused on--to borrow an Operation Desert Storm expression--the proposed "Mother" of all deficits as running counter to the austerity measures and restraint being attempted elsewhere in this country; the point being, that Canada is already in the throws of a constitutional crisis that affects foreign and domestic confidence in the economy, and now has to grapple with marked internal division in fiscal policy. Finally, the Prime Minister characterized Ontario's projected $9.7 billion deficit as "merely a burden placed on our children and grandchildren;" clearly, part of his concern was that increases in indirect taxes announced by Ontario would make Ottawa's plan for reducing inflation all the more difficult to achieve.

As one would expect, there are equally strong views being expressed by admirers of the Treasurer's recent initiative. Last evening on CBC Radio's Cross-Country Check-Up, many listeners complimented the Treasurer for his preoccupation with "the quality of life in Ontario" and his strengthening of the social safety net in this province. Others pointed out that a very respectable argument can be made for budgetary deficits during an economic recession. In this regard, your promise, Sir, that Ontario will not be stuck on the same debt treadmill as the Federal Government is very reassuring. In short, the view that your Budget is the economic pronouncement of a compassionate government dedicated to equitable standards is clearly the opinion of many.

Minister, the messages delivered by commentators on both sides of the issue are equally vehement and equally sincere. One of your most difficult tasks as Treasurer of Ontario is to act as mediator among these conflicting interest groups. The goal is to dine among practising cannibals without becoming part of the dinner.

On the subject of mediating conflicting interests, I am reminded of a brief conversation which took place in the U.S. during the Depression. Soon after President Hoover initiated a number of major recovery programs, he told former President Coolidge that he did not understand why the results were as yet disappointing and his critics so outspoken. "You cannot expect to see calves running in the field," said Coolidge, "the day after you put the bull to the cows." "No," replied Hoover, "but I would expect to see contented cows!"

Minister, we appreciate your following in the tradition of Ontario Treasurers by using the Canadian and Empire Clubs as the chosen forum to elaborate on your Budget address. We hear your message; and we read your lips! Thank you for your candour. We look forward to your next visit to the Canadian and Empire Clubs.