Canada’s former economic leaders are now its fiscal laggards

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Appeared in the Ottawa Sun, February 15, 2016

Not long ago, Ontario and Alberta were the economic engines of Canada, boasting solid rates of economic growth and comparatively sound government finances.

How times have changed. Ontario’s economy has deteriorated to the point where it’s now an equalization-receiving “have-not” province. Meanwhile, Alberta has frittered away its savings and is set to become a net-debtor province next year for the first time since 1999/00.

When it comes to economic and especially fiscal performance, Canada’s historical leaders have turned into laggards.

Evidence of this remarkable development can be found in a recent Fraser Institute study, which compares Canada’s premiers based on their management of provincial finances. Premiers who managed spending more prudently, balanced their books and paid down debt, and reduced or maintained competitive tax rates ranked higher.

The results aren’t pretty for either Ontario or Alberta.

Let’s start with Ontario. Premier Kathleen Wynne finishes in sixth place, last among sitting premiers (four of the ranked premiers are no longer in office).

A key reason for Premier Wynne’s weak performance—Ontario has run a budget deficit every year during her time in office, increasing the burden of government debt. The deficits averaged 1.5 per cent of provincial GDP, the second largest among the premiers.

On taxes, Premier Wynne had a middling ranking due in part to Ontario’s uncompetitive personal income tax system. Rates on upper-earners are higher in Ontario, and the province maintains the most tax brackets, ultimately discouraging productive economic activity.

More encouragingly, Premier Wynne has taken steps to at least slow down the rate of spending growth, which was unsustainably rapid under her predecessor. But these steps have been inadequate in resolving Ontario’s fiscal problems, as the province continues to rack up debt.

Turning to Alberta, the story isn’t much better. Our report evaluates former premier Alison Redford, as the latest historical data does not allow us to measure current Premier Rachel Notley.

Nonetheless, Redford placed seventh out of 10, behind Wynne and ahead only of the premiers in three Atlantic Provinces. Redford fares poorly for two key reasons: 1) rapid increases in government spending and 2) budget deficits and erosion of Alberta’s financial position.

Troublingly, there is no clear sign Premier Notley will reverse these trends. In fact, upon taking power, the new government immediately announced spending increases beyond what was already planned, causing the deficit to grow even larger.

The Notley government also tarnished Alberta’s only bright spot in this year’s rankings, which is on taxes, eliminating the province’s single tax rate on personal income and raising the corporate tax rate by 20 per cent.

While Canada’s traditional economic leaders find themselves near the bottom, the results at the top of our rankings may also come as a surprise to some. For example, the second place finisher is Premier Philippe Couillard of Quebec, a province that has long held a reputation for poor fiscal management.

Since coming into power, the Couillard government has recognized the severity of Quebec’s fiscal situation and taken corrective action. It’s projecting a balanced budget this year after years of deficit spending, allowing the province to chart a plan to rein in government debt and consider tax reform.

Top spot went to Christy Clark, premier of British Columbia. Recall, as recently as the 1990s, B.C. suffered from severe fiscal mismanagement with the ’90s often referred to as the province’s “lost decade.” Premier Clark earned top spot by restraining the growth in government spending and consistently balancing the operating budget. Like all premiers, however, there’s room to improve, particularly in the areas of taxation and government debt.

While the progress in B.C. and Quebec is encouraging, the fact remains Canada cannot reach its full economic potential if Alberta and Ontario are economically weak and burdened by unsound fiscal policies.

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