Premier Wynne’s fiscal record in Ontario earns poor marks

The Fraser Institute recently published its annual ranking of Canada’s premiers, measuring how well premiers managed provincial government finances while in power. Premiers who managed spending prudently, balanced their books, paid down debt, and maintained competitive tax rates ranked higher. This year’s report won’t make for pleasant reading at Queen’s Park.

Ontario Premier Kathleen Wynne finished sixth overall out of 10—last among sitting premiers (four of the ranked premiers are no longer in office).

A primary reason for Premier Wynne’s poor performance is that Ontario has run a budget deficit every year during her time in office, contributing to a significant increase in government debt. In fact, as a percentage of the provincial economy, Wynne averaged the second largest annual deficit among the premiers.

It’s certainly true that upon taking office Wynne was dealt a difficult hand. Her predecessor, Dalton McGuinty, increased spending at a rapid pace in the years before and during the recent recession, with the result being large budget deficits and massive debt accumulation.

There are some signs of preliminary progress, as Premier Wynne has taken steps to slow the rate of spending growth. Unfortunately, the steps taken have been inadequate to resolve Ontario’s fiscal problems, which is why the province continues to rack up debt and see its credit rating downgraded.

In fact, Ontario’s net debt is projected to climb to 40.2 per cent of the provincial economy this year, up from 37.1 per cent in 2012/13, the year before Premier Wynne took power. Ontario’s debt burden is now significantly higher than even during the mid-1990s, when Ontario’s credit rating suffered as the Rae government piled up debt.

Another reason for Premier Wynne’s weak performance in this year’s rankings is the province’s uncompetitive personal income tax system. Research overwhelmingly shows that high and increasing personal income tax rates discourage work, savings, investment and entrepreneurship, which is why premiers who raise rates or maintain them at high levels rank poorly relative to their counterparts.

Ontario fares poorly on this measure. The province maintains a complex personal income tax system, with no fewer than seven distinct brackets, and tax rates on top earners are comparatively high. These policies ultimately discourage productive economic activity in the province.

With budget season approaching, Premier Wynne’s government has an opportunity to improve its lackluster fiscal record.

It can do so, first, by addressing Ontario’s biggest fiscal problem—chronic deficits and the rapid pace of debt accumulation. The province has finally begun to slow the rate of spending growth in recent years after nearly a decade of rapid increase, and further restraint will be needed this year and in the years ahead to finally eliminate the deficit and begin chipping away at the province’s mountain of debt.

Second, the province should consider reforming its personal income tax system by reducing the number of tax brackets and the existing rates on upper-earners in order to promote economic growth and competitiveness relative to other jurisdictions.

All told, Premier Wynne’s record of fiscal management receives an unsatisfactory grade. This is unfortunate news for Canada’s largest province. Some steps towards spending restraint have been made, but much more is needed to get Ontario’s government out of the fiscal mess it has created. The upcoming provincial budget is an opportunity for Premier Wynne’s government to do just that.