Ontario throne speech mainly a political response to complex economic problems

Ontario Premier Kathleen Wynne has decided to “reset” her government two years before the election, and in the lead up to this week’s throne speech, had promised a greater focus on jobs and the economy.

One might think that Ontario’s government has finally been jolted out of its interventionist and regulatory tendencies and embraced the need for policies to stimulate economic growth and performance. Sadly, the throne speech was a mainly political response to complex economic problems.

Ontario’s Liberals are down in the polls relative to their opponents and a key reason is the impact of rising electricity prices in the province. This has become a long, convoluted and epic story rooted in the handling of the electricity sector over the course of decades. There have been the costs of renewing an aging infrastructure, the costs for cancelled infrastructure (two gas-fired power plants in the Toronto area), the early elimination of coal plants, a green energy policy that has generated surplus capacity with lengthy and lucrative contracts with private gas, wind and solar power generators and most recently the announced multi-billion dollar climate change plan to transform how Ontarians use energy.

Ontario’s continued unsuccessful attempts to deal with its electricity sector have generated rising costs that have had only one effect that might be deemed positive—increased conservation of electricity. Even that is a mixed blessing in that reduced consumption has resulted in a shrinking revenue base to deal with the higher costs of the increase in new capacity in wind and solar.

Between 1981 and 2015, the annual average Electric Power Selling Price Index (EPSI) for 5,000 kilowatts or more in Ontario rose 233 per cent while for users of less than 5,000 kilowatts the index grew 328 per cent. The resulting higher energy costs have been a factor in Ontario’s anemic economic performance particularly in its energy-intensive manufacturing sector, which among other things saw a massive downsizing in the auto and forestry sectors.

As a result, the Ontario government has announced a tax break on hydro bills by promising to take the eight per cent provincial portion of the HST off electricity bills for homes and small businesses with the change going into effect Jan. 1, 2017. The government has estimated that the discount would save an average household about $130 per year. This is a political strategy designed to insulate the government from electoral wrath down the road.

The fundamental problems with the electricity sector remain in place given the poor decisions that have tied the province to lengthy contracts and commitments in the interests of promoting a rapid and almost messianic transition away from fossil fuels. Moreover, while tax reductions are to be welcome, it remains that taking the HST off of electricity will also have a revenue impact on the government and make its deficit reduction target more difficult to reach and increase the public debt. Reductions in income taxes—personal and corporate—would probably be more effective in stimulating economic activity than consumption taxes.

This is not a reset. This is short-term political desperation.