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09/25/2003 Archived Entry: "The real costs of economic promises"

SELF-PROMO ALERT: I have a piece in today's Kitchener-Waterloo Record about the effects the three party's economic plans will have on the province's deficit and debt. Short answer: Everyone is likely going to increase the deficit. It's not available online unless you pay so click on "More" to read it. If you live in Kitchener, please buy the paper!

The real costs of economic promises

By Steven Martinovich

It's an odd world when the economic platform of the New Democrats seems to be more fiscally responsible – if you look at it superficially at least and believed NDP Leader Howard Hampton during the debate Tuesday evening – than those of the Tories and the Liberals. According to the Fraser Institute the platforms of the Tories and Liberals will lead to a total debt increase of at least $23 billion over the next four years.

That may just be a number to you but news that Ontario is projected to see a $4.5 billion deficit for 2003-04 makes it an important one, especially when you consider that in June we were expected to see a nearly balanced budget. We're now on pace to spend $500 000 more every hour than we take in. Half a million here, half a million there, and pretty soon it adds up to real money.

This is probably why we can take the economic platforms of all parties with a grain of salt – reality and promises will end up colliding eventually. The Tories are promising to cut taxes by $4.3 billion and lower spending by $550 million while the Liberals – who should be applauded for having the most detailed economic platform – say they will raises taxes by $1.5 billion and increase spending by $5.4 billion. The NDP, true to old form, will raise both taxes and spending by at least $4.5 billion.

The net result is that the Tories and Liberals will have about the same impact on the 2006 deficit - $3.7 billion versus $4 billion – though a majority of the projected Tory deficit is due to their proposed tax cut. The NDP are simply promising to keep the train pointed in the same direction, lacking a plan to reduce the deficit and debt, and of course those tracks only lead to bigger deficits and resumption in the growth of our provincial debt.

The reality alluded to earlier against which their promises will collide with is made up of a number of items including the costs of fighting SARS, lower than expected revenue growth, lower than expected transfer payments from Ottawa, subsidies for the cost of electricity, and a plethora of other expensive little promises and problems that add up to a big headache for whoever wins on October 2. Although the economy is expected to continue improving, there are still plenty of hurdles that can add to spending and thereby further increasing the deficit.

Eliminating budget deficits and reducing the debt is often considered a fetish for conservatives. Perhaps, but as the very Fraser Institute report that Hampton used during the debate to bash the economic proposals of the Liberals and Tories points out, large and continuing deficits take a toll on the province. Whether it's an esoteric concern such as increasing interest charges on the debt or something more readily understandable like reduced economic productivity and growth, deficits are not the sign of a healthy economy or good government.

"The economic implications are also clear. A large body of academic research shows that tax cuts and reductions in unproductive public spending can boost economic growth rates. The Conservative platform has the advantage in this regard, at least on the issue of tax cuts. The Liberal and NDP platforms would hinder economic growth by raising taxes," argued Mark Mullins, the report's author.

Regardless of whom you cast your ballot for none of the three major parties has any real plan for dealing with the projected deficit. Any one of the three will significantly expand the deficit and total debt if their economic platforms are put into place. Ultimately we'll have either spending cuts or large deficits. There may not be a dime's bit of difference between the three but it will cost Ontarians billions regardless.

Steven Martinovich is a freelance writer in Sudbury, Ontario, Canada.