Meeting Ontario’s electricity, climate change and economic challenges will require a more sophisticated economic strategy than tax cuts and deregulation.
Incoming Ontario Premier Doug Ford’s platform commitments present the new Progressive Conservative government with a complicated fiscal situation. There will be lost revenues if he goes forward with the elimination of the greenhouse gas cap-and-trade program and cuts to gasoline, corporate and income taxes. When you combine this with his spending promises, the government will be left with a fiscal gap in the range of at least $9 billion. Trying to carry through on these commitments will leave him the options of either facing a catastrophic increase in provincial deficit or making major spending and program cuts.
Cue the inevitable pronouncements, within a week or two of the new government taking office, that the province’s finances are in far worse shape than anyone could have ever imagined. This news will likely be followed by a replay of the Premier Mike Harris’ “savings and restructuring” exercise of 1995. The results then were chaos in the health, education and municipal sectors, the laying off of thousands of staff among provincial ministries and agencies and, ultimately, disasters like the Walkerton drinking water contamination tragedy. A good deal of the past 15 years has been spent repairing the damage.
Thanks to this situation, there is significant risk that the challenges facing the province will become worse than they already are.
Getting rid of cap-and-trade and reducing the provincial gas tax will not make the increasingly evident impacts of climate change go away.
If Ford attempts to make cuts to hydro rates without first addressing the underlying drivers of increasing electricity costs, Ontarians might see even higher costs in the future. Key among the underlying drivers of those cost increases are the life-extensions and refurbishments for the province’s aging nuclear power plants they Wynne government committed to.
The nuclear-focused pathway pursued by the Liberal government also carried the risk of sidelining the province in technological revolutions in the electricity sector regarding smart grids, as well as dramatic improvements in the technological and economic performance of renewable energy sources and advanced energy storage technologies.
A simple economic strategy focused on tax cuts and deregulation will be hopelessly inadequate to deal with the regional impacts of the transition from manufacturing to service and knowledge-based economic activities, to say nothing of the challenges presented by the Trump administration’s US actions in agriculture, steel and auto manufacturing.
In the electricity sector, the most sensible course would be to take stock of the full range of options to enable it to meet its future electricity needs. These would include nuclear refurbishments, importing electricity from Quebec, conservation initiatives and adding more renewable energy to the mix. Future energy sources should be selected based on which ones offer the lowest long-term costs and the greatest flexibility to respond to changing economic and environmental conditions.
What Ford should not do is attempt to reopen existing electricity contracts, particularly for renewable energy projects. Such an approach, as demonstrated by the gas plant cancellation scandal that ended Dalton McGuinty’s premiership, could prove far more expensive than allowing the contracts, many of which are at or near their mid-life points anyway, to expire and then be negotiated. The risk is that revenues from a suggested sale of the remaining shares of Hydro One would be frittered away to finance short-term Hydro rate and tax cuts.
An equally unwise move would be to change the funding model for conservation efforts. Currently, the province’s energy conservation efforts are funded by rate-payers through their electricity bills. Shifting the support for those efforts to regular program funding and having energy conservation complete with everything else in the provincial budget would be regrettable. Conservation initiatives are by far the most cost-effective means of meeting consumers’ energy needs.
Trying to undo the cap-and-trade system for greenhouse gases could lead to a hideously expensive mess. Companies in Ontario have already made major expenditures on emission credits and reorganized their business activities around the cap and trade system. They are unlikely to respond well to the news that those investments are now worthless.
Ford’s proposed constitutional challenge to the federal government’s authority to impose a carbon price in Ontario if the province dismantles its own regime is virtually certain to end in failure. The Constitution Act gives the federal Parliament explicit authority to impose “any mode or system of taxation” (s.91(3)) it wishes to. A legal opinion commissioned by the Manitoba government on the issue said there was a strong likelihood the Supreme Court would back the federal government’s imposition of a carbon tax. The one piece of good news is that the revenues from a federally imposed carbon price would flow back to Ontario, helping to plug some of the leaks in Ford’s already floundering fiscal ship.
The transition from manufacturing and resource extraction and processing toward knowledge and service-based activities, has been far more successful in Ontario than in neighbouring US states. Still, within the province the success has been regionally uneven. While population growth and economic activity have been concentrated in the Greater Toronto Area and around Ottawa, large areas of the province’s former manufacturing base have been left behind, particularly in the southwest. Even within the GTA, the election outcome hints at economic dislocation within the 905 and outer 416 regions.
Responding to these various dynamics will require a more sophisticated economic strategy than tax cuts and further deregulation, that in a province that had already declared itself “open for business” under the Liberal government. Indeed, the approach outlined in the PC platform runs a very real risk of undermining the basis of the province’s economic success.
The losses in provincial revenues from tax cuts will undermine the quality of services and infrastructure the province is able to offer. Deregulation around the environment carries risks that would undermine the quality of life the province offers its residents, to say nothing of threats it would pose to their health and safety.
None of the challenges that Ontario is facing lend themselves to one-line, slogan-level solutions. Rather, they require political leadership to convey the need to respond to these types of issues in terms that relate to their effects on residents’ everyday lives. Whether Ford can rise to these kinds of tests, or even understands the need to do so, remains a very open question.
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