The Conference Board of Canada has chimed in on what ails Ontario and how to get it moving in a recently released report titled Needed: A Comprehensive Growth Strategy for Ontario. The report argues that after rebounding from the 2008-09 recession, Ontario has slipped into tepid growth of around 2 percent annually and needs a comprehensive economic growth strategy to improve its long-term growth potential. What is to be done?
Well the comprehensive strategy is supposed to address three things: capital investment, productivity and the labour force – while ensuring that its public services and fiscal path can sustain this growth. While some steps have been taken with tax measures such as the HST and reducing corporate income taxes to create a stronger private sector investment climate, additional action requires Ontario do more to reduce trade and investment barriers both within Canada and internationally and allow Ontario firms to take more advantage of international trade opportunities. In addition, Ontario needs to improve workforce skills and demand high performance standards of its schools, colleges and universities. If Ontario is unable to improve its long-term growth potential then the Conference Board states that: “Ontario taxpayers can expect to pay higher taxes to support their desired levels of public services-…”
What can I say? I’m disappointed. It seems like a rehash of the blatantly obvious. We need more private capital investment, more international trade, and more public sector human capital investment. Isn’t this what we have been doing for the last decade? More distressing, there is also the message that if growth rates are not improved, taxes will need to go up. Really? Might raising taxes not slow down growth even more? What exactly are these desired levels of public services?
Here is some interesting information. From 2001 to 2011, public sector employment in Ontario grew by 39 percent. During the same period, private sector employment only grew by 11 percent. As a result the private sector share of total employment in Ontario declined from 83.5 percent to 80 percent over this period. This cannot all be blamed on the 2008-09 recession – the trend was well underway before the recession. A strong private sector generates the wealth and activity needed to support the public sector activities that Ontarians want. A strong public sector can provide the support and services private sector activity needs to earn profits. However, expanding public sector employment faster than private sector employment and then implicitly threatening tax increases to pay for it if productivity does not go up seems to not be an optimal growth strategy.
We’ve been investing in infrastructure and human capital for some time in Ontario and yet Ontario still faces tepid growth. Have we been investing too much? Maybe we need to reduce public spending. Have we been investing insufficient amounts? Then we might need to spend more. Have we been investing in the wrong things? Are we spending too much on health and education and not enough on transportation? Who knows? Maybe 2 percent growth is the best we can expect in light of Robert Gordon’s views on the future of the US economy? These are questions that need to be asked. These are questions the Conference Board among others could help answer. Ontario could indeed use an economic strategy. I’m not sure the Conference Board has provided one in this report.