Does Dwight Duncan Believe in Magic?

Ontario is Canada’s largest province and befitting its status as the Queen of Confederation, now has the largest provincial debt and deficit in the country.  In dealing with the provincial fiscal situation, much rests on the program spending review being conducted by economist Don Drummond. Due to be delivered by the end of January, it is expected to usher in an era of transformation of public services that will overhaul provincial government expenditures, restore the public finances, and perhaps even improve the quantity and quality of public services.   The ability to transform government spending is Ontario finance minister Dwight Duncan’s great hope – a magic bullet that will reduce the need for destructive service cuts or incentive-destroying tax increases. 

If one wants a glimpse of what the future may hold in terms of the Ontario government’s approach to deficit reduction, one need not wait for Don Drummond. Ontario’s government funded policy institute - the Mowat Centre - released a report titled “Fiscal sustainability and the Future of Government Spending: A Shifting Gears Progress Report” in November 2011.  The report emphasizes transformative change – transformative tax initiatives such as the HST, transformative policy changes such as raising the retirement age, whole system reviews that harmonize functions across governments, embracing digitization, modernizing bureaucratic processes, new service delivery models, etc…There is a veritable buffet of international policy examples of how it is possible to reinvent delivery of government services and get more with less.

While restructuring and transformation of government service delivery is a viable long-term option, it operates best in small incremental steps.  Moreover, without the stick of expenditure reduction or unpopular tax increases there is often little to motivate either entrenched bureaucracies or the public.  Revolutions that seek broad economic restructuring of government in the end are doomed to failure because of entrenched interests as well as the high transactions costs of bringing about massive change.  The reluctance to change is also based on the belief that once budgets are balanced and revenues recover, politicians will embark on new program initiatives that will make up for lost spending with new spending.  In the case of Ontario, one only need look back to the Common Sense Revolution, which sought to restructure health care and government spending.  Nearly two decades later, we are still talking about the need to transform public services in Ontario.  And in the case of health, we cannot forget the Romanow Report and the prescription to buy “transformative change” – a decade later the provinces still clamor for more money and health is still considered unsustainable.

The one swoop magical approach to transforming government spending in a manner that balances the budget and maintains services is an appeal to fiscal magic on the part of those who flee from fiscal fundamentalism.  In the end, the way to fight a deficit is to either raise revenues or reduce expenditures or a combination of the two.  Either of these approaches may provide incentives to government bureaucracies to innovate on service delivery and engage in “transformation” but to expect that they will do so without the fiscal motivation of expenditure reduction is unrealistic.   It is also unrealistic to allow the public to expect that service levels will somehow remain unaffected. 

In the case of Ontario, this talk of government transformation is either expenditure reduction in disguise induced by the political fragility of a minority government situation or it reflects the government’s true views on how to manage the deficit.  If it is the latter, it is akin to a belief in fiscal magic.  If only there actually was a magical solution given the size of Ontario’s deficit and its decade long economic decline.  Realistic or not, Dwight Duncan seems to believe in magic but whether he is able to cast a spell on the public will be another matter.

(This post was written by Livio Di Matteo.)

 

Comments

[Bob Smith]

"Realistic or not, Dwight Duncan seems to believe in magic but whether he is able to cast a spell on the public will be another matter."

It's interesting, usually you attribute this sort of "magical" thinking to politicians who know that magic doesn't exist, but are cynical enough to expect that they'll be able to punt the problem along to the sucker who takes over after them (health care, anyone?). But it's a bit odd to see it in Dwight Duncan who, after all, is trying to position himself to be the sucker who takes over after McGuinty. If he doesn't believe in magic, but thinks that the voting public can be pursuaded to believe in magic (a belief that is well grounded in past experience, certainly, it's a view shared by the NDP and the Tories, whose platforms in the last election were every bit as magical as those of the Liberals), then he's setting himself for disaster in 4 years when the deficit hasn't magically disappeared.

Personally, I'm cynical about claims of "transformative change". As often as not that's either code for doing nothing (i.e., health care) or code for doing something that would be unpopular if you called it what it was (i.e. raising taxes, in the case of the HST), in either case, it's a big read warning flag that I'm being lied to (Mind you, if this type of deceit helps smooth over the introduction of good policy, like the HST, I'm more sympathetic). Maybe Duncan figures that layoffs, pay freezes (which should have been implemented 3 years ago), and spending cuts will go over better if they're labelled "transformative change". It's a cynical approach, but who knows, maybe it'll work.

My own view is that the public can be pursuaded of the need to make hard decisions, if politicians made the effort to do so. Obviously, that's not something the Liberals can do (given that they've been in power for 8 years now and have been ardent practioners of magical thinking, they can't turn around and say "we're screwed"), but I had hoped that the opposition parties would have done that (and I was seriously pissed at my Tory friends who ran the last election on the same sort of magical platform as the Liberals and the NDP). That they didn't is probably why they lost.

[Robert McClelland]

Realistic or not, Dwight Duncan seems to believe in magic but whether he is able to cast a spell on the public will be another matter.

Considering much of the public believes in magical thinking I'd say he's got a decent shot at convincing them he knows the right incantation.

[C2]

Whatever we do I hope it turns out to be an incremental process. Jamming massive changes through quickly causes a lot of expense to businesses and a lot of pain to the people who don't have the resources to adjust.

Governments are large vehicles... we shouldn't drive them around like race cars. Economic theory doesn't seem to spend enough time examining the cost of rapid change.

[Alda]

When Dalton McGuinty was asked a direct question how he would cut spending in the last Ontario leader's debate, he responded by saying his government had hired 10,000 teachers. So there's at least one member of Ontario caucus who believes in magic.

http://www.cbc.ca/news/canada/ontariovotes2011/story/2011/09/23/ontario-leaders-debate548.html

[Bob Smith]

Alda,

I can understand why Dalton believes in magic, he can do whatever he wants and, in four years time, tada! no consequences for him. It's the magic of a premier who doesn't plan on running again.

It would be a bit more surprising if Dwight Duncan, who plans on being around in four years, believed in the same magic (because, surprise, surprise, it won't work for him).

C2: "Governments are large vehicles... we shouldn't drive them around like race cars."

Agreed (and I suspect most economists would agree with that proposition), but since the preferred response of all governments to new problems is to defer addressing them until they become serious and unavoidable, radical (and often, paingful) policy changes are inevitable. Moreover, given the 4 year electoral cycle, it makes political sense to implement change all at once, rather than dragging it out over 4 years,

[Determinant]

While I believe raising the retirement age is inevitable, it's effect is limited in the case of the provincial government. It would affect the age of offering Ontario Drug Benefits, the universal seniors drug plan, but I believe we should have a universal drug plan for everybody (with taxes to pay for it). The costs of OAS fall on the Feds and CPP has direct payroll revenue access.

The retirement age of teachers and Ontario public servants could be raised but I'm not sure if this is really a savings given the number of people wanting into the vacated positions.

[Leo]

This discussion seems premature, as no budget has been unveiled or policy announcement made.