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If spending cuts are suggested, I expect on onslaught of arguments that this is not the time for austerity.

While there may be a Keynesian argument to be made for stimulative spending, such tactics are for governments that can afford them. If the resulting debt is so excessive as to invite fiscal crisis, the people of Ontario will simply have to take their medicine with the knowledge that improved finances should -- in the long term -- contribute to a healthier economy.

If I read the tables at http://www.fin.gov.on.ca/en/budget/ontariobudgets/2011/ch2d.html#c2_secD_table13 correctly the HST generates ~20B on 8% (provincial share) or 2.5B/%. So a 3% increase is worth 7.5B which is ~1/2 of the projected 2013/2014 deficit.

This blog has me convinced that the HST is the way to generate revenue. What would happen to the fragile economy if 3% were added to HST over the next three years? Presumably it would have to come with a more generous credit so it may be worth less than that to the provincial treasury.

Thank you.

Livio,

I'm with you, I don't see McGuinty having the jelly to do anything serious about cutting the deficit.

Moreover, poltically, McGuinty's in a particularly nasty situation. On the one hand, McGuinty lost just enough seats in the last election that the opposition parties can block anything they collectively don't like (for example, an HST increase - sorry Chris, an increased HST is the way to go economically, but politically that won't happen). On the other hand, he's got enough seats that if there's a potentially unpopular policy that either opposition parties approves of (say, wage freezes/cuts for the public sector, for the Tories, income tax hikes, for the NDP), provided one party abstains (or ensures that a handful of their MPPs are absent), McGuinty can get that policy implemented. Unfortunately, that also means that he has just enough seats to take all the blame for that policy come election time (since neither opposition party has to openly support it to get it passed).

Given that political dynamic, if he does anything, it will be some combination of public sector wage cuts/freezes (imposed, if need be) and income tax (and particularly corporate income tax) increases. Whether that will be sufficient to balance the budget remains to be seen, but I suspect it will be sufficient to finish off the Liberals in Ontario for good long time.

Finally, your point about electricity pricing is a good one (and one that has been generally missed). Someone should have told him that the "green" in green energy stands for nature, not money. And It's going to get worse in a few years if McGuinty (finally) keeps his (ill-advised) promise to shut down the coal plants and the nuke reactors start getting refurbished (Darlington in 2016) or shut down (Pickering in 2020) If we manage to avoid mass-blackouts over the next decade it'll only be because Ontario's factories are idle - curing the disease by killing the patient.

Then again, replacing the PST with the HST cost him his majority so query how keen he is on losing the rest of his government. In any event, the two opposition parties might not agree on much, but they do agree that they dislike the HST (not that either of them are particularly sincere on the point).

In light of the suggestion (shot down by the government) that Ontario might move away from its early-childhoold education initiative, there was an interesting piece by Margaret Wente in today's Globe on the Ontario government's early-childhood education policy (http://www.theglobeandmail.com/news/opinions/margaret-wente/is-all-day-kindergarten-really-a-leg-up/article2337095/).

What particularly struck me was the following statement by Charles Pascal (paraphrased by Wente):

"“We can’t afford not to do it,” argues Charles Pascal, the Premier’s early learning adviser. Twenty-eight per cent of kids who enter Grade 1 are “vulnerable,” meaning they arrive with learning, social or behavioural problems. Without an early learning boost, they’ll never catch up. In the long run, Mr. Pascal told CBC Radio, early learning will pay off in better human capital and higher graduation rates. Every 1-per-cent decline in the number of vulnerable kids, he says, will add 1 per cent to GDP. “It’s a no-brainer."

Dr Pascal makes a similar statatement on page 4 of this presentation: http://www.eyeonkids.ca/docs/files/pascal_cfcs_eyeon_23mar11.pdf. In this presentation, he also suggests that "over a working life" a 1% drop in "vulnerability" should lead to a 20% jump in GDP.

What I haven't seen is any empirical basis for this claim. It wasn't made in Dr. Pascal's 2009 report, or in the summary of evidence that accompanied it (in fact the term "GDP" was used all of once in those two documents, for the proposition that we should be spending a larger chunk of it on child care) and I haven't been able to find anything that supports the claim. Does anyone know what it's based on?

I ask because, on it's face, the purported impact of reducing "vulnerability" seems implausibly large. I can accept the proposition that reducing "vulnerability" can increase GDP, but to accept that a policy change that affects, say, 1% of the population (and assuming that by a 1% drop, in vulnerability, he means a 1% percentage point drop, not a 1% drop) will drive up GDP by 20% over the lifetime of the people affected by it is, on it's face, preposterous. What, is the affected 1% a collection of Bill Gates in waiting?

I'm also not comforted by the fact that much of the economic "analysis" contained in the presentation cited above strikes me as the sort of fluffy economic analysis usually used by lobbysists when they don't actually have a compelling reason for getting government money. For example, consider the claim that spending a $1 on child care has a " multiplier effect on local economies, generating up to $1.7 dollars for every $1 spent". Now, that may or may not be true. On the other hand, that would probably be true of spending $1 on anything else (beer, popcorn, tax cuts, subsidies for tax lawyers). If the government spend a $1 on subsidizing crack cocaine, it would probably have a multiplier effect on local economies (potentially much higher than $1.7), but on its own, that's not a particularly compelling argument for the policy.

I'm fairly agnostic when it comes to all-day daycare, but if we're pursuing this policy on the premise that it's going to trigger massive economic growth or that it'll pay for itself, I'd like to know that that premise is based on something other than handwaiving and wishful thinking.

Bob Smith:

Do you really think the HST cost him his majority or was it other issues particularily in rural Ontario. I know McGuinty was warned publically he would face the same fate on the HST as the Mulroney tories and to the extent he is in a lot better shape than the PC Party of Canada circa 1994-1995 wouldn't you have to say that is an acheivement for him. Doesn't Hudak at some point as leader of the official opposition have to come up with some plan of his own(something he appears to have admitted during his leadership review).

Tim,

Did the HST cost McGuinty his majority? Yes. But that isn't saying much, he missed a majority by 1 seat. Did it cost him the 20-odd seats that he lost, probably not. It probably cost him 5-7 seats, with improved performances by the opposition parties making up the balance.

I don't think the comparison with the post-Mulroney Tories is all that meaningful. Their problem was that their party broke up into three competing groups (the PCs, the Bloc and the Reform party). McGuinty hasn't had to worry about that. Perhaps a closer comparison would be the Bill Davis Tories in 1985 (a government that was long in the tooth and had implemented controversial policies, but was still a "comfortable" enough option to hold on to a plurality of the seats). Of course, come 1987, the Tories were decimated, and spend the next 8 years in the wilderness.

I agree with your analysis re: Hudak. His 2011 campaign was weak, in part because he made no real effort to distinguish himself from McGuinty (his platform was based on the same combination of pixie-dust and wishful thinking as McGuinty's). In his defense, every first-time party leader gets a rough ride in their first election (and Hudak can look to the careers of both McGuinty and Harris for that proposition), and I think part of the reason he ran on such a weak platform is that he lacked the self-confidence to run on a more aggresive one (see, by way of example, the 2010 Rob Ford campaign - it's interesting the note that his new campaign team seems to be made up of the people behind that campaign)). If he learns from the experience (and as you suggest, his speech at the leadership review suggests he might have) he could be a dangerous opponent for McGuinty next time out.

Bob Smith: "Does anyone know what it's based on?"

Early learning advocates often refer to the work of Fraser Mustard, also see research by Martha Friendly and Gord Cleveland. Other research reaches more pessimistic conclusions, e.g. the work by Michael Baker (co-authored with Kevin Milligan IIRC) assessing the Quebec $7 a day childcare. An early version of Baker et al's work was published by the CD Howe institute.

Frances,

I wondered about that, but I didn't see anything in the Mustard report. I've also taken a look at some of Friendly's work as well as the websites of pro-child care activist groups and/or unions and haven't been able to find it repeated It's such a powerful claim, if true, that I would have thought that it would be right in the Pascal report (along with a footnote) and repeated by everyone with a horse in this game.

Certainly between an unsupported claim by Charles Pascal, with all due respect to the man, and the work of Baker and Milligan (I think you're right about that), I know where I'm going to place my bets.

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