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Mike Harris & Co. are really sanctimonious about economics. They claim to be the only ones with the "common sense" required to make sound economic policy. Well, that's just wrong. Harris's economic policies are based on a rather controversial set of ideas called "supply-side" economics (or "voodoo economics" or "Reaganomics"). Believe me, lots of experts disagree with the supply-siders. I'm not one of those experts, but even I can see problems with Tory economic policy.

What the government does

Some extremely basic facts:

The government does not control the economy. Government policy is one of many factors that influence economic performance, so the government can't take all the credit (or blame) for everything that happens. The economy runs in cycles of recession and expansion, and the Harris government was lucky enough to come to power when the economy was starting to expand again.

And let's be clear about what the government can and cannot do. The Ontario government's powers, as far as I can tell, are limited to spending and taxation decisions. Crucial factors like interest rates, exchange rates and money supply are beyond the reach of provincial governments. These things are manipulated at the federal level. The Ontario government cannot take any responsiblity for the effects of federal policies.

Debt and deficits

Mike Harris is not in a position to lecture anybody on deficits or debt. Oh, he may speak in horror of the deficits racked up the Rae government, but he's not much better. Harris tax cuts have delayed balancing the budget for an awfully long time, which is why Standard & Poor (the credit rating agency) gave the Harris government the exact same credit rating that the Rae government got at the end of the recession. Even though we have this booming economy Ontario is one of the last provinces in Canada to balance its budget. Harris deficits have added no less than $22-billion to the provincial debt.

No matter what the Tories say, Ontario's financial mess was not the result of government overspending on social programs. Canadian governments usually have an operating surplus when it comes to program spending. The main reason for deficit accumulation was the Bank of Canada's decision to maintain high interest rates starting in the early 80s. In fact, only a tiny percentage of the government's debt is the direct result of overspending, and the rest is due to compound interest.

Taxes

"The debate is over - taxes kill jobs, tax cuts create jobs." -- Throne Speech, April 1999.

That's one of the biggest lies of the Harris government. The tax debate is not over.

According to Tory literature, when you cut taxes, people spend their extra money on domestically-produced goods and services, which stimulates the economy. That's logical but it's only part of the story. To begin with, when people have extra money, they don't spend it all. They save some of it, and money sitting in the bank doesn't directly add to the economy. Another problem is that people spend money on imports. Tax cuts are especially ineffective in a provincial economy like Ontario's because we import a lot of stuff from other jurisdictions. So the stimulative effect of tax cuts is reduced.

The tax cuts haven't even been as large as the Tories claim. Everyone gets that basic income tax cut, but high-income earners are hit with surtaxes and a "fair share health levy." And Ontarians are now paying a whole bunch of user fees for government services, which can be regarded as another form of tax.

Most economists say tax cuts are not the main reason for Ontario's current good fortunes. Ontario's economy is closely tied to the U.S. economy, which is booming right now. Low interest rates and a low dollar (which have nothing to do with Harris policy) have also contributed to economic growth. A strong manufacturing sector, especially the auto industry, has given the economy a boost.

Finally, I'm not convinced the Tories hate taxes for purely economic reasons. Taxes are an emotional issue for a lot of Tories. They just really resent handing their money over to the government. For the right-wing intellectual wankers who make up the Tory elite, the idea of taxes gets mixed up with ideas of freedom, free will, individuality, and the proper role of government in society. These issues may be interesting, but they are completely irrelevant when you're talking about the effectiveness of tax policy.

Budget '99

On May 4 the government presented its budget for 1999-2000, then promptly called an election. Some budget highlights:

Everybody knows this budget is designed to get the Tories re-elected. You're supposed to focus on three things: tax cuts, increased health funding and increased education funding. You're supposed to forget that the tax cuts are being made with borrowed money, and that the spending increases come after cuts and chaotic attempts at "restructuring." As for the SuperBuild Growth Fund, it's not at all impressive. It's merely a consolidation of capital spending from different government departments and it does not increase yearly government spending commitments.

The government's continuing failure to balance the budget is frustrating. Considering Ontario's good economic health and the increases in federal transfer payments, the Tories have been dragging their feet. The only reason the deficit hasn't increased this year is the government's sale of Highway 407. Highway 407 brought the government $1.6 billion, which allowed them to reduce the deficit to $2.1 billion instead of increasing it to $3.7 billion. Deficits only worsen the debt situation. Ontario carries $121 billion in debt (more than $20-billion of which was added by the Tories) and 16 per cent of government revenues are devoted to interest payments. We can handle this kind of debt load as long as the economy remains strong, but if the economy falters we could be in trouble.

The budget contains some spooky warning signs about the government's future financial plans. In 2000-2001 total government spending is supposed to decline to $48.6 billion from the previous year's $49.8 billion. That works out to a 2.6 per cent decline in spending, and when you factor in inflation and population growth the cut grows to 5.2 per cent. What does this mean? more cuts to programs and services. The Tories have been cutting constantly for four years and they're not going to stop. You see, they will have painted themselves into a corner with the Taxpayer Protection Act, which will make it difficult for governments to run deficits or increase taxes. After those treasury-depleting tax cuts, program cuts will be the only option left if the Tories want a balanced budget.

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