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Ontario must be scared into austerity to avoid crisis like Greece: report
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The Canadian Press
TORONTO - Bigger class sizes, higher utility bills, and fewer hospitals are among the bitter pills deficit-ridden Ontario must swallow to avoid the same fate as debt-plagued Greece, economist Don Drummond warned Wednesday.
Unless all of his 362 recommendations are implemented, Canada's most populous province will wind up doubling its deficit by 2017-18 and increasing its debt to a staggering $411 billion — a little more than half its gross domestic product, he predicted in his austerity blueprint for Ontario.
"Ontario's finances do not yet constitute a crisis, and with early strong action a crisis can be averted," the long-awaited report said.
"The lessons of history and of what is happening elsewhere today are clear: the government must take daring fiscal action early, before today's challenges are transformed into tomorrow's crisis."
Ontario's debt-to-GDP ratio has more than doubled to 35 per cent since the late 1980s, putting it on par with the three Maritime provinces.
Only Quebec has a higher ratio — 50 per cent — but that's exactly where Ontario is headed if nothing is done to balance the books, Drummond warns.
Many of the governing Liberals' cherished policies — from full-day kindergarten to a month-old rebate on college and university tuition — were deemed unaffordable by the big bank economist.
The minority government insists it won't take all of Drummond's advice. It adopted some of his ideas before the report was even released, while others were rejected outright — such as axing full-day kindergarten.
"Mr. Drummond doesn't have to go through what are the consequences of this decision or another decision — what does it mean for employment, what does it mean to this community versus that community — and our challenge is to find that balance," said Finance Minister Dwight Duncan.
"Our challenge is to ensure that we all work through this together, and it will require the votes of at least two opposition members to get a budget passed."
But if the Liberals don't heed his advice and stick to their current plan to slay the deficit by 2017-18, they'll still end up with a $30.2-billion shortfall, Drummond said.
The province's debt is still "relatively small" by international standards and its spending is "neither out of control nor wildly excessive," the report said. But extraordinary action must be taken over the next six years before Ontario drowns in red ink.
It's a "profoundly gloomy" message that Ontarians didn't hear during last fall's election campaign, it added.
To get out of its fiscal hole, the government must cut program spending more deeply than former Tory premier Mike Harris and maintain that restraint longer than Alberta's Ralph Klein or Saskatchewan's Roy Romanow in the 1990s, the report said.
"I think the challenge and the solution will have to be pretty much unprecedented in Canadian post-war history," Drummond told reporters.
"It will only work if you reform, root and canal, the programs. It won't work if you just have a mindset of 'I'm just going to take some money out here and there and do it the way we've largely approached this in the past.'"
Ontario must cap annual growth in program spending at just 0.8 per cent, which would slash real program spending by 16.2 per cent for every man, woman and child, the report advises.
Annual spending growth in health care must be capped at 2.5 per cent, education at one per cent, post-secondary education at 1.5 per cent and social programs at 0.5 per cent. Spending in all other programs will have to be cut by 2.4 per cent.
That means government will have to rethink everything it does to wring as much as it can out of every taxpayer dollar, the report advises.
About a third of Drummond's recommendations were directed at health care, which must be delivered more efficiently to maintain services without the generous budget increases of past years.
Ontario should band together with the other provinces and the federal government to buy drugs, allow nurses, physician assistants and pharmacists to provide more services, divert patients who don't require acute care out of hospitals and into less expensive care and focus on home care rather than building new nursing homes.
It should also take Nova Scotia's lead and require emergency medical technicians to provide home care when not on emergency calls, have doctors talk to their middle-age patients about end-of-life care such as living wills and give its regional health networks much more power to integrate services and oversee care in each region.
Household bills could also take a hit, with Drummond recommending that the province scrap a 10-per-cent rebate on electricity bills, charge more to recover the full cost of water and sewage treatment and charge commuters for GO Transit parking in the Greater Toronto Area.
Class sizes should increase, per-pupil funding for textbooks and supplies should be cut by a quarter, and high-school students who want to do a fifth year "victory lap" should have to pay for the privilege.
The province should scrap its new 30-per-cent tuition rebate for college and university students, tie government funding to "quality objectives," and have post-secondary institutions look at squeezing some four-year degrees into three.
One of two Niagara casinos should be closed along with one of the lottery and gaming corporation's headquarters, and the Liquor Control Board of Ontario must take advantage of its buying power to boost profits.
On the business side, direct subsidies and tax credits for businesses should end, and high prices offered through the province's feed-in-tariff programs for solar and wind projects must be reduced.
The broader public sector will also have to do its part with a wage freeze, which should extend to the province's doctors, Drummond said.
Ontario teachers should retire later and pay more for their benefits. The province should also reduce pension contributions, since it matches what the teachers pay in.
If the government can't implement his recommendations, it must do something to compensate by either cutting somewhere else or finding a new source of revenue, Drummond said. He noted that he was forbidden from recommending any tax increases.
While the task ahead is daunting, the rewards of acting now are "considerable and tangible," he said in the report.
High-debt governments end up spending a lot of money on interest payments and end up at the mercy of financial markets, forced to take "draconian measures" to keep lenders happy — like Greece and Italy.
Ontario will spend $9 billion this year alone on interest payments, Duncan said.
"The one thing I worry about at night as finance minister? Interest rates," he said. "Our debt, our deficit leave us vulnerable."
Note to readers: This is a corrected story. An earlier version reported Drummond predicted debt will rise to $441.4 billion.
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