Dalton McGuinty is Ontario's biggest problem

[xlfe]

Jim Flaherty, National Post Published: Thursday, February 21, 2008
The following is an edited excerpt from a speech delivered in Toronto on Wednesday by Finance Minister Jim Flaherty.

Canada is a land of opportunity. This is a country with unbounded potential, innovative people and an abundance of natural resources. In these times of growing economic uncertainty, many Canadians are moving forward with a sense of purpose and determination. They are rising to the challenges before us and seizing opportunities. If we were to chronicle their actions, the story would be entitled, "Finest Hour."

But this thoughtful, "can do" approach is not consistently held across the country.

Instead of seizing opportunities and taking steps to strengthen our economy we are seeing a lack of leadership, a lack of vision and a lack of economic stewardship. And we are seeing it right here in the manufacturing heartland of the country, the place I proudly call home: Ontario.

Ontario at one time was the envy of the country. It was the economic engine that drove our national economy. Ontario is the financial epicentre of the country. It is a place where more cars and trucks are built than anywhere else in North America. It is a renowned cultural centre. It is a centre of excellence in health care and education, home to some of the greatest hospitals and universities in the world.

In modern times, Ontario has been the foundation of Canada's economic union. During the post-war years, the province was carefully managed and experienced steady growth. Through economic diversification, determination and hard work, Ontario was always well positioned to weather any economic storm.

But as singer-songwriter Bob Dylan once wrote, "the times they are a changin'. " And Ontario is failing to adapt to that change. We are in the midst of a period of global economic uncertainty.

There has been significant turbulence in the capital markets, mostly emanating from the United States. The decline in the U.S. housing market is more severe than first thought and it is quickly impacting other aspects of the American economy. Growth projections globally are being adjusted downward, and we are seeing volatility in the Canadian dollar.

In fact, a combination of the strong Canadian dollar, a slowing U.S. economy, higher energy prices and increased competition from emerging markets has left several sectors struggling. Here in the manufacturing heartland of Canada the impact has been acute. But the economic impact is in direct contrast to national economic trends generally.

For instance, we are experiencing the second-longest period of economic expansion in Canadian history. Yet Ontario's share of the national nominal GDP has gone from 41.4% in 2002 to 38.6% in 2006.

Ontarians are seeing a lack of leadership, a lack of vision and a lack of economic stewardship

Business investment in Canada has expanded for a 12th consecutive year. Yet Ontario's economic growth has been below the national average in recent years due to weaker growth in exports and business investment;

Our national unemployment rate is at its lowest level in 33 years, with more Canadians working than ever before. Yet Ontario's unemployment rate was above the national average for the first time in 2007.
Canada is on the best fiscal footing of the major Western industrialized countries. We are the only member of the G7 with both ongoing budget surpluses and a falling debt burden. Yet Ontario struggles.

Dalton McGuinty likes to blame others for his problems. But I suggest the problems, in many cases, stem from a lack of innovation, a lack of foresight and a lack of leadership.

For too long, key sectors of the Ontario economy depended on a low dollar to give them a price advantage in international markets. For too long, Ontario failed to make the necessary investments in manufacturing plants, modern equipment and public infrastructure. This resulted in a growing productivity gap with the United States.

Ontario currently ranks 15th out of 16 in GDP per capita growth when compared to the most populous provinces and U.S. states. Perhaps even more importantly, Ontario businesses have had to shoulder a tax burden that puts them at a distinct disadvantage with their competitors, in other provinces and in other countries.

Ontario's business taxes are currently the highest in Canada.

Economist Jack Mintz says that, "Ontario has one of the highest effective tax rates on capital, not just in Canada but around the [industrialized] world. The government has not understood that its policies have hurt capital investment and what it does to productivity."

The corporate income tax rate in Ontario has not been reduced since the 2001 budget, which I had the privilege of presenting as Ontario's finance minister. In fact, the corporate income tax rate was subsequently increased. Today it is only half a percentage point lower than in 2000, with no plans in place for future reductions.

If this trend continues, Ontario's Marginal Effective Tax Rate, the overall tax rate on new business investment, will be 30.7% in 2012, compared to only 18.8% in Quebec. Meanwhile, the federal corporate income tax rate will decline by more than 14 percentage points between 2000 and 2012.

Ontario fails to understand the long-term benefits of tax relief. You cut taxes to attract investment, to create jobs and to help sharpen Canada's competitive edge internationally. Ontario has eliminated capital taxes for some sectors and committed to fully eliminate them in 2010. This is certainly a positive step. But these taxes hinder new investment and job creation and should be eliminated now for businesses in all sectors.

-Jim Flaherty is Canada's Minister of Finance.
nationalpost.com/news/canada/story.html?id=322556&p=1

[gomyone]

...Ontario's ailments are largely to do with global structural changes resulting in a shifting of the manufacturing base away from the developed world towards the cheaper-cost emerging markets. Unfortunately, when the loonie was very low over the 90's, Ontario manufacturers did very little to improve productivity because they were sheltered by the loonie - now its time to pay the piper.

That said, there are certainly some policy issues regarding Ontario's economy. Flaherty can point fingers at McGuinty and some of his arguments are sound enough (Ontario's capital taxes are just too high) - but Flaherty should share some blame as well. Why on earth did he continue to cut the GST? It would have been more opportune for the entire Canadian economy to have at least some further business tax cuts etc as a way of stimulating investment instead of yet another reason to stimulate consumption spending. And now with the economy slowing, there's little revenue room left for the Feds to manueaver. And although hardly anyone will mention this, Ontario continues to get shafted by the federal equalization process - it brings in tonnes of revenue to Ottawa - which is handily doled out to Quebec and the Atlantic. No other province (even Alberta) has to shell out as much. I don't want osound like I am defending McGuinty, but the feds should share just as much of the blame.

[kramerz80]

I am proud to say I never voted for him... I knew he was a snake from the first time I saw him...