Fiscal Alternatives to the Drummond report by FTGU
The Drummond report, to be released on February 15th, will likely recommend deep cuts to public services and other austerity measures. I spoke to Salimah Valiani, an economist with the Ontario Nurses Association, whose report Fixing the Fiscal House: Alternative Macroeconomic Solutions for Ontario, shows that Ontario fiscal crisis is exaggerated and argues that Ontario has a revenue problem and not a spending problem. It provides alternatives to the austerity measures of the Drummond report.
This interview has been condensed.
Q: In your report, you write that compared to several countries, Ontario has relatively small deficit-to-GDP and debt-to-GDP ratios. Can you explain this further?
SV: The amount of public debt that is being carried by the government relative to the wealth being produced is the debt to GDP ratio. In Ontario, it is at 34% and at the national level it is at 32%. Now this compares with about 58% for Germany; 41% for the USA and in an extreme case is Greece which is over 100%.
According to the bankers in Ontario and according to Moody’s, there’s a fiscal crisis, but when we look at the debt to GDP ratio around the world especially in rich countries, we see that Ontario has a low debt-to-GDP ratio.
The deficit to GDP ratio is also low. The deficit is the amount of shortfall for any particular year. The current rate is 3%, 3% in a capitalist economy is very standard.
Credit is a key motor of the capitalist economy and we know that as individuals. We carry debt as individuals and we don’t see that to be the end of the world. Actually, neither do the bankers. If they did, we would have even less overall wealth because people would not be able to buy and that would mean less production.
At a 3% deficit, we need to question why there is now an urge, not only on the part of Drummond, but more importantly on the part of the ruling party in Ontario and most of the opposition, to get of that 3% by 2017. We need to put that questions as Ontarians and not leave it to Drummond.
There isn’t a crisis in Ontario. Like there isn’t a crisis in Germany which is upheld as a very high performing country though it’s debt to GDP ratio is 58%. So if there isn’t a crisis, what is the fuss about?
Q: We have heard a lot about Greece and the austerity measures there. The media paints Greece as a country that has out of control spending. Your report argues to the contrary. Can you talk about the revenue problem as oppose to the spending problem in Greece and how that relates to Ontario.
SV: In Greece, when you study the longer economic history, you see there’s an incredible low rate of tax collection on the wealthy, on corporations and even on small businesses. There are also many tax breaks.
The debt that is accumulated in Greece is due to the inability of the government to collect money which then can spend socially on programs for the people. Because the revenue is so low relative to other European countries there’s social spending is low.
In Ontario, we have a similar situation, if we look at fiscal 1998 and fiscal 2003, we actually lost $6.9 billion in fiscal revenue. Why? Because of tax cuts again on corporations, companies and wealthy individuals.
That’s just a five year figure, from 2003 we have to calculate how much more have been lost. Even after the Conservative party was voted out of Ontario, the tax cuts continued and there is a plan to continue them still. We need to calculate from 2003 onwards to know further losses that have been the reality for the Ontario government. What we do know, for the calculation right now, is that Ontario is third from the bottom in terms of public social spending in Canada.
Q: How has austerity measures in Greece made things worse?
SV: Austerity is cutting public spending which targets public sector workers. What we see in Greece is a huge increase in unemployment because the public sector workers are losing their jobs and that then means that you have even less tax collection. The Greek unemployment rate is now 17% and that is at least 6% more than it was before the public spending cuts happened in 2010. We had 17.5% in 2011 and before that, it was 11.4%.
In Ontario, we have had a lot of job losses and we have a higher rate of unemployment than most of the other provinces in Canada.
If we also entertain public sector spending cuts, we’re simply going to add to the numbers of unemployed workers. Similar to Greece, we will have less fiscal capacity, more workers out of jobs and less able to pay taxes. We will dig ourselves into a further hole except that we will bring down the deficit –this is the argument that is being made.
At a 3% deficit, we need to question why there is now an urge, not only on the part of Drummond, but more importantly on the part of the ruling party in Ontario and most of the opposition, to get of that 3% by 2017. We need to put that questions as Ontarians and not leave it to Drummond.
There isn’t a crisis in Ontario. Like there isn’t a crisis in Germany which is upheld as a very high performing country though it’s debt to GDP ratio is 58%. So if there isn’t a crisis, what is the fuss about?
Q: We have heard a lot about Greece and the austerity measures there. The media paints Greece as a country that has out of control spending. Your report argues to the contrary. Can you talk about the revenue problem as oppose to the spending problem in Greece and how that relates to Ontario.
SV: In Greece, when you study the longer economic history, you see there’s an incredible low rate of tax collection on the wealthy, on corporations and even on small businesses. There are also many tax breaks.
The debt that is accumulated in Greece is due to the inability of the government to collect money which then can spend socially on programs for the people. Because the revenue is so low relative to other European countries there’s social spending is low.
In Ontario, we have a similar situation, if we look at fiscal 1998 and fiscal 2003, we actually lost $6.9 billion in fiscal revenue. Why? Because of tax cuts again on corporations, companies and wealthy individuals.
That’s just a five year figure, from 2003 we have to calculate how much more have been lost. Even after the Conservative party was voted out of Ontario, the tax cuts continued and there is a plan to continue them still. We need to calculate from 2003 onwards to know further losses that have been the reality for the Ontario government. What we do know, for the calculation right now, is that Ontario is third from the bottom in terms of public social spending in Canada.
Q: How has austerity measures in Greece made things worse?
SV: Austerity is cutting public spending which targets public sector workers. What we see in Greece is a huge increase in unemployment because the public sector workers are losing their jobs and that then means that you have even less tax collection. The Greek unemployment rate is now 17% and that is at least 6% more than it was before the public spending cuts happened in 2010. We had 17.5% in 2011 and before that, it was 11.4%.
In Ontario, we have had a lot of job losses and we have a higher rate of unemployment than most of the other provinces in Canada.
If we also entertain public sector spending cuts, we’re simply going to add to the numbers of unemployed workers. Similar to Greece, we will have less fiscal capacity, more workers out of jobs and less able to pay taxes. We will dig ourselves into a further hole except that we will bring down the deficit –this is the argument that is being made.
Does it make sense? We need to ask ourselves and we need to ask our elected officials.
Q: There’s a lot of buzz around the Drummond report being released on Feb. 15th. The report is treated like it’s the answers to all of Ontario’s problems by the mainstream media and these answers are given by one man - Don Drummond, who is the former economist for TD Bank. What else can you tell us about him?
SV: Prior to that, he was working in Paul Martin’s office back when the Canadian government decided to get rid of the debt quickly and made immense cuts in health transfers to the provinces. That was the design of Don Drummond.
Q: We’ve already heard a little bit about the contents of Drummond report such as reducing annual spending increases to 1% and 3% for health care. What consequences will this have for health care and nurses?
We also called, as part of the Ontario Poverty Reduction Strategy, for investment by both the Ontario and the Federal government to build low-income housing. We know as the nurses’ union and as average people that if people are well-housed that their health outcomes will be better and that will strengthened the labour force as well as bring down health spending.
We’re also calling for a schedule where the government can increase their revenue through taxation. Taxes that can be enforced and beef up. We need to do those calculations as a province so that we actually have a chance of getting rid of the deficit and ultimately the debt. Spending cuts won’t do it.
Q: There’s a lot of buzz around the Drummond report being released on Feb. 15th. The report is treated like it’s the answers to all of Ontario’s problems by the mainstream media and these answers are given by one man - Don Drummond, who is the former economist for TD Bank. What else can you tell us about him?
SV: Prior to that, he was working in Paul Martin’s office back when the Canadian government decided to get rid of the debt quickly and made immense cuts in health transfers to the provinces. That was the design of Don Drummond.
Q: We’ve already heard a little bit about the contents of Drummond report such as reducing annual spending increases to 1% and 3% for health care. What consequences will this have for health care and nurses?
SV: When we look at health care spending in the past few years, what we see is that the increase in spending in the health sector between 2009 and 2010 went down. In 2009, there was a 5.9 increase in health sector spending. In 2010, it went down to 3.7%. Between those two years, we had 2.2% less health spending. In about that period, we saw 2550 job losses of registered nurses in Ontario.
Now, we’re talking about 2.5% or 3$ increased in health care. This is what has been floated in the budget and in the Drummond leaks. That means we’re going to see further RN job losses.
For some time, and I show this in an upcoming book of mine called Rethinking Unequal Exchange, The Global Integration of the Nursing Labour Market, from the onset of public health care in Canada, we have undervalued nurses. Nurses are the primary labour force in the system. They are the workers in the hospital, which is the biggest place of health delivery, 24 hours a day, 7 days a week. That is the only labour force that is there at all times.
From the beginning, we had costs constraints. We had policies of limiting health spending or reducing health spending. As a result, we have poor working conditions for nurses. What we are seeing now is an intensification of a long standing pattern.
What we’ve seen in research is that when you have more RNs, you have better rates of curing patients and getting them back home. While we think we are saving money, when we get rid of nurses, we aren’t because people will not be fully cured. They will go home and they will need to come back to the hospitals for more services.
Q: Isn’t there a nursing shortage in Ontario?
SV: The shortage discussion isn’t happening . But there’s definitely a shortage of nursing positions. We don’t have enough nurses working. That’s not because we don’t have enough nurses. It’s because we don’t have enough commitment from government and employers to create nursing positions.
Q: What are the alternatives?
Now, we’re talking about 2.5% or 3$ increased in health care. This is what has been floated in the budget and in the Drummond leaks. That means we’re going to see further RN job losses.
For some time, and I show this in an upcoming book of mine called Rethinking Unequal Exchange, The Global Integration of the Nursing Labour Market, from the onset of public health care in Canada, we have undervalued nurses. Nurses are the primary labour force in the system. They are the workers in the hospital, which is the biggest place of health delivery, 24 hours a day, 7 days a week. That is the only labour force that is there at all times.
From the beginning, we had costs constraints. We had policies of limiting health spending or reducing health spending. As a result, we have poor working conditions for nurses. What we are seeing now is an intensification of a long standing pattern.
What we’ve seen in research is that when you have more RNs, you have better rates of curing patients and getting them back home. While we think we are saving money, when we get rid of nurses, we aren’t because people will not be fully cured. They will go home and they will need to come back to the hospitals for more services.
Q: Isn’t there a nursing shortage in Ontario?
SV: The shortage discussion isn’t happening . But there’s definitely a shortage of nursing positions. We don’t have enough nurses working. That’s not because we don’t have enough nurses. It’s because we don’t have enough commitment from government and employers to create nursing positions.
Q: What are the alternatives?
SV: In my research paper which is an attempt to question the premise of the Drummond Commission, I talk about some approaches that have been taken in China and Brazil to actually deal with economic crisis post 2008. Part of the measures adopted in those major economies has been government spending in order to increase domestic demand.
If you have public investments, you will put more people to work precisely at a time when companies claim that they have falling profits and cannot employ people or need to get rid of people which we are currently seeing.
In China, for example, they were poor in providing health care in rural areas. In 2009, they invested $3.4 billion US for grassroots health care. This was part of a huge stimulus plan $632.5 billion US which is a real stimulus unlike what happens in Canada.
It was targeted to creating hospitals, community health service centres in all kinds of townships. They also targeted health measures to help rural women who are some of the lowest income earners in China. So different types of testing provided for these women, preventative measures, and different funding to help give birth in a hospital where conditions are safer.
In Brazil, you had something similar. In March 2009, Brazil spent $18.3 billion US to create public housing. The government acknowledge that when you have women running the household and having the houses in their name, more property rights for women, you had more wealth distribution.
These are the kinds of the things that have been going on in the past few years. This is not unheard of in the current global economic moment, but we don’t have such discussion in Canada. I believe these are alternatives and that we need to think about them. The fact is that we are seeing steady profit rates of corporations in Ontario; we’re seeing growing inequality. We need to think about these types of measures to get people back to work and turn our society into a healthy one.
Q: What are the next steps for ONA?
SV: We’ve made some recommendation prior to the Drummond release and the budget. The budget is the real place where we will be making interventions and that will be coming up at the end of March.
Given that we have a low rate of RNs per population in Ontario relative to the rest of the country, we’re calling for 9000 new full-time RN positions and we’re demanding that they be permanent positions. That’s a way to fix our health care system which has been chugging along with problems for a while now.
If you have public investments, you will put more people to work precisely at a time when companies claim that they have falling profits and cannot employ people or need to get rid of people which we are currently seeing.
In China, for example, they were poor in providing health care in rural areas. In 2009, they invested $3.4 billion US for grassroots health care. This was part of a huge stimulus plan $632.5 billion US which is a real stimulus unlike what happens in Canada.
It was targeted to creating hospitals, community health service centres in all kinds of townships. They also targeted health measures to help rural women who are some of the lowest income earners in China. So different types of testing provided for these women, preventative measures, and different funding to help give birth in a hospital where conditions are safer.
In Brazil, you had something similar. In March 2009, Brazil spent $18.3 billion US to create public housing. The government acknowledge that when you have women running the household and having the houses in their name, more property rights for women, you had more wealth distribution.
These are the kinds of the things that have been going on in the past few years. This is not unheard of in the current global economic moment, but we don’t have such discussion in Canada. I believe these are alternatives and that we need to think about them. The fact is that we are seeing steady profit rates of corporations in Ontario; we’re seeing growing inequality. We need to think about these types of measures to get people back to work and turn our society into a healthy one.
Q: What are the next steps for ONA?
SV: We’ve made some recommendation prior to the Drummond release and the budget. The budget is the real place where we will be making interventions and that will be coming up at the end of March.
Given that we have a low rate of RNs per population in Ontario relative to the rest of the country, we’re calling for 9000 new full-time RN positions and we’re demanding that they be permanent positions. That’s a way to fix our health care system which has been chugging along with problems for a while now.
We also called, as part of the Ontario Poverty Reduction Strategy, for investment by both the Ontario and the Federal government to build low-income housing. We know as the nurses’ union and as average people that if people are well-housed that their health outcomes will be better and that will strengthened the labour force as well as bring down health spending.
We’re also calling for a schedule where the government can increase their revenue through taxation. Taxes that can be enforced and beef up. We need to do those calculations as a province so that we actually have a chance of getting rid of the deficit and ultimately the debt. Spending cuts won’t do it.
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