The Ontario Budget was released last week with the expected austerity measures aimed to reduce the provincial deficit. The furor over the deficit and the potential fiscal crisis was months in the making and is a throwback to the deficit reducing rhetoric of the 1990s and the Mike Harris years. The Harris platform was all about cuts to public service and social spending. The Liberals, however, are playing it like they have no choice thanks to Moody’s and the Drummond report.
Moody’s credit rating
In December, Moody’s threatened to downgrade Ontario ’s credit rating
if it did not take action to implement austerity measures to rein in their
deficits. Credit ratings are being used to discipline governments into accepting
austerity. A downgraded rating makes the province less attractive to investors.
As a result due to higher risks, money is lent at higher interest rates and
investors worry the province may default and they may not get their money back.
A panic is created because of these ratings. However,
Moody’s has been accused by some EU states of fueling the crisis by causing
further unnecessary panic by being quick to downgrade ratings that did not
really reflect the financial status of the state. The credibility of credit
rating agencies is also in question when they failed to downgrade the ratings
of corporations that caused the sub- prime mortgage crisis in 2008. At the
time, Lehman Brothers had an AAA rating, the highest rating from Moody’s and
other agencies.
Yet, the Ontario Budget makes cuts to health care and social
spending in order to avoid a downgrade in their credit rating to appease
investors. Capitalism is all about
taking risks and sometimes losses are made. But instead of the financial sector
taking the potential loss on their risk, the public is force to pay to offset
these risks unnecessarily through cuts to public services. Meanwhile, the
harmonization of the sales tax, the elimination of the capital tax, and the
reduction of corporate taxes from 14% in 2009 to 11% today has reduced
provincial revenues by about $8.5 billion annually. (1) (2)
Tax cuts for corporation does not benefit the rest of us. In Ontario, corporate profits have gone up by 19.1% in 2010 and 13.8% in 2011. (1) While, real wages have decreased by 1.3% since 2010 as most jobs are temporary or part-time. (3) We're being told we have to make do with less, but there's no austerity for the rich.
The Drummond report
The Globe and Mail referred to the hiring of Don Drummond by
the Liberals as a stroke of genius. Hardly, it was an underhanded public
relations tactic to stir up panic and the media played along. The Liberals
hired an expert who happens to be a former economist of a bank to tell people
what needs to be done, he says drastic cuts are needed or else we’re headed for
a severe financial crisis. The Liberals
implement most of the recommendations, but not all, so they can come out
looking like the good guys. The media played along saying the budget wasn’t so
bad, it could have been worse. Cuts to health care, cuts for the poor, wagefreezes, privatization of services, and no tax increases all make for a
right-wing budget. But the Liberals got someone else to do the dirty work for
them.
This isn’t the first time that the Ontario government has done this. In 1976, the Red Tory Conservatives of Bill
Davis hired Maxwell Henderson, former head of the Chamber of Commerce and an
executive of Seagrams. The report known as the Henderson report called for public sector job
cuts, privatization of services, and tuition increases, and roll-backs in the
construction of affordable housing. This
was around the time the welfare state was slowly being dismantled. Today
we have even less and it is a further race to the bottom.
1. "Ontario hopes deep budget cuts will calm debt markets". National Post. March 27, 2012. <http://www.nationalpost.com/Ontario+hopes+deep+budget+cuts+will+calm+debt+markets/6368096/story.html>
2.Valiani, Salimah. "Fixing the Fiscal House: Alternative Macroeconomic Solutions for Ontario." Ontario Nurses Association. Jan 10, 2012. <http://www.ona.org/documents/File/politicalaction/ONAResearchSeries_FixingTheFiscalHouse_20120110.pdf>
3. Reardon, Khristopher. "Ontario Workers' Wages Declining" The Arbitrage Magazine <http://www.arbitragemagazine.com/topics/finance/ontario1-workers%E2%80%992-wages-declining/>
