May 2, 2013
TORONTO, ON – Government plays a key role in boosting the prosperity and competitiveness of the province, especially in times of economic hardship. The task of how to improve the Ontario government’s efficiency has become a widespread topic of debate. While most observers have looked at cost-cutting measures and administrative inefficiencies within the government, a central concern is missing from the debate: how to get Ontario back on a path of strong growth. In its latest Working Paper, Making sense of public dollars: Ontario government revenue, spending and debt, the Institute for Competitiveness & Prosperity looks at how Ontario’s fiscal policy can be used as a tool for rebuilding and enhancing the province’s economic strengths.
The Institute analyzed trends in Ontario’s revenue generation and spending going back to 1989 and found that overall, the province has a number of surprising strengths. The Ontario government spends less per capita and as a percentage of GDP than all other Canadian provinces. The government has also reformed its tax structure by lowering capital and corporate taxes and introducing the HST, making the system more efficient. However, Ontario faces a number of challenges that pose a potential risk to the sustainability of the public service. The longstanding deficit and growing debt are a pressing concern as the cost of servicing debt has escalated to become the third-largest government expense after health care and education.
The Institute found that a possibly more problematic issue, though, is that Ontario is not spending in the right areas to promote economic competitiveness and growth. Its spending on education and infrastructure—the two areas most linked to productivity and economic growth—are significantly lower than that in other provinces. This means Ontario is not spending enough on investments in future prosperity.
Ontario also needs to improve on the revenue side. Changes to the tax system can be made to encourage innovation, investment and business growth. Ontario also fails to capture the full revenue its due through user fees, the Equalization system, and a complicated system that elicits aggressive tax planning.
Ontario needs to focus on what will restore economic growth. The Institute believes most of the government’s fiscal problems can be solved by creating sustainable and efficient revenue streams while spending to promote prosperity. The viability of Ontario’s public services and programs depends on strong economic foundations. Re-orienting the budget towards this goal will ease the government’s fiscal burden and make the province more prosperous and competitive for years to come.
“The best government is not a big or small one, but a smart one,” said Roger Martin, Dean of the University of Toronto’s Rotman School of Management and Chairman of the Institute for Competitiveness & Prosperity. “The government needs to apply innovative policymaking to all facets of the public sector, so that Ontarians can benefit from strong economic growth and sound public services for the future.”
Tasks for Ontario
The Institute for Competitiveness & Prosperity is an independent not-for-profit organization established in 2001 to serve as the research arm of Ontario’s Task Force on Competitiveness, Productivity and Economic Progress. The Institute is supported by the Ontario Ministry of Economic Development and Innovation. Working Papers published by the Institute are primarily intended to inform the work of the Task Force. In addition, they are designed to raise public awareness and stimulate debate on a range of issues related to competitiveness and prosperity.
The complete report can be downloaded directly from www.competeprosper.ca/index.php/media/
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