Extreme restraint could deep-six more than wages and public services

Dalton McGuinty may well need to consider the age old question, which came first, the chicken or the egg?

Commenting last week on the preliminary recommendations of the Drummond Commission, McGuinty said government spending will have to be limited to increases of only 1 per cent per year to 2018. He says this will be necessary because of the slow economic growth former bank economist Don Drummond is predicting over the next six years.

The problem is, government spending is part of that economy, and if the government cuts back to one per cent, it will also have a direct impact on private sector growth. In other words, cutting government spending may ensure growth rates do remain slow, or possibly even take us back into an economic recession.

If inflation remains at three per cent or better, that means a real cut of as much as 20 per cent to the public sector by 2018.

And that’s not the worst of it.

According to Canadian Press, the government plans to hold health care increases to three per cent per year. At 42 per cent of program spending, that means everything else – including education – would have to be spending less than they are today by 2018-19.

Setting aside the fact that the Ontario Auditor found 3.6 per cent an “aggressive” target for health care restraint, zero or less for everything else confirms all the talk about tackling the social determinants of health would be just that – talk.

That means a greater impact on threadbare health care budgets that are already being asked to cope with the impact of population growth and aging.

If the government was worried about consumer confidence, McGuinty’s comments should confirm the worst fears of the middle class, particularly those working in the public sector.

Coming out of two years of wage restraint, it will simply get ugly if the Liberals try to extend it another six years.

Who would dare make a major purchase with the prospect of such a significant decline in their standard of living? That includes the purchase of automobiles, which are a huge part of Ontario’s manufacturing economy.

The public sector also makes up much of the remaining workforce in the quickly declining middle class. A last final assault on the middle class will create a significant social gap that threatens to destabilize the economy further.

Don Drummond was told he could not make any recommendations that involved raising taxes. That includes reversing the $2.4 billion in corporate tax cuts the province has phased in. This is despite an already competitive tax environment for corporations.

It is not hard to see who is going to be paying the price for 30 years of NeoLiberal free-market policies. Here’s a clue: it won’t be Canada’s top corporate CEOs. They averaged an increase of more than 13 per cent last year.