The Inside Agenda Blog

Agenda Insight: Debt, Dumb Policy, and Hydro

Thursday April 19, 2012

Most Ontarians would probably be surprised to learn that our provincial government is the most efficient in Canada. No, that is not a punchline. Queen’s Park spends less per capita than any other provincial government. As Don Drummond’s report pointed out, the quality of the services delivered is high, if you grade on the curve and compare us with the other nine provinces. The bad news is that Ontario has no choice but to be the most efficient partner in Confederation: this is a low revenue province, with relatively low taxes, a federal system that takes more out of Ontario than it puts back in, and unlike the rest of the country, we won’t be seeing a resource royalty windfall. As a result, and despite Ontario’s comparative frugality, Drummond concluded that we’re facing a future of intractable budget deficits, unless the province significantly cuts spending—and more importantly, gets smarter about how it spends.

In most areas, getting smarter will be a challenge. Take health care: Drummond called for the system to become far leaner, essentially capping real spending increases at zero for the next five years. No public health care system has ever been able to do that for long. The same difficulties attend any attempt to radically reform education, social services, colleges and universities, or virtually anything else that Queen’s Park does. If delivering more for less were easy, it would have been done a long time ago.

But there is one exception: electricity. The power system is the one place where saving billions of dollars for taxpayers, consumers, and businesses is a no brainer. No great policy experiments need be undertaken, no untried ideas need be put into practice, no painful negotiations with public sector workers are called for. All Ontario has to do is run its power system the way most of the rest of North America does, and the way this province once did. That alone will deliver a gusher of savings.

Thanks to the Green Energy Act, a power scheme that is as ecologically ineffective as it is economically incoherent, Ontario is well on its way to having the most expensive electricity on the continent. Most of this is due to a massively expensive push to convert a small portion of Ontario’s electricity production to costly, highly subsidized, solar and wind power. Since politicians realize that most people don’t like to see their hydro bills skyrocket, the next stage of the plan has been for the province to borrow even more money, further driving up the provincial deficit, in order to subsidize your hydro bill. The Ontario Clean Energy Benefit—10 per cent off your hydro bill, paid for with debt—costs the province more than $1 billion a year.

If the McGuinty government simply yelled “stop,” the province’s finances would be in better shape, and more importantly, so would the bottom line of consumers and businesses. That last group is key: if Ontario is going to have the best public services in the world—this province must generate more economic growth. We can only do that by being smarter and more efficient than our neighbours. A policy that artificially drives up the cost of living and doing business in Ontario? They do not come any dumber.

For The Agenda with Steve Paikin, I’m Tony Keller.