Drummond: The deficit zombies walk the streets of our town

Outline / overview• What is the game here?• Drummond key points• Drummond howlers• Framing the debate: an exercise in manipulation – Bad news / good news – what’s the starting point – The politics behind the “crisis” – Fun with figures – the black art of projections – Whatever happened to the adult conversation about taxes and public services; where’s the discussion of fiscal capacity? • How did the government manage to forget the $16 billion millstone left behind by Mike Harris? • What happened to the structural deficit inherited by the Liberals in 2003? • How can we afford a pointless corporate tax cut in a fiscal crisis?• Alternative futures – What if Drummond is right about Ontario’s real growth prospects? – And what if he isn’t?

10 20 30 40 50 60 0197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002 General Government Total Outlays National Accounts Basis -- % of GDP20032004200520062007200820092010 What this is really about … Canada United States

Forecasting good news Ontario’s conveniently conservative budget balance projections302520 2-year forecast 1-year forecast15 Budget Fall ES Next budget10 Next Fall ES (public accounts) 5 0 2009-10 2010-11 2011-12 2012-13 2013-14

Changing deficit projections Fall Statement 2009-10 to Fall Statement 2011-1230.025.020.0 Fall 2009 ES Budget 201015.0 Fall 2010 ES Budget 2011 Fall 2011 ES10.0 5.0 - 2009-10 2010-11 2011-12 2012-13 2013-14

Deficit path from peak Canada and Ontario6050 Change from peak40 estimate: 40% Change from peak Fall 2009-1030 estimate: Public Accounts 2010-11 43%20100 Federal Provincial

One size6050 Change from peak estimate: 40%40 Change from peak estimate: 43%30 Fall 2009-10 Public Accounts 2010-1120100 Federal Provincial

Does not fit all6050 Change from peak estimate: 40%40 Change from peak estimate: 43%30 Fall 2009-10 Public Accounts 2010-1120100 Federal Provincial

Projections, projections It is all in the assumptions Fun with compound arithmetic140135130125 2% nominal growth120 Real per capita 2% real growth115110105100 2012 2013 2014 2015 2016 2017 2018 2019 2020

Projections: how they shape the debate Fun with compound arithmetic A real world example160150140 2% real growth130 Real per capita 2% nominal growth120110100 2012 2013 2014 2015 2016 2017 2018 2019 2020

Ontario’s fiscal capacity crunch Another Harris legacy untouched Annual Tax Cut Impact on Fiscal Capacity in Ontario 1995-96 to 2011-12 --- Debt Carrying Cost and Revenue Loss Personal Income Tax Cuts offset by Health Premium - -2,000 Corporate Income Tax -4,000 Cuts -6,000$ million -8,000 -10,000 Employer Health Tax Cuts -12,000 -14,000 -16,000 Other Tax Cuts -18,000 -20,000 Direct Debt Carrying Cost

Fiscal crisis? What fiscal crisis? Deficit forecasts in perspective5045403530 Revised forecast25 Drummond forecast Official forecast20 Structural deficit1510 5 0 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

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Drummond: The deficit zombies walk the streets of our town

by Canadian Centre for Policy Alternatives

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