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Drummond: The deficit zombies walk the streets of our town

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CCPA Research Associate Hugh Mackenzie's presentation of his analysis of the Drummond report's fiscal and economic projections.

February 16 2012, Toronto
CCPA-Ontario “Deconstructing Drummond” Workshop

Drummond: The deficit zombies walk the streets of our town

  1. 1. 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?
  2. 2. 10 20 30 40 50 60 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 General Government Total Outlays National Accounts Basis -- % of GDP 2003 2004 2005 2006 2007 2008 2009 2010 What this is really about … Canada United States
  3. 3. Forecasting good news Ontario’s conveniently conservative budget balance projections 30 25 20 2-year forecast 1-year forecast 15 Budget Fall ES Next budget 10 Next Fall ES (public accounts) 5 0 2009-10 2010-11 2011-12 2012-13 2013-14
  4. 4. Changing deficit projections Fall Statement 2009-10 to Fall Statement 2011-12 30.0 25.0 20.0 Fall 2009 ES Budget 2010 15.0 Fall 2010 ES Budget 2011 Fall 2011 ES 10.0 5.0 - 2009-10 2010-11 2011-12 2012-13 2013-14
  5. 5. Deficit path from peak Canada and Ontario 60 50 Change from peak 40 estimate: 40% Change from peak Fall 2009-10 30 estimate: Public Accounts 2010-11 43% 20 10 0 Federal Provincial
  6. 6. One size 60 50 Change from peak estimate: 40% 40 Change from peak estimate: 43% 30 Fall 2009-10 Public Accounts 2010-11 20 10 0 Federal Provincial
  7. 7. Does not fit all 60 50 Change from peak estimate: 40% 40 Change from peak estimate: 43% 30 Fall 2009-10 Public Accounts 2010-11 20 10 0 Federal Provincial
  8. 8. Projections, projections It is all in the assumptions Fun with compound arithmetic 140 135 130 125 2% nominal growth 120 Real per capita 2% real growth 115 110 105 100 2012 2013 2014 2015 2016 2017 2018 2019 2020
  9. 9. Projections: how they shape the debate Fun with compound arithmetic A real world example 160 150 140 2% real growth 130 Real per capita 2% nominal growth 120 110 100 2012 2013 2014 2015 2016 2017 2018 2019 2020
  10. 10. 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
  11. 11. Fiscal crisis? What fiscal crisis? Deficit forecasts in perspective 50 45 40 35 30 Revised forecast 25 Drummond forecast Official forecast 20 Structural deficit 15 10 5 0 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

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