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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

Published in: News & Politics, Business
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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 0197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002 General Government Total Outlays National Accounts Basis -- % of GDP20032004200520062007200820092010 What this is really about … Canada United States
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. One size6050 Change from peak estimate: 40%40 Change from peak estimate: 43%30 Fall 2009-10 Public Accounts 2010-1120100 Federal Provincial
  7. 7. 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
  8. 8. 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
  9. 9. 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
  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 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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