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

2. 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?

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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