Pink Mausoleum Blues – What Hurts Ontario Hurts Canada

Commentary, Equalization, Frontier Centre, Worth A Look

It might shock – and will offend – many Canadians to learn that what happens at Queen’s Park, the centre of Ontario’s government, is more consequential for the country than it has ever been.

For decades, Ontario just rolled along, because its economy rolled along, encountering the odd bump or pothole but producing affluence that could be spread across Canada.

The country’s equalization program ran off Ontario’s affluence, and that of Alberta. Federal programs were quietly designed to provide more money, per capita, to other provinces than Ontario because, well, Ontario could afford it. All other regions disliked Ontario, or thought the province too rich, so no federal government saw a political downside to this jigging of federal programs.

Ontario had banks and financial services, universities, big manufacturing industries (auto being the leader), high technology, cultural industries, lots of immigrants, and growth. Would other regions not have died for more?

Starting imperceptibly several decades ago, however, Ontario’s economy began to lose steam. Now it’s come to a stop. The consequences for province and country are immense.

Alberta’s economy has nose-dived, in a way; tough times are undoubtedly at hand. The B.C. economy has hit the skids. And no sooner did the happy day arrive for Newfoundland to escape equalization than the recession struck. But these provinces (and Saskatchewan), struggling today, can look forward to brighter days when the recession ends, because commodity prices will recover, especially fossil fuels.

Quebec has its precious hydro. But as Ontario slumps, Quebec will have to further intensify its political efforts to keep Ottawa siphoning money from Ontario to Quebec. Without the billions transferred to the province from Ontario and Alberta taxpayers, Quebec’s budget would be a mess – as would Manitoba’s and the four easternmost provinces’.

So how Queen’s Park responds to Ontario’s crisis – a word that should be used sparingly – will affect all Canadians.

Ontario’s deficit is set to explode beyond anything elsewhere in Canada. We can easily forget that, even in the fat years, Ontario almost always ran deficits, too, albeit much smaller ones than those that now beckon.

The province’s fiscal underpinnings were weakening even though, superficially, it appeared they were strong. The health-care budget, in particular, was growing so fast it enfeebled the rest of the budget.

Ontario’s auto industry is almost beyond saving, at least the North American companies. Some shrivelled portion of it can only be rescued at exorbitant cost to taxpayers.

It was argued in this space six weeks ago that demanded bailouts were only forestalling bankruptcies. The companies and union can argue about pension liabilities and a host of other factors to explain their agonies. What they do not say – because it would be too painful to admit – is that their products are inferior, and have been for a long time.

Check the market shares over time for North American and imports in almost all categories. More tellingly, check consumer magazines that rate cars. In almost every category, imports capture most, if not all, of the top 10 models. The market, over time, hasn’t lied.

The idiocy over whether Ontario cabinet ministers drive locally made or imported cars illustrates the classic case of political diversion away from painful realities. The consumers will continue to speak.

So the industry, Ontario’s staple, is in its death throes, with dire consequences for suppliers and retailers. Forestry, the mainstay of the north, is writhing; mining has been hit by commodity price declines and high costs. Universities are buckling under the reduced value of endowments and revenue shortfalls.

High technology has collapsed in Ottawa and elsewhere; the collapse of Nortel was devastating to the Ontario economy. The cost of energy must soar, because the province is betting on expensive renewables and hugely costly (and unpredictable) nuclear.

The fixed costs of government – municipal, school board and provincial – remain very high. Cutting those costs, politically, is impossible.

All of which means that, after years of focused attention on Ottawa and Quebec City, the government that really counts today sits in the Pink Mausoleum at Queen’s Park.