Even before the recession, provincial spending was on an unsustainable trajectory. Now revenues have fallen precipitously. Last month, former central bank governor David Dodge warned governments to get their fiscal houses in order.
“Budget season is coming up,” he told The Globe and Mail in an interview. “If we don’t see a plan laid out … there is a risk that markets will begin to lose confidence in what’s going on.” Ontario in particular, he said, will have to experience serious fiscal retrenchment.
Current trends would see Ontario’s total debt balloon to more than $230-billion by 2011. Last fall, the province’s credit rating was downgraded in response to a projected annual deficit of almost $25-billion. Credit downgrades increase the cost of borrowing, making the deficit grow even faster. And provincial planners had better not count on growth in tax revenue. Ontario’s industrial base is going through a challenging restructuring and renewal process that will continue for years to come.
Meanwhile, program costs keep rising. This year Ontario is expected to be the first province requiring half of its total revenues just to pay for health care. Education costs continue to rise as well, but apparently not fast enough for the McGuinty government. The province recently announced a fully paid, all-day kindergarten program for four- and five-year-olds that will cost some $1.5-billion per year when fully implemented. Let’s hope earlier childhood education helps these youngsters shoulder their future share of Ontario’s public debt, which will be around $20,000 per capita by the time they start grade one.
Ontario’s surreal state of denial on the true scope of its fiscal challenges can’t continue much longer. Just as individuals lose control of their personal finances when debts spiral out of control, so it is with public debt. And in both cases the workout is long and painful.
Ontario is our biggest province and it’s in the biggest trouble. But it’s not alone. Alberta is running a $6.9-billion deficit, Quebec $4.7-billion, B.C. $2.8-billion, Saskatchewan $1.1-billion, New Brunswick $800-million, Manitoba $600-million, Nova Scotia $600-million, Newfoundland and Labrador $400-million, and Prince Edward Island almost $100-million.
The provinces can’t count on being bailed out by rising revenues because the economic recovery is expected to be long and ragged. And raising tax rates would be counterproductive and politically toxic. The only realistic option is to put the brakes on spending. But how?
The obvious place to start is health care, every province’s biggest and fastest rising expense. Our aging population and the higher cost of new technology made health care unsustainable well before the recession battered provincial revenues. There are three basic options for reining in costs: rationing of services, changing delivery models, and implementing user fees.
Without moving beyond our bureaucratic, monopolistic, rigidly unionized delivery system, the only option is more severe service rationing. As I witnessed in the state-run department stores of the former Soviet Union, rationing always leads to longer lineups and even worse shortages.
Independent studies rank Canada’s health care system well behind that of other developed countries. The Euro-Canada Health Consumer Index, a joint project of European-based Health Consumer Powerhouse and Canada’s conservative Frontier Centre For Public Policy, ranks the performance of our health care system as 23rd out of 30 when compared with European countries.
In the top 11 are the Netherlands, Austria, Luxemburg, Denmark, Germany, Switzerland, Sweden, France, Finland, Norway and Belgium. Little Estonia’s 12th-place ranking is 11 places ahead of Canada, which ranked just behind Slovakia and ahead of Malta. The peer-reviewed study (available online) is professional and thorough, with overall rankings developed from examination of five major categories further divided into 32 subcategories. The good news for Canadians is that once access is gained to our health care system, outcomes compared well. The bad news is that long waiting times put Canada in last place in terms of accessibility and “bang for the buck.” It’s outrageous that, with the fourth-highest per capita spending, our overall performance ranked 23rd out of 30. Increasingly inaccessible and delivering the worst value for money, the undeniable conclusion is that our health care system urgently needs major surgery.
But why is it suffering from these afflictions? A 2008 study from the Fraser Institute entitled “How Good is Canadian Health Care?” provided a diagnosis and a prescription. As the report’s co-author Nadeem Esmail said on its release: “Canada is the only OECD country that outlaws privately funded health care service. Every top performing OECD nation has some form of user-pay, private provision health care. The evidence clearly shows that these systems are delivering better health care for their citizens. Nearly 85 per cent of OECD countries also charge user fees for access to health care services such as doctor visits and hospital care. More than half of OECD countries also permit private providers to deliver publicly funded care.” So if your business is in the process of going bankrupt and your biggest division has the highest cost structure and the poorest service, you restructure or die. Will Ontario lead its provincial peers in fundamental health-care change, or simply slowly drown in a sea of red ink?