From the Wires
The Fraser Institute: McGuinty Ranked Eighth Out of 10 Premiers for Managing Provincial Finances; Successor Must Deal With Legacy of Poor Fiscal Management
By: Marketwired .
Dec. 6, 2012 06:32 AM
TORONTO, ONTARIO -- (Marketwire) -- 12/06/12 -- Outgoing Ontario Premier Dalton McGuinty has one of the worst records among Canadian premiers for managing provincial finances, according to a new analysis of the fiscal records of 10 Canadian premiers, released today by the Fraser Institute, Canada's leading public policy think-tank.
But with Premier McGuinty poised to step down, whoever succeeds him has an opportunity to break from past fiscal policies and focus efforts on improving the management of Ontario's finances, says Charles Lammam, Fraser Institute economist and co-author of Measuring the Fiscal Performance of Canada's Premiers 2012.
"Research shows sound fiscal policy is a key determinant of a province's long-term economic success. Unfortunately, when Premier McGuinty leaves office, he will have left a legacy of poor fiscal management in comparison to the records of other Canadian premiers," Lammam said.
Measuring the Fiscal Performance of Canada's Premiers 2012 ranks McGuinty eighth overall with a score of 28.9 out of 100. Only Robert Ghiz of Prince Edward Island (23.5 out of 100) and Greg Selinger of Manitoba (19.2 out of 100) scored worse.
Kathy Dunderdale (Newfoundland and Labrador) ranked first overall with a score of 71.4. David Alward (New Brunswick) placed a close second, scoring 70.4, while Brad Wall of Saskatchewan ranked third (61.6) and British Columbia's Christy Clark was fourth (60.8).
The report measures the fiscal performance of 10 Canadian premiers relative to each other (eight current and two former) during their time in office up to the 2011/12 fiscal year. Each premier received an overall score (out of 100) and rank (out of 10) based on their performance on three components of fiscal policy: government spending, taxes, and debt and deficits.
A large body of academic research shows that excessive increases to government spending can hinder an economy's performance.
McGuinty ranked ninth overall on the government spending component with a score of 12.3 out of 100. New Brunswick's Alward was first on this measure with a score of 88.5.
While in office, McGuinty increased program spending by an average of 6.1 per cent annually-nearly twice the combined rate of inflation and population growth (3.1 per cent) and well over Ontario's annual economic growth rate (3.6 per cent).
"Premier McGuinty resorted to a combination of tax hikes and increased debt to finance large spending increases. This inability to prudently manage government spending was his major failing," Lammam said.
Tax rates and the structure of the tax system have a significant impact on incentives that influence whether businesses and individuals engage in productive economic activity.
McGuinty fared better on tax policy, ranking fifth overall with a score of 54.8, one of only five premiers to score above 50.0. Alward again topped the rankings with 87.6 out of 100.
"Premier McGuinty increased several taxes shortly after coming to power in 2003 but reversed course in 2009 when he announced several tax reforms," Lammam said.
"Unfortunately, earlier this year he indicated that Ontario will not follow through on plans to reduce its corporate tax rate to 10 per cent by 2013, a plan that would have improved the provincial investment climate."
Debt and Deficits
Debts and deficits are a critical aspect of fiscal performance because annual deficits increase the overall level of government debt, requiring more tax dollars to be spent on interest costs and less on public services and tax relief.
McGuinty scored 19.7 out of 100 on the debt and deficit measure, ranking him ninth overall. Newfoundland's Dunderdale and Saskatchewan's Wall tied for first, each scoring a perfect 100 for averaging a budget surplus during their tenure and reducing the share of government debt in the provincial economy.
McGuinty, on the other hand, averaged a deficit over his tenure and increased Ontario's debt to 36.0 per cent of the economy in 2011/12 from 28.2 per cent in 2003/04. A $14.4 billion deficit is planned for 2012/13 with deficits expected to continue until 2017/18.
"Ongoing deficits and increased government debt will be a drag on economic growth and add to the burden of repayment for Ontario's next generation," Lammam said.
"Since we began measuring the fiscal performance of Canadian premiers, Premier McGuinty has consistently been ranked among the bottom three. Now with Premier McGuinty stepping down, his successor has an opportunity to better manage provincial finances and set the foundation for a stronger Ontario economy."
The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.
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