Introduction: The Age of Anxiety
Canadians – and Ontarians – are worried about the future.
According to an October 2013 report by the EKOS polling firm, 48 per cent of Canadians expect that the next generation will be worse off, 25 years from now, than people are now. In Ontario, this number was 59 per cent – more than five times the number who thought the next generation would be better off. A January 2014 report by the Pollara polling firm indicated that 37 per cent of Ontarians think it is very or somewhat likely that a member of their immediate family will lose his or her job in the next twelve months; this number appears to correspond to the 38.5 per cent who told EKOS that “I feel I have lost all control over my economic future” last fall. Pollara’s research found that 57 per cent of Ontarians believe the economy is in recession (even higher than the 52 per cent found in the EKOS survey), even though real growth in the economy resumed in mid-2009.
Economic concerns are linked to people’s ability to feed and house their families, pay their bills, and save for post-secondary education or retirement. It is no surprise that they form a major part of Ontarians’ concerns about the future. But when asked about their deepest concerns, economic issues did not eclipse issues related to politics and public morality. In the EKOS survey, respondents chose “Acute decline of our democratic and public institutions” as their paramount concern for the future, with concerns about health, the environment, corruption, and the economy ranking lower.
The idea that issues around democracy and ethics could eclipse bread-and-butter economic concerns in the public mind may seem surprising, yet it makes perfect sense: Canadians see the honesty of our politicians and the integrity of our public institutions as fundamentally central to solving our economic (and social, and environmental) problems. Yet to a large degree, citizens hold out little hope that politicians will work towards a better future for all, says EKOS President Frank Graves:
[V]oters seem to think that all choices lead to the same outcome: governments run by parties which place their own interests and the interests of the powerful ahead of those of the public. In fact, if we were to isolate the one factor driving declining trust in government it would be just that: the corrosive belief that the public interest has been subordinated to other interests in modern politics.
Politicians have certainly acquitted themselves poorly of late. In the past year, Ontarians have seen the Senate expense scandal consuming political debate at the federal level; revelations of gross waste of public dollars for political advantage at the provincial level; and exceptional displays of narcissism, lying, and criminal conduct by prominent municipal politicians. Yet public mistrust of our leaders goes beyond politicians. Increasingly, citizens around the world are casting a skeptical eye on the links between political and business leaders. So while the October 2013 EKOS survey found “Economic decline in the United States” as the number one driver of recent economic stagnation in Canada (a reasonable enough choice), respondents ranked “Corporate greed and corruption,” “Our leaders failing to create a blueprint for success,” and “An excessive share of profits going to the wealthy” close behind.
If polls are to be believed, the majority of citizens simply don’t believe their leaders care about their problems. And they don’t know what to do about it.
When weather-related insurance claims in Canada are at record levels, Ontarians know that something must be done to protect the economy and the environment and save human lives from increasingly frequent flooding, ice storms and heat waves. When they are waiting longer to see a doctor than citizens in other developed democracies, Ontarians know that the public services deficit in this province is reaching unacceptable levels. When more and more jobs offer only part-time, temporary work with poor or non-existent benefits and minimum wage rates that keep even full-time workers locked in poverty, Ontarians know that our economy is not being managed in their interests. The anxiety Ontarians feel today is the result of not just years, but decades, of political and economic change designed to transfer wealth and power from working people to a small ruling elite.
How We Got Here: Turning Points
The period immediately following World War Two was a time of rising prosperity in Ontario. Anchored by a booming auto industry that had produced over 800,000 vehicles for the government-funded war effort, Ontario industry quickly converted to producing consumer goods for a North American population that had “gone without” for much of the 15 years of the Great Depression and the war. The legal foundation for a successful trade union movement was laid out in a landmark arbitration ruling by Supreme Court Justice Ivan Rand in 1946, and rising union density was accompanied by rising wages across the economy. Successive provincial governments of the postwar era built roads, schools, and hospitals with steady determination and did not hesitate to borrow the money or raise the taxes needed to do so. Explaining the need for a new three per cent retail sales tax – at a time when the province’s corporate income tax rate was 52 per cent and the economy was in recession – Ontario Treasurer James Allan told the legislature in 1961 that
…a further postponement of the imposition of a sales tax could only be realized at the expense of imperiling our financial position and therefore our capacity to assist our municipalities and our ability to promote the orderly extension of services, without which communities cannot grow nor industry expand. Lack of action at this time would only undermine our financial position, jeopardize our credit and slow down the rate of our economic expansion both now and in the future, thus detracting from rather than contributing to high and stable levels of employment and income.
We must face up to realities. The program we have announced is designed to promote expansion and increase employment. If we forego the revenue from our sales tax, we must cut back on our services, our capital works and our assistance to municipalities and school boards. I think you will agree that at this time – when the pace of our economy has slackened – we need courage, vision, enterprise and bold action. The Budget that I am introducing today responds to this need.
A few years after introducing the sales tax, the 1960-61 recession was in the rear view mirror and the same Treasurer could report in 1964 that “Reviewing the economic conditions of the past year is a pleasure.” The Auto Pact, signed in 1965, encouraged economies of scale and guaranteed the Canadian auto industry a proportional share of the North American market. The Auto Pact was emblematic of the successful “managed trade” approach taken by Canadian governments at the time. Government policy sought “human betterment” and prosperity through active government support of both people and industries:
For our own part, we have continually sought to provide the environment in which growth can flourish. Indeed, we have initiated many far-sighted policies designed to exert a positive influence upon the economy. In the field of social services, we have diligently striven to promote the development of human resources and thereby assist our people and industry in achieving their maximum potential. The creation of new physical assets in the form of universities, schools, hospitals, highways, parks and other public works, and the development and conservation of our natural resources have also been important economic stimulants. In these and other ways, we have contributed in no small measure to our economic progress and rising living standards.
Managed trade, strong trade unions, and muscular government that was unafraid to invest in the province and its people – and unafraid to pay – laid the foundation for an economy that made Ontario the unchallenged leader in confederation. This happy condition would persist until well into the 1980s.
The Canada-U.S. Free Trade Agreement (FTA) which came into force on January 1, 1989 began a restructuring process that has fundamentally changed the economy of the country overall and Ontario in particular. Six years earlier, not-yet-Prime-Minister Brian Mulroney had commented that “All that would happen with free trade would be the boys cranking up their plants throughout the United States in bad times and shutting their entire branch plants in Canada.” And while Mulroney famously changed his mind about free trade, his prediction came true nonetheless, and much of Canada’s industry re-located outside the country.
Opponents of the FTA had warned that reducing restrictions on capital flows across the Canada-U.S. border would put downward pressure on Canadian tax rates and reduce the funds available for public services like Medicare. This premonition came true with the election of the Mike Harris government in 1995.
The centerpiece of the Harris program was tax cuts. Harris vowed to cut Personal Income Tax (PIT) rates by 30 per cent, and he did so. In 1999, Harris promised to reduce the PIT by a further 20 per cent, and by the time of the 2000 budget, then Finance Minister Ernie Eves could boast that the government had made 99 tax cuts since being elected, including a reduction in the Employer Health Tax and various targeted tax deductions for business.
Tax cuts, of course, demand cuts to program spending; annual program spending in the Harris-Eves era fell from 17.7 per cent of Gross Domestic Product to 13.6 per cent (equivalent to a reduction of roughly $28 billion based on the size of the Ontario economy today). Hard-hit were public service employees, who saw their numbers reduced by more than 20,000, and social assistance recipients, who saw their incomes reduced by 22 per cent – a number which grew even larger, in real terms, as a result of inflation. It was in the Harris years that homelessness made itself visible on our city streets.
Program spending recovered to some degree with the election in 2003 of Dalton McGuinty and the Ontario Liberal Party, but the current government’s stated goal is to return program spending to 14.5 per cent of GDP by 2017-18. The Liberal plan is to be accomplished by sustained program cuts. The 2012 Ontario budget, the government’s long-term blueprint, called for six years of cuts in real program spending over the six-year period.
In 2014, what the Wynne government has yet to acknowledge is the deep hole in the budget caused by the tax cuts of the Harris years. While the introduction in 2004 of the Ontario Health Premium is currently recovering some $3 billion a year to public coffers, Liberal cuts to the Capital Tax, corporate income tax rates, and personal income tax rates are costing the government just as much. The net result is that, more than 18 years after Mike Harris was first elected, the province has more than $18 billion a year less to spend (see chart). In other words, the provincial budget deficit, most recently estimated at $11.3 billion, would not exist if tax rates had remained at their 1995 levels.
This is the fiscal context for the Ontario government in 2014.
Assessing Our Needs, Proposing Solutions
The budgeting method used by James Allan, Ontario Treasurer from 1958 to 1966, took a markedly different approach from the one employed by Ministers of Finance in recent years. To begin with, Allan’s calculations around his budgets began with an assessment of needs, not costs. Principal needs were those of people, which could be met by public services, or the economy, which could be met by public infrastructure (including the development of human infrastructure through education, health care, and social services). Once needs were established, the Treasurer then looked for financial resources to meet those needs.
In recent years, the province has often seemed to care more for the needs of its corporate executives and its creditors than its citizens. In the 2009 Ontario budget, for example, we saw the announcement of cuts to the corporate income tax rate and the continued phase-out of the Capital Tax, even though both of those measures transferred money directly from people (and the public services they need) to businesses. Tax cuts have also increased the provincial deficit. The introduction of the Harmonized Sales Tax (HST) in July 2010 transferred money from citizens to businesses, and the income tax cuts designed to offset those extra costs have been paid for out of reductions in public service – in other words, paid for by citizens. Not unlike the Harris-era income tax cuts that went disproportionately to the highest-income earners, the shuffling of dollars to the benefit of well-heeled business interests in the McGuinty era did little to lessen the anxiety that many citizens were experiencing. And while the fixation on the provincial deficit no doubt allows the province’s creditors to sleep comfortably at night, most citizens may be forgiven if they are more concerned about their own debts, which are now at record levels, or the public services they cannot get access to because of relentless budget cuts.
Jobs and Income
The imbalance Ontarians see in the handling of public finances is paralleled by an imbalance in the labour market. Median incomes for working people in Ontario have been stagnant for a generation; the only change has been that incomes at the lower end of the spectrum are falling while those at the higher end are increasing. Many households have compensated for wage stagnation by taking on more debt (as noted above) and working more hours, yet their venture into today’s fragmented workforce often finds them in part-time or temporary work, or low-paid self-employment. In the Greater Toronto and Hamilton Area, “Barely half of those working today are in permanent, full-time positions that provide benefits and a degree of employment security.” “Precarious” work, as it is called, is especially concentrated among racialized workers and women.
On the wage front, women in Ontario earned just 68.5 cents for every dollar a man earned in 2011, down from the 2010 level of 72 cents, and large sections of the population – male and female – now find themselves in low-income work. Nine per cent of the population is now working for the minimum wage of $10.25 an hour (double the rate of a decade ago), and 28 per cent of the workforce earns $14.25 an hour or less. Meanwhile, at the other end of the spectrum, Canada’s 100 highest-paid CEOs received average compensation of nearly $8 million each in 2012, a number equal to 171 times the average wage of a full-time full-year worker.
Income inequality has reached epidemic proportions in Canada – and in Ontario.
There can be little dispute that one of Ontario’s most pressing needs is more jobs, with better incomes and more stability, for more people. To understand what needs to be done, we need to look first at what is – or isn’t – driving economic growth.
In the first years of this century, from 2000 to 2007, Ontario’s economy was driven by strong household spending, strong government spending, and some business investment. Exports played a major role in keeping Ontarians working, but the money earned through those exports was less than the money needed to pay for imports, so net trade did not add to GDP growth overall.
In the period from 2008 to 2012, household spending fell as people lost jobs and wages to the Great Recession; government spending stayed steady as the Ontario government, like governments around the world, moved to stabilize the economy with stimulus spending in the form of infrastructure investment; business investment was negative; and net trade did not improve.
Looking ahead, Ontarians are now living in a time when government spending is negative and wages for workers in the provincial public sector have been driven below the rate of inflation as a result of the austerity policies the government first announced in 2010 and began to enact with increasing determination with the 2012 budget. Both measures are keeping the economy weak. To repair Ontario’s economy – and provincial finances – after the recession, three main things are needed: first, boosting domestic demand by putting more Ontarians back to work and restoring spending power for working people; second, further boosting demand and meeting people’s needs by increasing government spending on vital public services and infrastructure; and third, improving the trade picture by selling more exports, buying fewer imports, or both.
It is not as if the province is broke. Despite the recession, Ontario’s GDP is higher than it has ever been. More importantly, Ontario’s GDP per capita, which peaked in 2007 before the Great Recession, is now less than one per cent below that all-time record, and based on ordinary estimates of population and economic growth, will surpass it sometime in the first quarter of 2015. There is more money in this province than ever before.
The problem, however, is that it is more unfairly distributed than ever before. As Statistics Canada pointed out in December 2013, the richest one per cent of Ontarians now collect 12 per cent of the income in this province, a rate second only to Alberta. Canadian corporations, meanwhile, are hoarding some $626 billion in cash that they are not investing. The reason for this is simple: their customers are broke – up to their eyeballs in debt. Until we shake loose some of this so-called “dead money” corporations are holding, consumer spending is likely to remain weak.
Of course the money in the corporate cash hoard is not, strictly speaking, “dead.” A more accurate term is “unemployed.” The fact that unemployed money and unemployed labour are unable to find each other points out a real flaw in our economic system – a flaw that can only be corrected by government intervention.
Ontario has now reached the point in the Monopoly game where one player, the corporate sector, holds most of the cash while the other players are barely scraping by, rolling the dice and hoping to survive another turn. A new game is needed in Ontario, and one way to start it is with tax fairness. Both Prime Minister Stephen Harper and former Ontario Premier Dalton McGuinty tried to stimulate business investment with corporate tax cuts, but that failed: it gave corporations more money but did nothing to make new investment happen. What will cause new investment is increasing aggregate demand via more spending in the economy. The simplest thing to do, under the circumstances, is for government to raise money through tax fairness measures and then plow it back into the economy in the form of the public services and infrastructure Ontarians need.
Public spending is a key pillar of our economy. It supports the physical, legal, and human infrastructure the economy needs, it provides much-needed jobs, and it can sustain the economy when the private sector stalls. OPSEU supports increased funding for public services and public infrastructure. Specific tax measures to support public spending are discussed below.
But government spending is not the only means to build consumer spending in Ontario.
It is well known that low-income workers spend all of their income, and spend it where they live. Unlike wealthier individuals, who may take trips abroad, invest in foreign stocks, pay down debt, or simply add to their savings, low-income workers have no choice but to spend all their money on basic necessities. Hence, an increase in the minimum wage to a rate above the poverty line – $14 an hour, say – would have the double effect of not only raising living standards for low-income workers, but of increasing aggregate demand as well, thereby creating employment. OPSEU supports the call for an increase in the legislated minimum wage to $14 an hour. We also support measures to strengthen employment standards enforcement, eliminate pay discrimination, and improve job stability and incomes for Ontarians in part-time and temporary “precarious” work.
Consumer spending power grows when strong unions are able to negotiate fairer wages for the workers they represent. Ontario needs legislation to make union organizing and collective bargaining easier, not harder.
Some critics suggest that labour laws designed to help unionized workers negotiate fair wages for themselves are driving jobs out of Ontario. This is incorrect.
When Heinz recently announced the closure of its plant in Leamington, Ontario, it also announced the closure of a plant in Florence, South Carolina, which already had rock-bottom labour costs.
Kellogg’s recently announced the closure of its cereal plant in London, Ontario but has also locked out its workers in Memphis, Tennessee for refusing to go along with the company’s plan “to replace steady, middle-class, full-time jobs with casual, part-time employees who would make significantly lower wages [$6 less per hour] and substandard benefits.”
For workers on both sides of the border, the issue is not labour law, but the kind of corporate greed that pays $6.6 million a year for Kellogg’s CEO John Bryant while laying waste to the middle-class working class.
What is needed, clearly, is government action to help workers succeed, whether through a higher minimum wage and stronger employment standards or through worker-friendly labour laws. All measures designed to put money in workers’ pockets will help the economy recover and reduce income inequality at the same time. Measures designed to weaken unions, as have been proposed by Ontario PC leader Tim Hudak and members of his caucus, can only result in lower wages, reduced benefits, and increased insecurity around retirement for all workers. By weakening unions, Hudak’s proposals would also reduce consumer spending and weaken the economy generally. A fair economy is a strong economy.
A modern industrial strategy
These days, almost all workers are finding it hard to get ahead in the face of rising corporate greed. Manufacturing workers in Canada face an additional challenge: the consolidation of production south of the border. As noted above, this consolidation was predicted by opponents of the Canada-U.S. Free Trade Agreement in the 1980s. Even so, Canadian manufacturing did recover from the shock of the FTA and the subsequent inclusion of Mexico in a larger North American Free Trade Agreement (NAFTA), and by 2002 manufacturing employment had reached a new peak. The cause had nothing to do with the percentage of unionized workers in manufacturing, which changed only a little during that era, and everything to do with the value of the Canadian dollar. In 2002 the dollar fell below 62 cents U.S. Within five years, though, one Canadian dollar was once again buying one U.S. dollar, and as the dollar rose, manufacturing employment fell.
According to the Organisation for Economic Cooperation and Development, whose members are the top industrialized countries, the actual value of the Canadian dollar should be in the range of 81 cents U.S. At this level, the lower price of Canadian manufactured goods and services would allow Canadian exporters to make new inroads into U.S. and other markets, but without driving down workers’ wages (and consumers’ spending power) as some have proposed. (In the current environment, where the Bank of Canada fears deflation more than inflation, prices are unlikely to rise to any significant degree until such time as the economy is working much closer to full capacity.)
Fortunately for Ontarians who care about manufacturing, which is a highly productive sector with significant economic spin-offs, the value of the Canadian dollar may be returning to its “natural” level, quietly aided by the Bank of Canada. The latest rate, in the neighbourhood of 90 cents U.S., is a significant improvement over recent levels. We can expect to see corresponding improvements in Ontario’s net trade picture before long. These can only help the province do a better job of meeting the needs of its citizens.
The “hands-off” approach to economic policy that has characterized Canadian economic and monetary policy over the last three decades is based on the idea that government can best increase the general welfare by removing rules and regulations that limit the freedom of capital. But the general welfare of citizens has not improved as a result of weakened labour and environmental protections, free trade deals, privatization and cuts to public services, or tax cuts to corporations and the wealthy. What has happened, rather, has been the deterioration of our manufacturing sector and an increased reliance on resource extraction as a source of economic growth, with the main area of job growth being the low-wage service economy. Wages have stagnated and public services have been undercut. While economic policy in this Age of Anxiety has succeeded in boosting profits – hence the $626 billion in unemployed money – it has failed to deliver the prosperity it promised.
What is needed, clearly, is a hands-on approach to economic development. OPSEU supports the creation of a modern industrial strategy for Ontario that would create good jobs, protect our environment, enhance social justice, and put the long-term interests of Ontario and Canada ahead of the short-term interests of large corporations.
Basic human necessities for all Ontarians
Income and housing
With respect to Ontario’s needs, those needs are most dire at the bottom of the economy, where those who cannot find work, or sufficient work, subsist alongside those who are unable to work. Those on social assistance live far below any measure of the poverty line. In its 2013 report, the Campaign 2000 anti-child-poverty group reported that:
Policy decisions driven by austerity in the 2012 Ontario budget made survival even more difficult for the over 383,000 children living in poverty with their families. A focus on deficit reduction in Budget 2012 derailed effective anti-poverty measures that reduced the overall child poverty rate in Ontario from 2008-10…. Income inequality has worsened for over a generation, robbing many low-income children and families of the hope and stability known by some members of older generations…. Living in poverty compromises children’s health, educational attainment and overall well-being. It also compromises Ontario’s economic potential, as limited opportunity means the skills and talents of low-income people are under-utilized.
The indicators of poverty are plain enough to see. Some 375,000 Ontarians use a food bank every month; one-third of them are under 18. More than 158,000 households, a record number, are on waiting lists for affordable housing.
All individuals and families need nutritious food, safe and comfortable housing, and the necessities of life. What is abundantly clear is that the marketplace cannot be relied upon to provide them in all cases. That is why government intervention is so clearly needed. OPSEU supports a significant increase in social assistance rates, far above current rates which suggest (for example) that a single adult in Ontario can live for a month on $626. OPSEU also supports major public investment to end homelessness and eliminate waiting lists for affordable housing.
“Housing First” is an approach to homelessness developed in the United States and being used now in some Canadian cities. Its central principle is simple and based on need. Housing First gives homeless people an apartment to live in and access to a social worker to help them achieve social and financial stability. Housing First recognizes that homelessness has costs of its own – costs related to emergency room visits, interactions with police, or imprisonment, for example – and that the cheapest (and most humane) way to tackle homelessness is through permanent housing and support. The U.S. state of Utah has seen its homelessness rate fall by 78 per cent and is on track to eliminate homelessness altogether by 2015. This has been accomplished, the state says, at little cost: “Most of the progress Utah has made in ending chronic homelessness has happened with no new money. Instead, we’ve freed up existing resources by creating efficiencies in the system and re-investing in proven approaches.”
Another major concern for millions of Ontarians is retirement security. The Government of Canada’s failure to move ahead with the simplest and most economical option – an expansion of the Canada Pension Plan – has effectively dropped the problem on provincial governments.
It is a problem that has been getting worse since 1985, when workplace pension plan membership as a percentage of the Ontario workforce peaked at approximately 40 per cent of all Ontario workers. Since then, employers wishing to avoid the cost of pension contributions have been aided by the rise of the economic policies discussed above: free trade, privatization, the weakening of labour laws, and so on. The result? Millions of working people have no realistic plan for funding their retirement.
Defined-contribution and “targeted benefit” pension plans are not pension plans as such; they are group savings plans that do not guarantee incomes to retirees. The only true pension plans are defined-benefit pension plans that accurately account for the costs associated with retirement and accurately estimate the contributions needed to fund those costs. OPSEU supports the expansion of the Canada Pension Plan, but if politics prevent this from happening, the union supports a provincial plan to extend defined benefit pension coverage to all Ontarians, regardless of where they work, provided that said measures do not undermine the financial health of existing defined benefit plans in the private or public sectors.
Canada is the only developed democracy with a universal health insurance system that does not include full coverage for necessary prescription drugs. One consequence of this is that prescription drug costs are higher in Canada than in any of those countries. This has consequences: each year 10 per cent of Canadians cannot afford to fill a prescription.
A new federal or provincial public prescription drug plan would cuts costs and improve health outcomes at the same time. A well-designed “Pharmacare” program would save Ontarians billions of dollars through bulk purchasing, increased use of generic drugs, better regulation, and the lower administrative costs available under a public system. According to a major study published in 2010, universal Pharmacare could save Canadians $10.7 billion a year if done properly. Ontario’s share of that saving would be more than $4 billion a year. In the words of the study’s authors, Marc-André Gagnon and Guillaume Hébert, “the only hindrance to establishing a fair, effective drug insurance program is political apathy, not economic cost restraints.”
Saving money on prescription drugs is particularly important at a time when the federal government is negotiating a free trade agreement with the European Union. According to government advisor Don Drummond, the trade agreement is likely to cost Ontarians an extra $1.2 billion a year by extending greater patent protection to brand-name drugs, “more than wiping out the savings from the provincial government’s recent drug reforms.”
Ontario needs a public prescription drug plan, and Ontarians know it. To meet the basic health needs of all our citizens, we need Pharmacare now.
The public services deficit
Public services have an important role to play in reducing inequality, simply because citizens at all income levels receive approximately the same benefit from them over their lifetimes. The province’s public services deficit has been growing steadily since the 2008-09 recession.
There are few, if any, public services funded by the province that are not facing intense cost pressures, and an exhaustive summary of how those pressures are affecting services would take many hundreds of pages. Suffice it is to say that 70 per cent of the caregiver jobs in the developmental services sector are part-time, insecure, and often low-paid; that college faculty are deeply concerned about cost-saving measures that are severing the face-to-face contact between teachers and learners; that there are too many vacant positions in the section of the Ministry of the Environment that deals with drinking water safety; that children with behavioural problems and people with disabilities face long waiting lists to get the help and support they need; and that university tuition fees in Ontario have been the highest in Canada for five years running. A decade after the SARS Commission, which recommended keeping hospital occupancy rates at low enough levels to be able to absorb a sudden influx of patients with infectious diseases, Ontario’s hospitals are running at more than 98 per cent capacity, strongly suggesting that a repeat of a major public health crisis may be in our not-too-distant future.
Across the public sector, growing needs are being met with fewer and fewer resources every year. Under the current circumstances, where austerity rules the day, funding increases in one area may not be real progress if all increases are paid for by cuts in other equally vital areas. Prioritization is important, but what public services in Ontario really need is more funding.
According to provincial government calculations, Ontario spends less on program spending per capita than any other province in Canada.
While the largest province may enjoy significant economies of scale in the provision of public services compared to (say) P.E.I., it is not clear that such economies exist in relation to most provinces. Ontario is, quite simply, failing to invest in “human betterment” or public infrastructure at the rate required to build a fair and prosperous province.
How much is the shortfall? It depends. If the comparator is British Columbia, consistently one of the lowest-spending provinces, then for 2013-14 the difference is $339 per person. This means Ontario would have to spend roughly $4.6 billion more each year on public programs for our 13.6 million citizens in order to be spending at B.C. per capita levels. Compared to Manitoba, however, Ontario will spend $2,488 less per person in the 2013-14 fiscal year. This number, multiplied by Ontario’s population, represents a difference of $33.8 billion.
This bears repeating: If the government of Ontario spent money on programs at the same per capita rate as the government of Manitoba, Ontario would be spending an additional $33.8 billion a year.
The point here is not to hold up Manitoba as a model; that province may or may not be delivering the services Ontarians would want. But it is clear that Canadian provincial governments are able to manage perfectly well with significantly higher spending rates. Manitoba’s debt-to-GDP ratio is 28.1 per cent, 11.2 points below the Ontario ratio and approximately what Ontario’s was before the recession of 2008-09 began. Similarly, the comparison with Manitoba suggests a positive role for public spending in the economy generally; Manitoba’s unemployment rate of 5.7 in March 2014 per cent easily beat Ontario’s rate of 7.3 per cent.
OPSEU calls for an end to the Ontario government’s austerity program and supports an overall expansion of public spending to create jobs, repair damaged public services, meet Ontario’s most pressing social, economic, and environmental needs, and create the new public infrastructure necessary not only to build Ontario’s economy into the future but also to prepare the province for an anticipated increase in extreme weather events in the decades to come.
If Manitoba can sustain a level of spending which in the current Ontario context appears other-worldly, the question is how can Ontario achieve the spending levels it needs? The answer, for forward-thinking Ontario leaders, is simple: by generating extra revenue through its tax system.
No Ontario government will ever have the fiscal capacity to address the fundamental needs of Ontarians, present and future, without addressing the serious damage done to provincial revenues by the tax cuts since 1995. In the context of the last several years, and the growing inequality that has made many Ontarians poorer and more anxious while undermining their trust in their leaders, elected and non-elected, it should be obvious that the core principle of any tax changes must be fairness.
Fairness does not simply mean that those who can pay more should more. At its root, fairness is about recognizing that no one, no matter how brilliant or wealthy, achieves success except by building on the efforts of those who have come before. Every business benefits from the public sector’s role in the economy:
- through the physical infrastructure of roads and bridges, water and sewer systems, and electricity grids built up with public dollars that make modern business possible;
- through the human infrastructure of education, health care, and social services that supply and sustain the labour force that is, ultimately, the source of all wealth;
- and through the legal infrastructure of laws, regulations, courts and police that establish property rights, safeguard contracts, settle disputes, and maintain public safety.
This is the rationale for tax fairness, and the options available for creating greater tax fairness are many. Here are just a few things the Minister of Finance could do:
- Restore corporate tax rates to 2009 levels. In the 2009 Budget, the Ontario government announced cuts to corporate income tax rates that, by the government’s own estimate, would cost the Treasury over $2.4 billion a year by July 2013. In the 2014 Budget, the government said that the cost of the rate reduction was $2.3 billion a year – even though the government had only reduced the rate from 14 per cent to 11.5 per cent, not 10 as originally intended.
- Introduce a Financial Transactions Tax (FTT). Much of the “investment” that takes place these days is not investment in the productive economy but speculation. Originally conceived as a way to dampen speculative trading, a “Robin Hood Tax” on trades in stocks, bonds, derivatives, and currency would also raise money for public services. Even a rate as low as 0.1 per cent on trades would raise well over $1 billion a year on the trades made through the Toronto Stock Exchange. And that’s assuming the tax succeeds in dramatically reducing speculative trading. If it does not, the actual amount raised could be much higher.
- Eliminate the lower tax rates for income earned from stock options. Only the highest-paid Ontarians receive any of their income in the form of stock options, but those who do only pay tax at half the rate most Ontarians pay on income.
- Institute a wealth tax. A broad-based tax on all wealth holdings, including financial market assets, could collect significant revenues even if it were set at one per cent of assets over $3 million, as proposed by Neil Brooks. “Such a tax could also have important incentive effects, by increasing the likelihood that wealthy investors will put their money to work in productive activities.” A tax of this sort could also be applied to the $626 billion in unemployed money held in cash by corporations.
- Make the income tax system more progressive. After being slashed repeatedly since 1995, Ontario’s income tax rates are far from high. And while the low rate paid by those with low taxable incomes is laudable, the low rate paid by those with high incomes in inexcusable. In Ontario, high-income earners begin paying the top rate – incredibly – at $514,090. OPSEU supports a more progressive income tax system, beginning with graduated rate increases for individual taxable incomes above $100,000 per year.
The objective here is not to list every possible approach to increasing tax revenue. The 2014-15 budget year presents a very real opportunity to improve Ontarians trust in their government by making tax fairness – to pay for quality public services, build infrastructure, and create jobs – a central theme in the weeks and months ahead. There are any number of options available to any government that can match the “courage, vision, enterprise and bold action” displayed by Ontario’s Treasurer five decades ago.
Managing Ontario’s finances: dealing with the deficit
Many pundits and politicians – and, most notably, former government adviser Don Drummond – contend that Ontario is facing a structural budget deficit that demands permanent reductions in government program spending. This contention has no basis in fact. At the moment, the Ontario economy continues to function well below its capacity; putting Ontarians back to work will, in itself, eliminate the current budget deficit. That is why austerity measures designed to clamp down on public spending should be halted in favour of robust investment in Ontario’s people and its economy. As noted above, there is a public services deficit in this province, and an infrastructure deficit as well. These can only be addressed by paying off the structural deficit in taxation levels caused by tax cuts in the Harris and McGuinty eras.
Restoring tax levels to adequate levels – even if we do not reach the levels of glamourous, high-flying Manitoba – does not, however, remove the need to be careful stewards of provincial revenues. On this score, one particular government policy stands out as both wasteful and economically unfair. That policy is the current government’s fascination with privatization.
Proponents of privatization argue that the private sector, driven by competitive pressures, can provide better services at lower cost than public sector employees can. This has certainly not been the experience in Ontario. In terms of value for money, the history of private delivery and financing of public services in Ontario is a long history of failures, a few of which are detailed below.
In 1996, the Ministry of Transportation began a multi-year plan to contract out all highway maintenance on the province’s highways, including the 400-series highways. At the time, the Harris government said privatization would save the government at least five per cent compared to the ministry’s costs. The 1999 provincial auditor’s report, however, revealed that of the first four maintenance contracts, three had actually cost more under private operation. Auditor Erik Peters also found that subsequent to awarding highway maintenance contracts, the Ministry engaged the contractors to perform additional work without tender and offered these contractors surplus ministry vehicles and equipment without going through the required public auction. “Perhaps the biggest danger to taxpayers from managed outsourcing is that MTO equipment gets given away at fire-sale prices,” MTO purchasing officer George Kerhanovich said at the time. “It’s happening now. Contractors are picking up MTO plows and trucks for a song. Taxpayers are not getting fair value.”
Even more significant than the financial losses from privatization were the safety issues noted by Erik Peters: “There were concerns that individual patrol areas were too large to adequately monitor the work of contractors to ensure that provincial highways were safe, usable and protected from untimely deterioration.”
Today, a decade-and-a-half later, road safety under privatized maintenance remains a top concern for Ontario drivers. In 2012, North Bay MPP Vic Fedeli called for an inquest into a rash of highway fatalities in northeastern Ontario. “With so many deaths occurring in a relatively small geographic area, it is critical that these incidents be thoroughly investigated so that we can reduce the likelihood that more Ontario families will experience the grief associated with a fatal accident,” he said, noting that his office had been swamped with complaints about highway maintenance. “There’s one common theme in all of those comments – that the work to clear area highways of ice and snow hasn’t been good enough, and not as good as it has been in the past…”
In northwestern Ontario this winter, a driver who started a Facebook group to demand better highway maintenance noted a huge difference in maintenance quality this winter compared to when he was growing up in the area:
I travelled on a school bus to high school like everyone else from Rat Falls. In my 4 years of (high) school I can only remember one time the busses were cancelled. I remember being let out early to get home before big storms covered the road… I have been travelling to the mine for 8 winters now and … [t]his winter and last winter were the worst roads I’ve seen in my 8 years of commuting.
“It is the belief of many that the contractors are not living up to standards and the standards are not adequate for our area,” said Sarah Campbell, MPP for Kenora – Rainy River. The MTO apparently agreed, as it revealed in January 2014 that three highway maintenance companies in the northwest had been fined for failure to meet service standards. The MTO would not reveal the amount of the fines levied, however, and a contractor said the company was not allowed to comment publicly on maintenance issues.
This in itself confirms a common criticism of government contracts with private companies: contract terms and conditions remain secret as a matter of course.
In 1997, the Ontario Ministry of Agriculture, Food, and Rural Affairs laid off all but a handful of provincial meat inspectors and created a new model in which roughly 95 per cent of the inspectorate consisted of meat inspectors employed as independent contractors, i.e., they were not provincial employees.
After the Aylmer meat scandal of 2003, the Haines Inquiry into meat inspection found that, among other things, inspectors who closed down a slaughterhouse that did not comply with provincial regulations were, in effect, laying themselves off.
This obvious conflict of interest and other issues that posed a threat to public health and safety resulted in the return of meat inspection to the public service in 2004.
In 1997, the province contracted out a Business Transformation Project in the Ministry of Community and Social Services to make major changes to the social assistance system. The ministry’s contract with Andersen Consulting (later re-named Accenture) caught the attention of the provincial auditor very early on. In his 1998 report, the auditor noted that the Ministry “had not sufficiently defined or established the project’s scope and desired business results [and] could not demonstrate that it had adequately considered either other contracting arrangements or maximizing the use of its own internal resources for any aspects of this project.”
The Ministry “could not provide the basis for its agreement to pay Andersen Consulting a fee of up to $180 million,” the auditor noted, observing that the contract between the ministry and the company allowed the company “to charge standard published billing rates for this project, which were, on average, almost six times higher than the rates charged by the Ministry for comparable staff” and that the company was allowed to unilaterally increase those fees “from time to time.”
The Ministry did not have receipts for most of the $1.4 million in out-of-pocket expenses the company billed the government for; those charges “averaged approximately $26,000 for each full-time-equivalent position assigned to the project during the first year.” Chastened by the provincial auditor’s report and an investigation by a committee of the legislature, Andersen Consulting was forced to renegotiate its arrangement. But in a special report two years later, the auditor still found that “our concern remains that under the renegotiated agreement Andersen Consulting is still receiving a disproportionate amount of the benefit pool in relation to its work effort.”
Indeed, Andersen’s rate for a consultant was still $280 an hour for work that cost the Ministry between $45 and $115 an hour when performed by its own staff. The rollout of the Business Transformation Project was originally planned for completion by June 1999; as of 2000 that date had been changed to January 2002, a full two-and-a-half years behind schedule.
Despite questionable spending practices and the potential risk to confidential public information from private involvement in the provision of IT services, government spending on private IT contractors has grown rapidly in the past decade. According to a 2012 consultant’s report, one-quarter of the employees involved in direct government IT projects worked for private contractors. The cost per full-time-equivalent employee was more than double when private contractors were used to do work on mainframe computing, UNIX servers, Windows servers, storage, and end-user computing, the report found. Despite these findings there have been no recent reviews or value-for-money audits of IT spending in the Ontario Public Service by the Auditor General of Ontario, the Ontario Ombudsman, or any independent investigator. IT services provided to government-funded hospitals, schools, or other institutions have been similarly insulated from public scrutiny.
Private medical labs
It used to be that if your family doctor sent you for a blood test, you went to a hospital to have it done. But today, Ontario spends nearly $700 million a year on medical lab tests conducted outside of hospitals, mostly through three for-profit multinational companies.
In the mid-1990s, the Mike Harris government began pressuring hospitals to restrict their own labs to in-house testing, creating a huge market for private labs in the community but draining funds from public hospitals. This caused widespread dissatisfaction in many communities – including smaller northern and rural communities that had voted Conservative. In response, the government agreed in 1997 to fund a pilot project to compare costs between public and private labs.
In the pilot project, private labs were paid per test while hospitals were paid a lump sum for the community volumes regardless of how many tests they conducted. For many years the results of the pilot project were not evaluated. Then, in 2007, following a battle to retain community lab volumes at the hospitals in Muskoka and Huntsville, the government hired RPO Management Consultants to finally evaluate the pilot.
RPO found that even the smallest hospitals in the province had no trouble competing with large centralized private laboratories. In 2005-06, costs at the public hospitals averaged $22 per test, compared to $33 per test – for the same tests – in the large for-profit labs. By maintaining community volumes, the hospital labs were able to use the money saved to expand the scope of testing, extend lab hours, purchase new equipment, speed up turnaround, and keep access local.
Despite the evident superiority of the hospital labs in the pilot project, the consulting firm nonetheless called for its termination – a clear sign that the (by then Liberal) government’s preference was for private delivery, not value for money. When the pilot project was terminated at Muskoka Algonquin Healthcare, the overnight lab shift was also cancelled.
Ross Sutherland, author of False Positive: Private Profit in Canada’s Medical Laboratories, estimates the Ontario health care system could save between $175 to $200 million per year by moving medical testing from private labs to hospital labs.
In 1999, the Mike Harris government leased Highway 407 to a consortium led by a Spanish group. The agreement gave the government a flat fee of $3.1 billion. The highway cost an estimated $1.5 billion to build with tax dollars and was expected to be paid for through tolls within 30 years, after which time it would become a free highway. But the lease agreement gave the consortium the profits from the toll highway for 99 years – and the right to raise tolls at will. In 2010, the Canada Pension Plan Investment Board purchased a 10 per cent stake in the 407 for $894 million, suggesting the total value of the highway by then was $8.94 billion in 2010 dollars. The dramatic increase in accrued value is money that went to private investors; it could have gone to the people of Ontario.
The Walkerton water tragedy
The Public Inquiry into the Walkerton water tragedy that killed seven and sickened 2,300 people in May 2000 found a link between the tragedy and the closure of government lab services for municipalities, which resulted in their turning to private labs for water testing. When government labs had done the testing, they reported adverse test results to the Medical Officer of Health and the Ministry of the Environment as a matter of course. The private lab that tested Walkerton’s water did not do this, delaying a boil-water advisory that would have prevented hundreds of illnesses, according to the Inquiry. An economist commissioned by the Inquiry to estimate the financial cost of the disaster put costs at $64 million and “intangible” costs, such as the loss of human life, at an additional $91 million.
In 2001, the Conservative government of the day turned over operation of the maximum-security correctional facility at Penetanguishene to a private operator for five years. An identical facility in Lindsay remained under government control, allowing for a direct comparison between the two operating methods. In 2006, a review by the Ministry of Community Safety found that “in basically every single area, the outcomes were better in the public run facilities,” in the words of the minister responsible. The ministry review found that the provincially-run facility had better security, better health care for inmates, and a reduced rate of re-offending. The private jail had fewer staff and ran fewer programs to help inmates.
In 2003, the Ernie Eves government sold its 50 per cent stake in Teranet, the province’s electronic land registry service, for $370 million. This valued Teranet at $740 million, but the profits from Teranet’s operations indicate clearly that this was much too low. In 2003, Teranet’s profits were $118 million on sales of $190 million, giving it a stunning profit margin of 62 per cent. With profits like that – and considerable growth potential – a better estimate of the company’s value would have been closer to $2 billion, not $740 million. The difference was all money lost by the people of Ontario – and gained by the private investor who snapped it up at a fire-sale price.
LCBO agency stores
The Liquor Control Board of Ontario is a successful public enterprise that brings in more than $1.7 billion a year to finance government operations. To earn these profits, the LCBO directly operates 635 stores across the province.
Part of the LCBO’s business is the agency stores program, through which private operators are licensed to sell LCBO products. Begun in 1962, the agency stores program was originally envisioned as a way to provide beverage alcohol in remote northern areas where sales volumes were deemed to be too low to justify the cost of a directly-operated LCBO store. By 1995 there were 82 such stores in operation. In 1995, the Conservative government began to expand the agency store program into southern Ontario. Including new agency stores opened under the McGuinty Liberals, Ontario now has 219 of them.
In 2011-12, agency store sales equaled $99 million, or 2.1 per cent of net LCBO sales. Agency store operators receive a 10 per cent discount off the retail price set by the LCBO, which provides their guaranteed profit margin. When sales volumes at a given agency store are below a certain level, this arrangement represents a net financial gain to the LCBO, which is able to make sales without incurring direct operational costs. But as sales volumes at a location increase, agency store sales begin to cost the LCBO more than they would if those sales were made at a directly-operated LCBO store. In other words, the LCBO would earn more for government coffers on the same level of sales if the contracts with many agency stores were terminated and a directly-operated LCBO store were opened in the same community.
There has been one study published to attempt to measure the gains to public revenues that could be possible if some agency stores were to be closed and replaced with directly-operated LCBO stores. In March 2007, researcher Russ Christianson calculated that 89 of the 199 agency stores then in operation could be profitably “repatriated,” for a revenue gain to the province of between $250 to $340 million over 10 years.
What would that projection look like if we looked ahead from 2014? Given the fact that the agency stores program has added 20 stores, and the average revenue per store has increased by 20 per cent in nominal terms, the extra revenues available to government could only be higher. At a time when government is facing a revenue shortfall, repatriating high-volume agency stores just makes sense.
In 2005, Ontario created Ontario Air Ambulances Services Co., a not-for-profit entity charged with creating an integrated air ambulance system to manage and dispatch air ambulances and the Critical Care Flight Paramedics who staff them. Assets belonging to the Ministry of Health and Long-Term Care were transferred to ORNGE at a nominal cost of $1. The company later rebranded itself as ORNGE (not an acronym) and set out to change the way air ambulance service was provided in Ontario. In late 2011, news reports revealed that ORNGE CEO Chris Mazza was paid $1.4 million a year, more than any other public employee in Ontario. But ORNGE hid Mazza’s salary from public scrutiny by creating a spin-off private company, ORNGE Global. (Salaries paid at private companies are not published under the Public Sector Salary Disclosure Act.) ORNGE Global issued bonds to pay for a dozen new helicopters, paying the interest and principal on the bonds with some of the $150 million in public funding it receives. The Italian company that sold the helicopters then paid ORNGE $6.7 million for “consulting” services. The ORNGE corporate plan called for three per cent of gross profits to go to the not-for-profit ORNGE, with 97 per cent going to ORNGE investors.
On August 10, 2008, a series of explosions one witness said was “like an atomic bomb” lit up the night sky in northwest Toronto, destroying homes, shattering shop windows and raining debris over a vast area. The explosions at Sunrise Propane forced the evacuation of 12,000 homes, closed Highway 401, and caused $25 million in property damage. Parminder Singh Saini, a 25-year-old Sunrise employee, was killed on the scene.
Investigation of the explosions showed that they began as a result of a truck-to-truck transfer of liquid propane that Sunrise Propane was not licenced to perform under the rules of the industry regulator, the Technical Standards and Safety Authority (TSSA). The TSSA inspector had not enforced a 2006 order calling on Sunrise to stop the transfers. Five years after the fatal explosions, Sunrise and its directors were found guilty of nine provincial offences.
The safety violations at Sunrise Propane shone a spotlight not only on the company but also on the TSSA. The TSSA was a private entity created in 1997 when the Mike Harris government ended direct government oversight of gas stations, elevators, escalators, heating boilers, and the like.
Environmental lawyer Mark Winfield noted three main problems with the design of the TSSA. First, it exempted the TSSA from oversight by the provincial auditor and the ombudsman, and the TSSA is not subject to public scrutiny under the Freedom of Information and Protection of Privacy Act or other accountability mechanisms that oversee public bodies. Second, it separated the TSSA’s operations from government policy-making around safety:
Inspections, approvals and similar functions were seen to be so routine and unimportant that they could be handed off to non-governmental entities, while policy making remained in governmental hands. Governments could “steer” while others “rowed.” In reality inspections and approvals are the core of a regulatory system for public safety. These activities are also crucial sources of information about what is happening in the real world that inform the formulation of policy. Their separation is neither practical nor desirable in a public safety context for these reasons.
Lastly, the TSSA was funded and controlled by the same industries it was created to police – a clear conflict of interest that many critics said played a key role in the Sunrise disaster. “The province privatized community safety by allowing the TSSA to regulate this dangerous industry,” said Toronto city councillor Maria Augimeri, “and this is the result — a completely negligent act that was directly responsible for lives lost.”
Most Canadians agree that the proper place for organizations like the TSSA is in the public sector, removed from the conflict of interest that occurs when the oversight of public safety is privatized. of 2,000 Canadians by the Environics polling firm, 83 per cent of respondents agreed with the statement that “the people who actually inspect and regulate industries in Canada should work for government agencies, not for the industries themselves.”
Gas plant cancellations
The provincial government’s decision to have the private sector play a major role in the generation of electricity has been an expensive disaster for electricity ratepayers and taxpayers alike. The politically-motivated cancellation of gas-fired generating plants in Oakville and Mississauga cost more than $1 billion. What was less extensively report was the amount of money that went to private-sector investors in the form of penalties – penalties that would never have been charged if the proposed plants had been financed in a more traditional manner through the publicly-run Ontario Power Generation.
The government paid $149 million to hedge funds based in the U.S. and the Cayman Islands to not build a generating plant in Mississauga.
The provincial government’s first two attempts at so-called “public-private partnerships” (P3s) were costly mistakes. Ontario’s auditor general confirmed that the William Osler Health Centre cost nearly $400 million more with private involvement than it would have if traditional public procurement methods had been followed. The Royal Ottawa Hospital was originally planned in 2004 as a 284-bed facility at a cost of $95 million. It opened as a 188-bed facility that cost $146 million. Despite these failures, the current government insists that P3s have a vital role to play in financing important government infrastructure.
Ontario has moved much faster than other provinces in establishing private contracts to design, build, finance, maintain and sometimes operate public infrastructure projects. Despite many warnings, the province appears to have dismissed evidence that shows these kinds of arrangements can be poor value for the public purse.
In 2012, researchers at the University of Toronto put a price on what the average public-private partnership (P3) costs compared to traditional public procurement – 16 per cent more.
The research looked specifically at 28 Ontario P3 projects worth more than $7 billion. At a 16 per cent premium, that means the projects in the study would have been about $1.12 billion less had the government tendered these contracts under traditional procurement rules – roughly the cost to build three Peterborough hospitals.
Most of this additional expense is based on the higher cost of borrowing for the private sector, although about 3 per cent is additional transaction costs – one of the reasons why so many law firms belong to the Canadian Council for Public-Private Partnerships.
Proponents of this kind of private development argue the savings take place when the cost of risk is calculated – the average P3 estimating risk to be a startling 49 per cent of the project’s cost. “Unfortunately, quantifying those risks requires a bit of accounting hocus pocus,” the Globe and Mail’s Barrie McKenna observed. With private sector contracts, companies deal with uncertainty by padding estimates and inflating the cost of risk. In the public sector, governments pay the actual cost of unexpected budget events – a number that is invariably lower than inflated guesses.
The U of T report was by no means the first or only report to highlight P3s as poor value for the public. In Britain, the government has undertaken more than 700 P3 contracts. Yet in 2011, MP Margaret Hodge, the UK Parliament’s Chair of the Committee of Public Accounts, noted that
PFI [the UK equivalent of the P3] looks like a better deal for the private sector than for the taxpayer….[T]his form of financing has been based on inadequate comparisons with conventional procurement which have not been sufficiently challenged…. We have seen information which strongly suggests that investors are making excessive profits from selling on shares in the PFI projects…. Government currently lacks sufficient information on the returns made by investors, who have been able to hide behind commercial confidentiality.
P3s are invariably successful at padding corporate profits, but this does not mean they offer a net benefit to the citizens of Ontario. Despite Finance Minister Charles Sousa’s assertion that “Ontario has set the standard for on-time, on-budget delivery of infrastructure projects through our alternative financing and procurement (AFP) model” – a.k.a. P3s – a P3 that is on budget may still be more expensive than conventional financing.
For a government concerned about value for money, walking away from P3s should be a no-brainer. Instead, the Wynne Liberals are embracing a failed concept. Ontarians will be paying for it for decades to come.
Despite the evident failure of privatization to deliver on its promise of greater efficiency and better service at less cost, those who stand to benefit financially from it are pressing ahead. The latest innovation is designed to extract profit from new areas of the public sector.
Social Impact Bonds (SIBs), first piloted in the United Kingdom in 2010, are a new financial tool designed to finance public services through the private sector. Essentially a type of P3 for social service delivery, SIBs have so far been used in correctional services, education, and child protection. They are seen by proponents as a way to provide services in areas where the objective is to change outcomes, e.g., to reduce recidivism among offenders, to reduce teen high school drop-out rates, or to divert children at risk from going into care. Typical SIBs offer investors the opportunity to earn profits in the range of 8-13 per cent. The financial return may depend on the degree to which outcomes improve.
In Ontario, the MaRS Centre for Impact Investing will most likely facilitate two SIB pilot projects in 2014. In 2012, SIBs were promoted by government adviser Don Drummond, who recommended they be tested “across a range of applications.”
With scarcely any SIB projects completed, most of the benefits exist in theory only. However, some consequences of the model are clear.
The SIB model opens the door for private capital to exert greater influence over government policy and design and transfers public dollars to investors in the form of profit. This comes at considerable cost to government for consultants, IT systems, and program evaluation.
Meanwhile, the competitive bidding model which SIBs depend on is associated with cost-cutting and a resultant increase in low-paid, precarious employment.
Social service delivery takes place in a complex human context where problems have multiple causes. It is very difficult to attribute “success,” however defined, to a single intervention. The SIB model pushes government and social-service agencies to distort their service priorities to become marketable to investors. An increased focus on those groups from which it is easiest to make a profit creates a risk that the most marginalized groups – those with the most complex problems – will be left behind. If SIBs become more prevalent, direct funding for social services can only be expected to fall.
Despite their glossy image as a progressive innovation, the real purpose of Social Impact Bonds is to extract profit from human suffering.
Cheerleaders for SIBs are correct when they say that social problems persist because we as a society are not investing in the programs that would alleviate them. But they are wrong when they say that that investment can only happen through a market-driven approach that widens income inequality by transferring wealth from those needing social services to investors. Public investment – insulated from the distortions profit demands – remains the best approach.
The Privatization Test
Given privatization’s terrible track record, it is nothing less than shocking that the two parties with the most seats at Queen’s Park today are so obviously eager to sell more public assets and contract out more public services. But this is not the time to charge ahead with a failed policy. OPSEU believes that virtually all privatization initiatives would be stopped in their tracks if they were properly assessed beforehand. That is why OPSEU has called for a moratorium on privatization until such time as the government develops a “Privatization Test” to determine, through an open and transparent process, whether each and every proposed privatization is likely to provide better quality of service and better value for money. This test, overseen by the province’s Financial Accountability Officer, would ensure that the public interest was protected from private predators intent on raiding the public purse for their own gain.
Closely related to the idea of the Privatization Test is the idea of “active repatriation.” Many public services currently provided by the private sector (including those listed above) would serve the public better if they were returned to the public sector. OPSEU believes the government should take a serious look at the many examples of failed privatizations and make concrete plans to resume direct ownership and/or delivery of the services in question.
Lastly, increasing accountability over public dollars starts with knowing where those dollars are. But today, as much as 38 per cent of Ontario government program spending goes to the private sector.
This is a huge jump from the 27 per cent it was in 1997. This shows the growing influence of the private sector over government decisions, but it fails to reveal exactly how that money is spent. When it comes to contracts between business and government, secrecy is the rule rather than the exception. One solution is to publish details of those contracts for all to see, based on the simple principle that if a public dollar is being spent, the public has a right to know what it is being spent on and at what price. Another idea, first proposed by OPSEU, would be to include private companies and individuals who provide services or financing to the government under the Public Sector Salary Disclosure Act. Under the act, government and its agencies are required to publish the names and salaries of all employees earning over $100,000 a year. With more and more public dollars going to the private sector, it just makes sense to subject private contractors to the same rule.
The Fairness Test
Virtually every budget decision government makes has an impact on income inequality. Cuts to program spending on public services tend to make it worse, and so do tax cuts, especially tax cuts that disproportionately favour high-income earners. Changes in service delivery that pay for bonuses for corporate CEOs by cutting wages of front-line workers make inequality worse as well. For this reason, OPSEU supports the idea of a “Fairness Test” for provincial budgets. Under the Fairness Test, government would be required to develop and fund a process to measure the overall impact on income inequality of every Ontario budget. The Fairness Test results would be published each year, announced by the Minister of Finance in the Budget Speech, and overseen by the Financial Accountability Officer.
There is little disagreement that reducing the provincial deficit and keeping public debt at acceptable levels is a good thing to do. But if government is making changes to the way it spends and collects its revenues, those changes must be done in the fairest way possible.
Conclusion: A Vision for a Fair Ontario
As noted in the introduction, Ontarians are anxious about the future and place little trust in politicians, whom they see as allied with well-heeled private interests.
The question facing Ontario today is whether it is possible to revitalize our democratic institutions and restore public faith that government can actually function for the common good. Can we build our future together and create a fairer Ontario? Or will we continue down the current road of negativity which can only lead us to a place that is poorer, more divided, and less prepared to weather the storms that undoubtedly lie ahead?
OPSEU believes that a fair Ontario is possible. It is possible if we make fairness a central consideration in the way we run government, collect revenue, and deliver public services. It is possible if we focus on meeting people’s needs, not feeding corporate greed. It is possible if the aim of our labour and employment standards laws is to help working people succeed. It is possible if we understand that a fair and prosperous society doesn’t just happen, and that we need to take a hands-on approach to all of our economic, social and environmental challenges.
If our political system is dominated by a ruling class that advances its own interests through politics and business equally, we will only succeed if we challenge them. And challenging them starts with speaking up – at home, at work, in our communities, and at the ballot box.
We can build our future together, and fairness is the key. Let’s make it happen.
 EKOS Politics (2013). “So what’s really bothering you Canada?” October 17. Access at: http://www.ekospolitics.com/index.php/2013/10/so-whats-really-bothering-you-canada/.
 Pollara (2014). “Canadians remain in ‘psychological recession’ as job loss fears rise to record levels.” News release, January 10. Access at http://www.pollara.com/wp-content/uploads/2014/01/Pollara-Poll-2014-Economic-Outlook-19th-annual-survey.pdf.
 At an average of $7,259 per year, Ontario has the highest university tuition fees in Canada. See Canadian Centre for Policy Alternatives (2014). “New interactive tool on tuition fees in Canada.” Access at https://www.policyalternatives.ca/newsroom/updates/new-interactive-tool-tuition-fees-canada.
 Graves, Frank (2014). “The EKOS poll: Democracy and the death of trust.” iPolitics.ca, January 2. Access at http://www.ipolitics.ca/2014/01/02/the-ekos-poll-democracy-and-the-death-of-trust/.
 CBC News (2014). “Extreme weather cost Canada record $3.2B, insurers say.” January 20. Access at: http://www.cbc.ca/news/business/extreme-weather-cost-canada-record-3-2b-insurers-say-1.2503659
 CBC News (2014). “Canadian patients wait longest to see family doctors.” January 20. Access at: http://www.cbc.ca/news/health/canadian-patients-wait-longest-to-see-family-doctors-1.2501468
 Stacey, C.P. (2012). “Second World War (WWII).” The Canadian Encyclopedia (web edition) http://www.thecanadianencyclopedia.com/articles/second-world-war-wwii.
 Allan, James N. (1961). Budget Statement. Toronto: Frank Fogg, Printer to the Queen’s Most Excellent Majesty, p. 28.
 Allan, James N. (1964). Budget Statement. Toronto: Frank Fogg, Queen’s Printer, p. 8.
 Allan, James N. (1966). Budget Statement. Toronto: Frank Fogg, Queen’s Printer, p.5.
 Robinson, Randy (1990). “Colonizing Canada: A Year and a Half of Free Trade.” Multinational Monitor, 11 (5), May.
 This process continues to this day, as recent announcements of plant closures by Heinz in Leamington and Kellogg’s in London demonstrate.
 Harris, Mike (1994). The Common Sense Revolution. Toronto: Progressive Conservative Party of Ontario, p. 1.
 Eves, Ernie (2000). 2000 Ontario Budget, Budget Speech: Balanced Budgets – Brighter Futures. Toronto: Queen’s Printer for Ontario, p. 2.
 RBC Economics. “Provincial Fiscal Tables.” Royal Bank of Canada, January 16, 2014. Available at http://www.rbc.com/economics/market/pdf/prov_fiscal.pdf. It is worth noting that both revenues and expenses of the government have been overstated since the McGuinty government’s decision to include the Education Property Tax as part of the provincial budget. Prior to 2008-09, this tax was accounted for only in municipal budgets. The effect of including this $5.6 billion in revenue and expenditure as part of the provincial budget is to inflate the revenue-to-GDP and expenses-to-GDP ratio by approximately 0.8 per cent of GDP. So in real terms the Liberals’ current revenue target of 14.5 per cent of GDP is very close to the 13.5 per cent reached in the Harris era.
 Duncan, Dwight (2012). 2012 Ontario Budget. Toronto: Queen’s Printer for Ontario, pp. 174-177.
 Mackenzie, Hugh. Deficit Mania in Perspective. Ottawa: Canadian Centre for Policy Alternatives, p. 4. Updated by author November 2013.
 Statistics Canada (2013). “ Households and non-profit institutions serving household sector indicators – Market value, not seasonally adjusted.” September 13. Access at http://www.statcan.gc.ca/daily-quotidien/130913/t130913a002-eng.htm.
 See, for example, Statistics Canada (2008). “2006 Census: Earnings, income and shelter costs.” The Daily, May 1. Access at http://www.statcan.gc.ca/daily-quotidien/080501/dq080501a-eng.htm.
 Lewchuk, Wayne et al. (2013) It’s More Than Poverty: Employment Precarity and Household Well-being – Summary. Toronto: United Way Toronto, p. 4. Access at: http://www.unitedwaytoronto.com/downloads/whatwedo/reports/ItsMoreThanPovertySummary2013-02-09singles.pdf.
 Cornish, Mary. A Growing Concern: Ontario’s Gender Pay Gap. Toronto: Canadian Centre for Policy Alternatives, p. 5.
 Block, Sheila (2013). Who is Working for Minimum Wage in Ontario? Toronto: Wellesley Institute, p. 7.
 Mackenzie, Hugh (2014). All in a Day’s Work? CEO Pay in Canada. Ottawa: Canadian Centre for Policy Alternatives, p. 4.
 Source: Statistics Canada CANSIM 384-0038 (GDP); CANSIM 51-0001 (Population).
 Statistics Canada (2013). “Percentage of total income received by income group and province, 2010 and 2011.” December 9. Note that this figure does not include capital gains, which provide significant income to one-per-centers. See Stanford, Jim (2013). “Capital Gains and the Incomes of the Wealthy.” Progressive Economics Forum, December 10.
 Carmichael, Kevin, Richard Blackwell and Greg Keenan (2013). “Free up ‘dead money,’ Carney exhorts corporate Canada.” The Globe and Mail, Aug. 23.
 Jackson, Gavin (2013). “Heinz announces plant closing in Florence.” SCNow.com, November 14. Access at: http://www.scnow.com/news/local/article_0b8e2242-4d48-11e3-bc9b-0019bb30f31a.html.
 Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (2013). “Kellogg workers locked out in Memphis, Tennessee.” BCTGM News, Vol. 15, No. 6, November-December, p. 3.
 Organisation for Economic Cooperation and Development (2013). “PPPs and Exchange Rates.” OECD StatExtracts.
 The depreciation of the Canadian dollar under the leadership of Governor Stephen Poloz stands in sharp contrast to its rise under the leadership of former Governor Mark Carney. Carney’s refusal to intervene in financial markets to keep the dollar at a more reasonable level meant Canada’s central bank “traded off more condos for fewer factories,” and there is little sign that corporate Canada plans to re-open factories that are long closed, says CIBC economist Avery Shenfeld. See Shenfeld, Avery (2014). “What Carney Left Behind.” CIBC Economic Insights, March 12. Available at http://research.cibcwm.com/economic_public/download/eimar14.pdf.
 Campaign 2000 (2013). Strengthening Families for Ontario’s Future: 2012 Report Card on Child and Family Poverty in Ontario. Toronto: Campaign 2000, p. 1. Access at http://www.campaign2000.ca/Ontario/reportcards/2013ReportCardOnChildPovertyOntario.pdf.
 Ontario Association of Food Banks (2013). 2013 Hunger Report. Toronto: Ontario Association of Food Banks, pp. 2-3. Access at http://www.oafb.ca/tiny_mce/plugins/filemanager/pics_cms/55/255/Hunger_Report_-_Final.pdf.
 Monsebraaten, Laurie (2013). “Ontario Affordable Housing Waiting Lists Still Climbing.” Toronto Star, November 12. Web edition: http://www.thestar.com/news/queenspark/2013/11/12/ontario_affordable_housing_waiting_lists_still_climbing.html.
 Nelson, Jerry (2014). “Utah Solves Homelessness by Giving Away Homes.” Liberty Voice, January 20. Access at http://guardianlv.com/2014/01/utah-solves-homelessness-by-giving-away-homes/.
 Utah Housing Works (2014). “Changing the System.” Government of Utah web site. Access at http://www.housingworks.utah.gov/innovative_programs/index.html.
 Arthurs, Harry (2008). Report of the Expert Commission on Pensions. A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules. Toronto: Queen’s Printer for Ontario, p. 38.
 Gagnon, Marc-André (2013). “The Case for National Pharmacare.” National Post, June 10. Web edition: http://fullcomment.nationalpost.com/2013/06/10/marc-andre-gagnon-the-case-for-national-pharmacare/.
 Gagnon, Marc-André and Guillaume Hébert (2010). The Economic Case for Universal Pharmacare: Costs and Benefits of Publicly Funded Drug Coverage for all Canadians. Ottawa: Canadian Centre for Policy Alternatives, p. 10.
 Ibid., p. 37.
 Commission on the Reform of Ontario’s Public Services (2012). Public Services for Ontarians: a Path to Sustainability and Excellence (Toronto: Queen’s Printer for Ontario), p. 62.
 With the exception of those at the very bottom of the income spectrum, who receive a larger-than-average share because of direct income transfers. See Mackenzie, Hugh and Richard Shillington (2009). Canada’s Quiet Bargain: The Benefits of Public Spending. Toronto: Canadian Centre for Policy Alternatives, p. 16.
 Canadian Federation of Students (Ontario) (2013). “New framework keeps Ontario tuition fees highest in Canada.” News release, September 12. Access at http://www.newswire.ca/en/story/1223705/new-framework-keeps-ontario-tuition-fees-highest-in-canada.
 Janson, Rick (2011). “High occupancy rates roll the dice on hospital-borne infections.” OPSEU Diablogue, July 7. Updated by author January 2014.
 Sousa, Charles (2013). A Fair and Prosperous Ontario: 2013 Ontario Budget. Toronto, Queen’s Printer for Ontario, p. 107.
 Per-capita spending figures drawn from RBC Research (2014). Canadian Federal and Provincial Fiscal Tables, April 8. Access at http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/prov_fiscal.pdf. Ontario population based on October 1, 2013 number of 13,585,887 provided by Ontario government at http://www.fin.gov.on.ca/en/economy/demographics/quarterly/dhiq3.html.
 Statistics Canada (2014). “Labour Force Characteristics by Province.” Ottawa: Statistics Canada, April 4.
 Sousa, Charles (2014). Building Opportunity, Securing Our Future: 2014 Ontario Budget. Toronto: Queen’s Printer for Ontario, p. 70.
 Brooks, Neil (2007). “A democratic tax reform for Canada.” Canadian Dimension, 41 (2).
 Lee, Marc and Iglika Ivanova (2013). “Toward a Fair Canadian Tax System.” Himelfarb, Alex and Jordan Himelfarb, eds. Tax Is Not A Four Letter Word: A Different Take on Taxes in Canada. Waterloo: Wilfrid Laurier University Press, p. 163.
 Peters, Erik (1999). 1999 Annual Report of the Provincial Auditor. Toronto: Queen’s Printer for Ontario, p. 243.
 Ibid., p. 236.
 Ontario Public Service Employees Union (1996). “Time for a Highway Blitz.” Layoff Response, October 31, p. 2.
 Peters (1999), p. 236.
 Dale, Dave (2012). “Northern Ontario MPP seeks inquest into highway fatalities.” North Bay Nugget, January 11. Web edition: http://www.saultstar.com/2012/01/11/northern-ontario-mpp-seeks-inquest-into-highway-fatalities.
 Briscoe, Lindsay (2013). “Northwest residents ban together to tackle highway condition.” Northern Sun News, December 2. Web edition: http://www.thenorthernsun.com/northwest- residents-band-together-to-tackle-highway-conditions/.
 CBC News (2014). “MTO fines contractors for substandard highway maintenance.” CBC News, January 27. Web edition: http://www.cbc.ca/news/canada/thunder-bay/mto-fines- contractors-for-substandard-highway-maintenance-1.2512384.
 For more information on the Haines Review, including its (number) recommendations to the government, see Roland J. Haines (2004). Farm to Fork: A Strategy for Meat Safety in Ontario: Report of the Meat Regulatory and Inspection Review. Toronto: Queen’s Printer for Ontario.
 Peters, Erik (1998). 1998 Annual Report of the Provincial Auditor.Toronto: Queen’s Printer for Ontario, p. 33.
 Ibid., p. 34.
 Ibid., p. 44.
 Ibid., p. 35.
 Peters, Erik (2000). Special Report on Accountability and Value for Money. Toronto: Queen’s Printer for Ontario, p. 263.
 —– (2000), pp. 265-256.
 Gartner Consulting (2012). ITS Infrastructure Tower Benchmarking: Final Results, March 22. A highly redacted version of this report was obtained by OPSEU through a request under the Freedom of Information and Protection of Privacy Act.
 RPO Management Consultants (2008). Laboratory pilot projects review: final report. Toronto: Ontario Ministry of Health and Long Term Care.
 Sutherland, Ross (2012). “Drummond and For-Profit Health Care.” False positive: private profit in Canada’s health care. Blog posting available at http://forprofitmedicallabs.wordpress.com/2012/02/22/drummond-and-for-profit-health-care/.
 CBC Radio (1999). “Highway 407 Sold.” CBC Radio, April 14. Available at http://www.cbc.ca/news/ story/1999/04/14/407_4_13_99.html.
 Daily Commercial News and Construction Record (2010). “Canada Pension Plan Board assumes first stake in Highway 407.” Daily Commercial News and Construction Record, November 24. Available at http://www.dailycommercialnews.com/ article/id41576.
 O’Connor, Dennis R (2002). Report of the Walkerton Inquiry, Part One: The Events of May 2000 and Related Issues. Toronto: Queen’s Printer for Ontario, pp. 4-5.
 Hunt, Lori Bona (2001). “Economist Puts Price Tag on Walkerton Water Tragedy.” News@Guelph, University of Guelph. December 12. Available at http://www.uoguelph.ca/atguelph/01-12-12/articles/water.html.
 CBC News (2006). “Ontario Takes Back Control of Private Super- jail.” CBC News, November 10. Available at http://www. prisonjustice.ca/starkravenarticles/CNCC_public_1106.html.
 Reguly, Eric (2005). “Reclusive investor gets last laugh as Queen’s Park bungles Teranet.” The Globe and Mail, April 28.Web edition: http://www.globeadvisor.com/servlet/ ArticleNews/story/gam/20050428/RREGULY28.
 Liquor Control Board of Ontario (2012). Responsible Growth: LCBO Annual Report 2011-12. Toronto: Liquor Control Board of Ontario, p. 53.
 Christianson, Russ (2007). LCBO Agency Store Repatriation: A Financial Analysis. Campbellford, Ontario: Rhythm Communications, p.3.
 Donovan, Kevin (2011). “Public cash repays ORNGE investors.” Toronto Star, January 16, A1.
—– (2011), “ORNGE President was paid $1.4 million a year.” Toronto Star, December 22, A1.
 Winfield, Mark (2008). “Public safety in private hands: Rethinking the TSSA model.” Toronto Star, August 29. Web edition: http://www.thestar.com/opinion/2008/08/29/public_safety_in_private_hands_rethinking_the_tssa_model.html
 Ovid, Marco Chown (2013). “Sunrise Propane found guilty in massive 2008 explosion.” Toronto Star, June 27. Web edition: http://www.thestar.com/news/crime/2013/06/27/verdict_expected_in_sunrise_propane_trial_over_deadly_2008_toronto_explosion.html.
 Lee, Marc (2010). Canada’s Regulatory Obstacle Course: The Cabinet Directive on Streamlining Regulation and the Public Interest. Ottawa: Canadian Centre for Policy Alternatives, p. 5.
 Morrow, Adrian (2013). “Ontario Liberals’ gas-plant cancellations cost $1-billion: auditor.” The Globe and Mail, October 8. Web edition: http://www.theglobeandmail.com/news/ politics/ontario-liberals-gas-plant-cancellations-cost-1-billion- auditor/article14744879/.
 Howlett, Karen and Paul Waldie (2012). “Hedge funds reaped $149-million from cancelled Ontario power plant.” The Globe and Mail, November 7. Web edition: http://www.theglobeandmail.com/news/national/hedge-funds-reaped-149- million-from-cancelled-ontario-power-plant/article5083741/.
 Janson, Rick (2011). “P3s deserve to be an election issue even if nobody wants to talk about it.” OPSEU Diablogue, August 10. Available online at http://diablogue.org/tag/william-osler-hospital.
 Construction and Design Alliance of Ontario (2013). “Ontario turns to private sector for infrastructure cash.” CDAO web site, November 7. Access at http://cdao.ca/ontario-turns-private- firms-infrastructure-cash.
 Janson, Rick (2013). “Privatization: The ‘big bad mistake’ Ontario is intent on repeating.” OPSEU Diablogue, October 16. Access at http://diablogue.org/2013/10/16/privatization-the-big- bad-mistake-ontario-is-intent-on-repeating/.
 McKenna, Barrie (2012). “The hidden price of public-private partnerships.” Globe and Mail, October 14. Web edition: http:// www.theglobeandmail.com/report-on-business/economy/the- hidden-price-of-public-private-partnerships/article4611798/.
 House of Commons Public Accounts Committee, Parliament of Great Britain (2011). “Committee publishes report on Private finance initiative.” Commons Select Committee, September 1. Available at http://www.parliament.uk/business/committees/ committees-a-z/commons-select/public-accounts-committee/ news/pfi-report-publication/.
 Sousa, Charles (2013). Ontario Economic Outlook and Fiscal Review: Statement. Toronto: Queen’s Printer for Ontario, p. 7.
 For more case studies of P3s in Canada and elsewhere, see Mehra, Natlie (2005). Flawed, Failed, Abandoned: 100 P3s – Canadian and International Evidence. Toronto: Ontario Health Coalition. Available at http://www.web.net/ohc/P3s/Flawed,%20Failed,%20Abandoned%20-%20Final.pdf .
 Commission on the Reform of Ontario’s Public Services (2012). Public Services for Ontarians: a Path to Sustainability and Excellence. Toronto: Queen’s Printer for Ontario, p. 274.
 These figures come from on an analysis of Statistics Canada’s input-output tables conducted March 17, 2014 by the Centre for Spatial Economics.