The Big Squeeze

Once you get past the hundreds of pages of budget documents, their carefully targeted baubles, the reactions, media commentary, the tweets and retweets, the promotional advertising and smoke and mirrors—if you’re still paying attention—there’s something basic underlying both federal and Ontario budgets neither admit to: the big squeeze on public spending is still on.

Austerity may be out of political fashion, but it’s clearly still in practice. They’ve just been doing it in slow-motion, hoping the public doesn’t notice.

The federal government may rapidly increase direct transfers to people just before the election, but will continue to squeeze direct program spending. Federal operating spending is set to increase by just two percent annually in the six years to 2019/20. This barely keeps up with inflation and is half the rate of projected nominal GDP growth.

Because National Defence—already by far the largest federal department—was promised an annual three percent escalator to its budget, it means federal spending in other areas—for environment, social, employment, environmental, health and aboriginal programs—will increase below the rate of inflation and fall in real dollar terms.

The federal government’s direct program spending is set to be cut from a 5.8 percent share of the economy this year down to a 5.5 percent share in four years, reaching the record lows Paul Martin squeezed federal government direct spending to in the late 1990s. Because interest rates and debt interest are also at record lows, total federal government spending is projected to decline to just 14.1 percent of the economy: the lowest in 70 years.

The Ontario government’s squeeze on spending in this year’s budget is even tighter. Overall program spending is set to rise by an annual average of just 0.9 percent annually in the four years to 2017/18, less than half the rate of inflation and less than a quarter of the rate of nominal economic growth. This means Ontario’s public spending will decline in real terms and decline by about two percent per person.

Contrary to media and public perceptions, Ontario is far from a high spending or tax province. It already has the second lowest program spending of all provinces, both as a share of its economy and on a per person basis. Its revenues as a share of its economy are also lower than all other provinces except Alberta.

Clearly Ontario doesn’t have a spending problem: it has a revenue problem. Its cuts to corporate capital and income taxes in particular have reduced its revenues by over $3 billion annually. While it is providing more money to business in this budget, including through public private partnerships, infrastructure spending and privatization, it is imposing austerity on services to the public, including health care, education, and social services and especially on workers wages.

Tightly controlling public spending to reduce deficits might seem like the fiscally and economically sensible thing to do, but in fact it is not. All except a few right- wing economists agree its economically damaging to cut spending now. But federal and Ontario leaders are covering their ears, ignoring this, acting tough, but being foolish—and the rest of us are paying the price.

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