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Saturday, Feb. 4, 2006

Coming public policy in Ontario

Globe and Mail
Tuesday, Sep. 30, 2003

This column was written just before the Ontario election. The views are as valid now as then. Actual popular share voting results: Liberals 46 per cent, Conservatives 35 per cent and NDP 15 per cent.

The Ontario election seems all but over, though the real results have yet to pour in. The polls suggest that a Liberal victory is imminent, ending a two-term Progressive Conservative government first to power in 1995. This is completely in keeping with recent political history there, as the electorate has meandered from decades-long PC dominance through the late 1980s to a succession of minority and majority governments of all political stripes. Ontario cannot seem to make its mind up.

The good and steady residents of Prince Edward Island are another matter. One hundred and forty thousand strong, they have returned the Pat Binns Conservatives to a thumping 23:4 win over the Liberals. In a bit of mischief, the third term Premier, full of delight at his most unusual triacta victory, temporarily renamed the place P.C. Island.

But wait. A look at the popular vote shows a completely different story. Those apparently united Islanders actually shifted 10 points to the Liberals for a total protest vote of almost 43 per cent. It was only the dynamics of a first-past-the-post system, in a two-party race with a relatively flat NDP performance, that made the result look like a hearty endorsement for the incumbents.

The same may be true of the Ontario vote this week. The Tories may be lagging in the polls but there are still somewhere around one-third of voters who find them appealing. That number is likely to rise on election day, given the newfound freedom from the strong Liberal lead to safely vote either Conservative or NDP without necessarily returning the PC government to a third term. Take the Conservatives up to 35 per cent, push the NDP to 19, say, and that leaves the Liberals at 46 per cent, enough for a large majority government -- but not necessarily a landslide.

Even so, unlike the PEI Liberals, anything over 43 per cent in Ontario spells majority government, not a four-year penalty on the opposition bench. Each percentage point past that mark disproportionately adds more seats to the Liberal total. Their risk now is that a late NDP surge splits the vote and allows many more Conservatives back into the legislature.

The policy impact of this potential shift in electoral fortunes is steadily coming into view.

As highlighted in my Fraser Institute report, there is a large potential deficit facing the new government. Spending restraint will be required, as pledges to raise corporate taxes and sell unnamed assets are inadequate to the task of balancing the budget. Further, the pledge to adhere to balanced budget and taxpayer protection laws leaves only spending to take up any deficit-induced slack -- baring the repeal of such legislation, a pay cut for cabinet for running deficits, or a referendum to approve a higher tax solution.

That is the short-term challenge, exacerbated by a campaign that raised spending expectations, by a large and demanding incoming caucus, and by relative inexperience in the ranks of potential cabinet minister material. It will take some time to get organized -- and meanwhile the debt clock is ticking.

The rest-of-term challenge is actually more daunting. The Liberals are essentially rejecting market-based approaches to their key problems.

Corporate taxes are to rise -- even though effective rates are around 10 percentage points higher that Ontario's main competing jurisdictions. Electricity supply is to come from the public sector again -- even though this will add to debt and be coordinated using the same sort of centralized planning approach that brought us the nuclear power debacle. Innovations in health care, using private sector capital and expertise: gone. Auto insurance reform: an initial freeze and an arbitrary 10 per cent rollback of premiums. Education? Do not ask -- it mostly looks like more money to the system without any effort to measure results. Even rent control is making a comeback.

Here is a small prediction. Spending will likely not be cut in time to stave off this year's deficit. Most of the large campaign spending promises will be delayed until late in the term, if then. Ontario voters will go to the polls in 2005 to vote on a new health care tax, sold as the way in which we can maintain social compassion and a balanced budget. Health care will not be fundamentally reformed and it will continue to swallow the budget. The high hopes and Martin Luther King-esque rhetoric of today's victorious Liberals will seem a distant memory. Welcome to the realities of public finance in Ontario.

Mark Mullins is an economic consultant and financial markets analyst. He is also Director of Ontario Policy Studies at the Fraser Institute. Any views expressed here are strictly his own and not necessarily those of the Fraser Institute. Application Error

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NDP 0 7 7
Indep. 0 0 0
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