In a previous article, we applauded Tim Hudak for giving Ontario voters a clear choice about the future of the Ontario economy and indeed the Canadian economy. Ontario, after all, makes up 40 percent of the Canadian economy. If the Ontario economy is not doing well, then the Canadian economy will not being doing well.

On Thursday, Ontario voters will make a choice about the future of Ontario.


On the one hand, there is the Progressive Conservatives, (PCs), who believe that Ontario faces a fiscal crisis and that the only solution is a severe dose of fiscal austerity, that will cut 100,000 public service jobs, reduce government spending by $10 billion, and hopefully eliminate the deficit by 2016-17.


Mr. Hudak has been very emphatic; there will be no exemptions to his goal of cutting 100,000 public service positions. He has admitted that it cannot be done through attrition.


Premier Wynne, on the other hand, has taken the view that such severe austerity is not needed. The deficit of $12.5 billion is only 1.3 per cent of GDP and the debt burden, defined as the ratio of debt to GDP, is forecast to stop rising at about 40 per cent of GDP and, with the measures proposed in the Liberal’s 2014 budget, it is forecast to begin declining. With these fiscal numbers, Ontario would be very welcome in the EURO.


According to the Liberals, severe austerity would dramatically cut economic growth and job creation and end up making the fiscal situation worse. She is proposing slower fiscal restraint and more support to economic growth.


She is right on one thing. A debt burden problem cannot be resolved without economic growth. This was true in 1995 in Canada with the elimination of the federal deficit in three years. Without strong global economic growth this would not have happened. It has also proven true since 2012 in those EURO countries faced with severe debt problems.


Mr. Hudak agrees that economic growth is essential to solve Ontario’s debt burden problem. But his ideological view about where this growth will come from is quite different from that of Premier Wynne.


In Mr. Hudak’s view, government is an obstacle to private sector job creation and economic growth. Mr. Hudak believes that a program of severe austerity that would significantly reduce the size and influence of government would create renewed confidence in the private sector and they would start investing, start exporting, and start hiring.


Premier Wynne believes that this will not happen on its own and that the public sector must support aggregate demand through critical infrastructure investments aimed at improving competitiveness and productivity. This is the approach taken by the Obama Administration since 2010 and it has paid off. Employment growth in the U.S. is booming while in Canada it is stagnating. Too bad the federal government didn’t adopt the same approach as the U.,S.


The Hudak “plan” is of course based on the same ideology that the Federal government has adopted since 2010. The problem is the Federal plan hasn’t worked. The federal government imposed austerity, primarily on the public service, beginning in 2010. Since then economic growth has fallen, employment growth has fallen, investment growth has fallen and the growth prospects for 2014 are now deteriorating.


The reason is simple; there is not enough demand in the global or domestic economy to support increased private sector investment and economic growth. The Governor of the Bank of Canada is concerned about this and rightly so.


Mr. Hudak’s policy platform is based on “faith”, not sound evidence. He believes, without any empirical support, that severe downsizing of the government will immediately create private sector jobs. There will be no loss in output and employment from the austerity. His job plan makes no reference to reductions in output and employment.


As we have said in a previous article, the proposed PC spending cuts could lead to a reduction in provincial GDP of between 1.5 and 2.0 per cent, depending on the fiscal multiplier.  This means fewer jobs and higher unemployment. This would be happening at a time when the economic recovery in the U.S. has yet to take hold, the EUR) area is struggling to avoid deflation, and Chinese growth is falling.


Canada is also struggling, as is Ontario.  The jobs report released on Friday should be of concern to both federal and provincial governments.  In May, only 25,800 jobs were created in Canada and all of this increase was in part-time low wage jobs.  A decline of 29,000 full-time jobs was offset by an increase of 54,900 part-time jobs. Over the past 12 months, increases in monthly employment averaged only 3,000; full-time employment has barely increased.  In Ontario, employment has increased only 39,400 over the past year and the unemployment rate remains unchanged at 7.3 per cent.


What the employment numbers have been saying for some time is that the economic recovery in Canada and in Ontario has not taken hold..  This is not the time for severe austerity. It would make a very fragile situation even worse.


To his credit, Mr. Hudak released an election platform which he claimed would lead to the creation of one million new jobs after eight years.  It turns out that his “job” plan was a complete sham involving laughable analytical and mathematical errors.


According to Mr. Hudak, 476,800 of these jobs would result directly from the various policy initiatives proposed in the PC’s “Million Jobs Plan”, with the remainder (523,200) coming from normal economic growth.


Unfortunately, as everyone now knows, Mr. Hudak got his math all-wrong.  The PCs have counted each job resulting from their policy initiatives eight times – the number of years required to reach a million, thereby grossly over estimating the impact of their policy initiatives. His plan will not create a million jobs.


But what is the likelihood of employment being one million higher in 2022, despite the errors in Mr. Hudak’s math?  Philip Cross recently argued in a Financial Post article that this million job target is well within reach.  He points out that “in the 1990s, one million more jobs over an eight year period was the norm, regularly matched or exceeded year after year”. In examining the period 1976 to 2013, it appears that Mr. Cross was referring to the experience in the early 2000s, rather than in the 1990s, as an increase of one million or more jobs over an eight year period occurred only once in the 1990s, that being in 1990.


In 2001, the level of employment in Ontario was nearly one million higher than in 1993 and was more than one million higher in each of the next four years from the levels reported eight years previously. However, the late 1990s and early 2000s were years of exceptional global economic growth. 

This ended abruptly with the 2008-2009 financial crisis and employment growth across the country was again constrained.  By 2012, employment growth in Ontario was only half a million higher than in 2004 and according to the Liberal’s 2014 Budget, it is projected to stay around half a million until 2017.


To achieve the one million target, employment in 2022 would have to be 8 million compared to 7 million in 2014.  This would require that employment growth average about 1.7 per cent per year from 2014 to 2022. 


This may be possible. But Mr. Hudak’s jobs plan will have nothing to do with it. It would require much stronger global economic growth than what is currently anticipated.  Potential economic growth in Canada has fallen from around 3 per cent in the 1990s to just under 2 per cent. This is the new norm. To expect a repeat of what happened in the late 1990s and early 2000s is wishful thinking.


Ontario does not have a fiscal crisis. It has a debt problem.


Ontario does, however, have a jobs problem. There are simply not enough jobs being created.


Both problems need to be addressed with the right balance of expenditure restraint and support for demand and growth.


Mr. Hudak’s plan does not do this. His plan would make both problems worse

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