What Quebec has just done, Ontario will do. Not now, or perhaps for a year or two, but Ontario eventually will have no choice to do a Quebec. The longer Ontario takes to do a Quebec, the more painful Ontario's choices.
Quebec, after years of kidding itself, finally woke up this week, or at least the provincial government did. Ontario, by contrast, remains unable or unwilling to face fiscal reality, witness to which was the recent provincial budget: a $21-billion deficit, followed by six more years of deficits, and an accumulation of about $100-billion of debt, without a marginally credible plan of escape.
Deficits and debt like those revealed in the Ontario budget eventually mean one thing: higher taxes and reduced government spending. Reasonable people can disagree about which mix of taxes and spending, but only the willfully blind or ideologically blinkered (the two often amounting to the same) can deny reality.
So Ontarians should know: They will face higher taxes and they will have less robust government spending. Get ready for it. Take it to the bank. Study the Quebec budget. Your future lies there.
Not in every detail. An Ontario government will find its own way to raise taxes and cut spending. A future Ontario government obviously won't do everything Quebec has done. But the general direction of Quebec's budget, with its higher taxes and fees, coupled with spending restraint, showed the kind of courage and ambition Ontario does not now have but will absolutely need.
Quebec had been living beyond its means for a long time, mostly running deficits, piling up the highest indebtedness in Canada, maintaining very generous social programs, keeping university fees by far the lowest in North America, suppressing hydro rate increases, while counting on more and more borrowing and increasing federal transfers to escape from reality.
As Quebec Finance Minister Raymond Bachand noted in his budget speech, the Quebec government spends 26 per cent more on government services than Ontario, even though the province's per capita income is 14 per cent less.
It was part of what was called the "Quebec model," a very pleasant model indeed, except that Quebeckers were not prepared to pay entirely for it, despite higher personal income taxes than elsewhere.
Now, the Quebec government has done what ought to have been done many years ago: raised taxes and reduced the rate of spending increases.
The provincial sales tax will rise two points to 9.5 per cent. Hydro rates, deemed politically untouchable, will go up. Fuel taxes will be increased. University fees will be set at a higher level. Taxes will go up for those in the financial sector. Most controversial, Quebec will impose user fees in the health-care system and impose a yearly health tax, with all the money going back into the health-care system.
These changes bring reality to bear on health-care spending, a reality other provinces, including Ontario, will not face. The reality is simple: A province cannot keep health-care costs rising by 5 to 7 per cent a year, as has been happening everywhere, without a) raising more revenues, b) reducing spending elsewhere, c) going further into debt. Quebec has chosen to raise revenues directly on health-care use, and to dedicate a yearly tax to health-care spending. (The new taxes are not adequately related to income, but that could change during the budget debate.) So Quebec, in one audacious move, has slain sacred cows (hydro rates and health-financing), told Quebeckers the truth about their fiscal situation and promised in addition to these new taxes that 60 per cent of the deficit will be covered by spending cuts, most not yet announced.
It should be said, however, that if Quebec's situation was unsustainable in the long term before this budget, imagine how ghastly it would be if $8.5-billion were not being transferred to the province in equalization, with the largest number of those dollars coming from Ontario taxpayers. About 17 per cent of Quebec's budget comes from federal transfers from the rest of Canada. Secession anyone?
What about Ontario? There, the deficit for this fiscal year is much higher than Quebec's in per capita terms, the string of anticipated deficits much longer. In three or perhaps four years, the previously unimaginable will occur unless Ontario changes course: Ontario's debt level will be about the same as Quebec's. And Ontario doesn't have open to it Quebec's easy money source: higher hydro rates, because Ontario's hydro rates are already high and about to soar, courtesy of green energy flow-through tariffs.
Ontario is also governed by a Liberal Party that has increased spending substantially since being elected, and seems to know no other way of governing. The last budget offered only a tiny glimmer of recognition of the magnitude of the fiscal hole in which the province finds itself. The kidding of Ontario by its provincial government, in other words, goes on.
Presumably nothing serious will be said by Dalton McGuinty's government before the 2011 election. And, as we see in the post-budget reaction in Quebec, nothing serious will be said in Ontario by opposition parties that will blame everything for cheap political reasons on "waste" and "mismanagement," code words for their own intellectual bankruptcy.