War often makes for strange alliances; it's no different when the war is an economic one. A year ago, Finance Minister Jim Flaherty was locked in a public feud with Dalton McGuinty's Liberal government in Ontario. Yesterday, the latter presented a budget that Mr. Flaherty could have written himself.
Peace has broken out because both sides have a more fearsome common enemy now. When jobs are vanishing by the thousands, it's hardly time to have a petty philosophical debate over economic ideas. Better to forget about old rivalries and manage the crisis. So Mr. Flaherty, who'd badgered Mr. McGuinty to cut corporate taxes instead of subsidizing the auto sector, finds his government paying the bulk of an estimated $10-billion bailout of Chrysler and General Motors.
And suddenly, Mr. McGuinty has become the corporate tax-cutter. The man who couldn't wait to increase business taxes in 2003 is finally lowering them. Next year, the province's corporate rate would fall to 12 per cent from 14; it's meant to fall to 10 four years from now, which would bring Ontario in line with British Columbia and Alberta. Manufacturers and small businesses will pay a little less, too.
But the centrepiece is the revolution in sales taxes, which will cause a lot of grousing - just wait for the TV cameras to catch people at the pumps when the 13-per-cent harmonized tax kicks in on Canada Day, 2010 - but removes a huge irritant for business.
By harmonizing the province's retail sales tax with the GST, as Mr. Flaherty and previous federal finance ministers urged, Mr. McGuinty took a big step toward making it cheaper to invest in Ontario.
"Now is absolutely the right time to do it," said Dwight Duncan, the provincial Finance Minister. No, five years ago was the right time to do it, when the province had a bigger manufacturing base that might have benefited.
Ottawa's agreement to send $4.3-billion to Ontario to grease the wheels of that tax change surely helped change a few minds at Queen's Park. But so did the growing sense that the crisis could hollow out the industrial centre of Canada forever.
"It's a much different world from last year," Mr. Duncan said. "I never imagined a George Bush administration would nationalize banks."
Here's what else he didn't expect to see a year ago: a provincial economy whose deterioration has been so nasty, brutish and sharp. Mr. Duncan's last budget projected the creation of more than 160,000 jobs in Ontario in 2009 and 2010. This one forecasts a loss of 80,000 in those two years, and that may be on the optimistic side, relying (as Mr. Flaherty's January budget did) on forecasts of a strong rebound.
It's not exactly conservative to quote projections of 14 million U.S. auto sales in 2011. (The current rate is less than 10 million, seasonally adjusted.) The same can be said for forecasts of 3.3 per cent real growth in GDP in that year. That would be faster than the provincial rate in 2006.
Like the federal Tories, the McGuintyites are counting on that growth to skate the budget closer to balance, and keep them from being tarred as irresponsible spendthrifts. This government's appetite for real restraint is still low, as illustrated by Mr. Duncan's weak response when asked about getting more efficient. MPPs' salaries will be frozen, he said, and the public sector will have to participate in a common procurement scheme.
Think of the thousands that will be saved on office pens alone! These bold measures ensure that what could have been an outrageous $14.2-billion deficit will be a mere, um, $14.1-billion. Even if everything goes as planned, you're talking about more than $40-billion in new provincial debt over the next four years, in a province that already has about $150-billion in net debt. The McGuinty government projects deficits not only for the rest of its term but for the next term as well.
Still, when compared with the alternatives, it's hard to fault them for the red ink. And it's not as though the opposition parties have a better idea. On sales tax harmonization, the leaderless provincial Tories copped out with the old yes-in-principle-but-the-timing-is-wrong argument. New NDP Leader Andrea Horwath seemed obsessed with how a trip to Tim Hortons will get more expensive. A coffee and a muffin, she kept repeating.
Ontarians don't need muffins. They don't need political arguments. They need jobs.