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Wynne Says Ontario to Choose Between Growth or Austerity

Ontario Liberal Premier Kathleen Wynne said next month’s provincial election is a choice between austerity or economic growth.

Speaking at the Bloomberg Canada Economic Summit in Toronto, Wynne drew a contrast between her platform and that of opposition leader Tim Hudak, saying the Progressive Conservative plan to cut 100,000 government workers is the wrong choice for Canada’s most populous province.

Hudak’s plan “is not right for Ontario -- especially now,” Wynne said. “It does not offer a path to growth. In fact, it would risk driving us back into recession.”

Ontario will hold an election June 12 after the Progressive Conservatives and New Democratic Party said they wouldn’t support the government’s budget. The Liberals held a minority of the 107 seats in the province’s legislature, meaning they needed the support of at least one opposition party to continue governing.

“This election is coming down to whether you believe you can cut your way to prosperity,” Wynne said.

Wynne’s Liberals are betting an agenda of spending increases and tax hikes on high-income earners will convince voters to extend the party’s 11-year run in power, even as the province struggles with sluggish economic growth and a jobless rate that exceeds the national average.

Liberal Approach

Speaking to reporters in Ottawa today, Hudak said his plan will lead to job creation, supporting the economy. “That person working in a factory who lost their job, they can get away from the part-time job and get a good full-time job again,” Hudak said.

“The concern that I have is the Liberal approach of spend, spend, spend and then tax, tax, tax to pay for it, that will put us back into recession,” he said.

The party that wins the election will face the largest deficit of the nation’s 13 provinces and territories relative to the size of their economies. The government’s projected deficit of C$12.5 billion ($11.5 billion) for the fiscal year that began in April represents 1.7 percent of the province’s economy, higher than any of its peers, according to Bank of Montreal.

The province’s manufacturing sector, once one of Canada’s economic engines, was hit hard by the global recession. Since September 2008, Ontario manufacturers have eliminated 123,500 jobs, more than half the 234,000 factory jobs lost nationally, according to Bloomberg calculations using Statistics Canada data.

Currency Moves

A rise in the Canadian currency against the U.S. dollar of almost 19 percent since March 2009 has added to their woes. Unilever Plc said May 8 it will close a plant in Bramalea, Ontario, that made soup mixes and employed 280 people. The company said production will be shifted to Independence, Missouri.

Wynne said a recent drop in the value of the Canadian dollar against its U.S. counterpart has helped Ontario companies. “The dollar is a little bit lower than it was and that’s a good thing,” she said. The currency has fallen 4.1 percent in the past six months, the worst performance among 16 major currencies tracked by Bloomberg.

Ontario’s unemployment rate of 7.4 percent compares with a national average of 6.9 percent. The government projects the province’s economy will grow 2.1 percent this year. This compares with the 2.3 percent median estimate for the Canadian economy in a Bloomberg survey of economists.

‘Global Shifts’

“Ontario’s a quintessential example of an economy caught in the crosshairs of global shifts,” said Don Drummond, former chief economist at Toronto-Dominion Bank who now works as a public-policy fellow at Queen’s University in Kingston, Ontario. “It doesn’t have automatic markets in the developed economies, and it suffers enormously from competition from the emerging economies.”

Drummond oversaw a review of Ontario services in 2012 that recommended the government restrict spending to deal with slower growth.

Japan in 1990 was at the top of the pile, and Japan has been a slide now for two and a half decades,” he said in a telephone interview yesterday. “It’s still quite well off, but it certainly hasn’t been having any meaningful growth. That’s the risk for an economy like Ontario.”

The province’s productivity growth lagged the rate in the rest of the country and Group of Seven nations between 1984 and 2011, according to a government report. Factors include a shift in production to less efficient industries, low investment in machinery and equipment and weak spending in research and development, according to the document.

Minority Government

Wynne, 60, became Ontario’s first woman premier last year after winning the leadership of the Ontario Liberal Party. Her predecessor Dalton McGuinty stepped down in 2012 amid controversy over canceled power plants and an inability to carry out budget cuts in his minority government.

The Liberal fiscal plan would increase the province’s deficit to pay for more transit, schools and hospitals. The Liberals have also pledged to raise income taxes on those earning over C$150,000 and increase taxes on tobacco.

Hudak, leader of the Progressive Conservatives, has said his party would shrink government payrolls by 100,000 and reduce corporate tax rates to the lowest in North America.

Wynne’s remarks today largely ignored the New Democratic Party, led by Andrea Horwath. The NDP has proposed tax credits for manufacturers who invest in the province and employers who create jobs.

Opinion Polls

The Progressive Conservatives have the support of 37 percent of voters, compared with 31 percent for the Liberals and 28 percent for the NDP, according to a poll conducted by Ipsos Reid and released May 9 by CTV News. The survey of 821 people was conducted May 6 to May 9 and had a margin of error of 3.9 percentage points.

For all the campaign talk of creating jobs, Ontario’s short-term prosperity will probably hinge on the strength of the U.S. recovery, said Paul Boothe, a business professor at Western University in London, Ontario, who once served as the most senior public servant at the federal industry department.

“The thing that’s really holding us back is lack of demand, and that’s to be expected, given the prolonged recession our biggest customer had,” he said in a phone interview yesterday. Canada sends about three quarters of its exports to the U.S.

U.S. Market

“People always used to talk about Canada being so well-placed to serve the U.S. market,” Boothe said. “Well, Mexico is too, and Mexico is also a good place to serve Latin America.”

Ontario’s auto industry has struggled as companies shift production to other jurisdictions such as Mexico. Canada’s share of global vehicle exports has fallen to 6 percent, from a double-digit share as recently as 2002, according to an April 30 report by Bank of Nova Scotia.

Ontario 10-year bonds trade at a spread of 85 basis points over the equivalent federal government securities, according to data compiled by Bloomberg. While the spread has tightened since the election was announced May 2, it has widened from 73 basis points on April 15. The government’s “backtrack” on its deficit reduction plan in the budget could hurt the province’s standing among credit-rating companies, said Robert Kavcic, senior economist at Bank of Montreal in Toronto.

“If they don’t manage to pull off the cost-containment plan they have longer term, their credit rating could be at risk,” Kavcic said. “Ultimately, that could end up leading to higher borrowing costs.”

Standard & Poor’s lowered the province’s outlook to negative in 2012, citing doubts about the province’s ability to meet its fiscal targets.

To contact the reporter on this story: Andrew Mayeda in Toronto at amayeda@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Simon Casey

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