May 30 (Bloomberg) -- Mike Harris swept to power two decades ago with his “Common Sense Revolution,” pledging to boost Ontario’s struggling economy by slashing government spending. Tim Hudak is betting conditions are ripe for the same medicine.
The leader of the opposition Progressive Conservative Party is campaigning for the June 12 election on a pledge to cut 100,000 government jobs, or almost a 10th of Ontario’s public service. Hudak says that’s the kind of radical surgery, espoused by Harris in 1995, needed to prevent Canada’s most populous province from sliding into fiscal crisis.
“If you ask me if there’s an appetite for change, absolutely,” Hudak said, when asked about the parallels to the Harris plan, in a May 27 interview at Bloomberg’s office in Toronto. “Ontario has been a mess.”
Hudak, 46, is wagering that a mix of job cuts, spending freezes and corporate tax reductions will resonate with voters, as Ontario struggles with mounting debt fueled by the 2008-2009 recession and an underperforming economy, like it did in the early 1990s. He pledges to eliminate a C$12.5 billion ($11.5 billion) gap by 2016.
According to survey aggregator www.threehundredeight.com, the Conservatives have regained the campaign lead, after running behind the ruling Liberals for most of the past two weeks. They have the support of 39 percent of voters, compared with 32 percent for the Liberals and 23 percent for the New Democratic Party, according to the latest projections released today.
That would imply a Conservative minority government in the vote next month. Earlier this week, the Liberals held a slight edge.
Hudak’s strategy has allowed Ontario Premier Kathleen Wynne, 61, who pledges a more activist government, to characterize the campaign as a choice between austerity and economic growth: to “build Ontario up, not tear it down.”
In a television ad, she likens Hudak to Harris, who remains a controversial figure in the province and a symbol to many of unpopular spending cuts.
Harris cut program spending by about C$2 billion in his first budget and kept it near those lower levels for two additional years, leading to hospital closures, government-job losses and social unrest, including a province-wide strike by teachers.
To be sure, Harris also began the 1995 campaign well behind the Liberals in the polls, only to surge in the final weeks and achieve a decisive victory with 45 percent of the vote. While his austerity package was controversial, Harris was re-elected in 1999, maintaining his share of the vote.
“I can recall three weeks before Mike Harris was elected in 1995 people saying the Common Sense Revolution was crazy, was a vote loser,” said Canadian Foreign Affairs Minister John Baird, who along with Hudak won office during that election. “Tim’s got a good plan, we’re excited about it and we’re going into that final three weeks when all the action happens,” Baird said in a telephone interview from Ottawa.
Hudak has plenty of fodder to point out weaknesses in the Ontario economy. Between 2008 and 2013, Ontario posted cumulative budget deficits of C$61.9 billion, about double the other nine provinces’s combined shortfalls.
The gap with the rest of Canada will widen. Ontario projects cumulative deficits of C$38 billion over the next four years, compared with about C$2.5 billion for all other provinces combined, according to Royal Bank projections.
Bond pricing suggests investors are increasingly concerned about the province’s fiscal health. The 10-year yield advantage Ontario enjoys relative to Quebec shrunk to 6 basis points yesterday, from 19 basis points in March.
According to a 2012 report by the Commission on the Reform of Ontario’s Public Services, headed by former Toronto-Dominion Bank chief economist Don Drummond, Ontario would have to cut per-capita spending more deeply and for a longer period than Harris to balance the budget.
“Fiscally, they have a problem and it’s got to be addressed,” Drummond said in a May 10 interview. “It can be resolved, but it’s going to take some discipline to do that.”
Hudak, in addition to shrinking the government payroll over four years, and implementing an immediate wage freeze, wants to end corporate subsidies, which he projects at about C$2.5 billion annually.
That includes the auto industry, putting him at odds with the federal Conservative Party, which has increased subsidies for car companies. The Canadian and Ontario governments own a 6.9 percent stake in General Motors Co. and were part of the 2009 Chrysler bailout.
“I don’t believe in playing special favors,” Hudak said in the Bloomberg interview. “I think that kind of crony capitalism is an invitation to corruption.”
Hudak is also proposing to outsource government work to private companies, reduce red tape and cut subsidies to wind and solar power companies that have fueled energy-rate gains in the province.
These steps will allow Ontario to finance planned corporate tax cuts, improve business confidence and help create a million jobs over eight years, according to Hudak, who calls his platform the “Million Jobs Plan.”
Wynne released a letter to Hudak yesterday saying his plan’s “calculations for job creation are grossly inflated by a basic arithmetic error.” Hudak is sticking by his plan, refuting claims it will act as a short-term drag on growth since it will fuel investment.
A Conservative victory would prevent the Liberals from ramping up spending and introducing a new pension plan, measures Hudak claims will undermine the economy.
“The other track is the government proposing to bring in a new payroll tax scheme,” Hudak said, adding that Wynne’s budget, which forecasts balance in 2017, isn’t credible because it doesn’t show how spending will be restrained.
“They simply don’t have a plan to balance the budget,” Hudak said, citing a May 2 report by Moody’s Investors Service which raised concerns about the province’s finances.
Hudak is fighting criticism of his decision to talk so starkly about budget restraint. While popular with fiscal conservatives, the strategy may limit his ability to win over more centrist voters. Hudak is also taking the focus off scandals that plagued the ruling Liberals at a time when polls show a majority of Ontario voters want a new government.
“They are stupid about how they are running the election campaign,” Nelson Wiseman, a University of Toronto political scientist, said in a telephone interview. “What resonates are scandals and he should just hammer them on that.”
Still, Hudak doesn’t see any alternative to fiscal restraint and says he wants to be upfront with voters.
“This is not a matter of ideology or party preference, it’s simply a function of mathematics,” Hudak said.
Hudak, who was a minister under Harris during his second term in office, said if there is one lesson he learned from his former boss, it’s that you need to “be straight up with voters.”
“The instruction here is that if you actually lay out your plan to voters, you are clear where you stand and you carry through with your plan, they will reward you for that,” Hudak said.
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