First there was the banking crisis. That was followed by a stock market crash. By the time the unforgettable fall of 2008 had turned into a cruel winter, we were witnessing a full-blown unemployment crisis. It was the Christmas of the Layoff: From Abitibi to General Motors to Canadian Pacific Railway, the cuts went on and on - 71,000 full-time jobs in Canada last December alone.
Public servants in Ontario remember last December more fondly. For most of them, it was the month they got a raise. Remember that? Probably not, since the deal with their union was very quietly announced on the afternoon of Dec. 24. If you're Dalton McGuinty's government and you've given more money to public employees at a time of deflation fear, market panic and widespread carnage in the private sector, you do whatever you can to bury the news. If that means putting out the word when the voters are sipping eggnog, so be it.
There's no burying the news now. But there's still plenty of digging going on. Ontario's fiscal update gave new meaning to the term "shovel-ready": It revealed a budget hole of $25-billion this year and a debt load that will likely rise to 43 per cent of GDP by 2012, according to DBRS, which knocked the credit rating down a peg. Mr. McGuinty, in power for six years, appears to have set Canada's largest province on course for at least eight years of borrowing. Impressive feat - if the goal is to make former premier Bob Rae look like Mr. Fiscal Responsibility.
Go ahead. Blame the recession. Ontario's economic contraction has been a whopper, for sure. But as with most other provinces, it's only a partial recession: That is to say, the pain is still largely confined to the private sector. Most corners of the public sector, in most parts of Canada, remain remarkably unruffled, even as Ottawa and the provinces rack up close to $100-billion in new debt this year. How long can that go on? Not much longer, we'd bet.
One of the more comical sights of the past year has been to watch populist politicians (mostly in the United States, but also in Canada) pin the blame for economic woe on Wall Street bankers for the sin of myopia. In the political narrative, bankers believed the good times could never end, assumed that patterns of the recent past would repeat themselves ("house prices never go down"), lost sight of risk and did irresponsible things with money, blowing up the economy.
Maybe that's not far off. But then, how did governments spend the boom years? By assuming the good times would never end ("tax revenues never go down"), losing sight of risk and doing irresponsible things with money, blowing up public finances. Don't fault Mr. McGuinty for the projected $5.8-billion plunge in revenue this year. Fault him and his immediate predecessors - you know, the Tories who were supposedly so cold-hearted they'd eat little puppies at caucus lunches - for spending too much and saving too little when the treasury was bursting. The elephantine deficits of today are the result of a series of decisions made over years.
In 2000-01, Ontario took in about $66-billion in revenue. It spent about 80 cents of every dollar on programs; most of the remainder went to paying interest on the provincial debt, leaving a small surplus. By 2007-08, the last pre-recession year, the revenue line had gone up to $97-billion. But programs consumed 90 cents of every dollar, leaving a smaller cushion when - surprise! - recession hit and revenue dropped. Ontario is the equivalent of a salesman on commission who lets his lifestyle grow, only to find that his jumbo mortgage and BMW lease are a bit too onerous when his earnings shrink.
The difference is it's easier for the guy to dump the house than for the government to rescind a raise it never should have granted in the first place. On the other hand, getting the budget in line without touching the civil service payroll is a tall order - for any province. In Ontario, half of the Environment Ministry's estimated budget for this year goes to salaries and benefits. For the Correctional Services Ministry, it's 64 per cent, assuming the employees show up for work. The Auditor-General found that jail guards took an average of 32 sick days in 2007. Oh, but they just got a raise too, with the province agreeing to increase their pay by about 8 per cent over the next four years.
Most of Ontario's budget winds up in the hands of school boards and hospitals and health authorities, which makes it harder to track who's getting it. But when the average retirement age for an Ontario teacher is 58, it's dead easy for a construction worker with no pension who spent the past miserable winter looking for work to figure out that he lives in a two-tier society. One group has excellent job security, a solid wage with guaranteed increases, a sure retirement with inflation protection. The other is assured of none of these things.
So now we'll really see a test of Mr. McGuinty's governing skills. He's got a mess. Does he have the fortitude to make the public sector share the burden of recession?
There's always another option. Release next year's fiscal update on Christmas Eve and hope that nobody notices.