Monday, 4 February 2013

Financial Debt and the Road to Moral Bankruptcy


As America’s most indebted State, California has been mercilessly criticized for its debt and even the State’s own Treasurer has called the situation a “fiscal train wreck”[1]  that appeared to be on the road to bankruptcy.

Many in Canada looked on in bewilderment, wondering how a State as impressive and productive as California could be in such straits. Yet it might be time to bring that bewilderment home. The Fraser Institute recently reported that Ontario’s current debt levels exceed the infamous debt of California.[2] Against a comparative measure of bonded debt (i.e. the portion of the province’s, or State’s, total tax-supported debt as represented by outstanding bonds), Ontario’s debt is almost two-thirds larger than California’s. The situation is even worse than it appears when taking into account the fact that California’s economy and population is substantially larger than Ontario’s. In fact, Ontario’s debt as a percentage of GDP is nearly identical to the debt-to-GDP ratio of Greece only 10 years ago.

Will Ontario spiral into a suffocating debt crisis that threatens bankruptcy? From a financial standpoint, it’s hardly likely. There’s still plenty of time for the province to take corrective measures before a Greek-style meltdown occurs. The real danger lies in these corrective measures taking the form of moral bankruptcy.

Ontario’s debt problems have been profoundly exacerbated by mismanagement at the governmental level. During McGuinty’s rein, the provincial debt has more than doubled.[3]  From the financial irregularities of the Ornge scandal to the overspending on security at the G20 meeting in Toronto to the cancellation of power plants in Mississauga and Oakville that cost Ontario taxpayers hundreds of millions of dollars[4], the list of managerial missteps of this Liberal government whilst under the leadership of Dalton McGuinty is extensive. However, instead of seeing a government humbled by its flawed financial stewardship, we’ve received one that looks for scapegoats on which to shift the blame. Despite the fact that neither labour wages for workers nor labour costs for businesses doubled alongside the provincial debt, the scapegoat of choice appears to be organized labour.

As we discussed in earlier posts, the government passed Bill 115 and circumvented the collective bargaining process to force teachers to accept a two-year wage freeze to help trim a provincial deficit of nearly $15 billion. In a statement rife with hypocrisy, Education Minister Elizabeth Broten has said that, in opposing Bill 115, the leaders of the teachers’ unions “refuse to accept our fiscal realities,"[5]. In other words, public sector workers must sacrifice their rights and quality of life in order to help pay down massive debts run up by the governing Liberals.

Implicating labour costs, even indirectly, in a debt created in no small measure by the managerial mistakes of this government and then using the debt to justify freezing wages is simply not a tenable position. The workers didn’t cause this mess. The mess was caused by fiscal imprudence and external factors like the global recession, neither of which were the result of labour costs. Still, this hasn’t stopped the Liberals, in their wisdom, from using this mess to create a more complex and nuanced mess by attacking unions and adding labour disputes to the mix.

The government also appears to be using debt concerns to thwart a public inquiry into the power plants affair, stating that an inquiry into the matter would be “too costly.”[6] It would be nice if this came as a surprise, but in a system as morally bankrupt as the one previously led by McGuinty appears to be, any inquiry that strives for accountability and which seeks to scrutinize decisions that added to the debt cannot help but be “too costly”.

Of course, Kathleen Wynne has only recently assumed leadership of the Liberals and it’s possible she won’t be a carbon copy of her predecessor. Any change at the top opens the door to new ways of doing things.  There’s a chance Wynne may yet prioritize accountability, bear at least a modicum of responsibility for her party’s role in creating Ontario’s massive debt, stop trying to pay down deficits by trampling union rights, and not allow financial burdens to lead this province down the road to moral bankruptcy.