A Look Ahead for Premier McGuinty

I was asked by iPolitics.ca to put myself in Premier McGuinty’s shoes to think about priorities and problems at the start of his new mandate. While the iPolitics article, with contributions from a variety of pundits, will be coming out early in January, here are my un-media-ted views now.

The leadership of the federal Liberals is McGuinty’s for the asking. While leading the third party in opposition is always a hard grind, after this overview, the conclusion might be that it is preferable to governing Ontario now.

The province is running a substantial deficit in an economy that is not rebounding as quickly as anticipated a few months ago, and the debt ratings agencies are watching carefully, with the possibility of a downgrade looming. In addition, the generosity of the federal government, for example in constantly increasing transfers for health care, can no longer be taken for granted. It has its own fiscal concerns.

The province has little, if any room, for tax increases as a way to achieving fiscal balance. Economically, higher taxes decrease growth. Politically, higher taxes would confirm the “taxman” image the Conservatives, with at least some success, stuck on McGuinty. The alternative – spending cuts – militates against two key components of McGuinty’s style and substance of government.

First, he has taken pride in improvements in the quality of public service, for example decreases in hospital waiting times, reduction in class sizes, and better student performance in province-wide tests. All of these have required increases in spending. Second, after the public sector turmoil of both the Rae and Harris governments, McGuinty has brought a measure of stability and cordiality to the public sector, achieved through generosity in labour settlements, within both the OPS and the broader public sector. In addition, the McGuinty government has directed considerable spending towards key priorities, such as green energy. Spending cuts will make it very difficult to extend all these components of an activist agenda into the next mandate.

The McGuinty government may face two microeconomic challenges, the worsening situation at RIM and a possible collapse of the high-rise condo market in Toronto. RIM’s troubles may be the result of better strategizing and implementation by its competitors. Or they may be the consequence of co-CEO’s who, instead of sticking to their kitting, were attempting in one case to emulate Albert Einstein and in the other Larry Tannenbaum. A turnaround seems increasingly unlikely, so the best-case scenario would be takeover by a competitor and the worst-case bankruptcy. RIM has spawned an agglomeration of technological and entrepreneurial expertise in the Waterloo-area, and losing it would be very damaging to the Ontario economy. Just as the McGuinty Government intervened to prop up the auto industry in 2008, it can be expected to intervene to ensure a transition that maintains Waterloo’s technological and intellectual capital.

If Toronto’s high-rise condo market collapses, one implication will be major layoffs in the construction industry. The collapse of Toronto’s housing market in the early Nineties is a precedent, as the slack was taken up by the construction of Highway 407. The debt rating agencies were cooperative, agreeing not to add spending on the highway to the Rae government’s debt because of the prospect of cost recovery through tolling. The expansion of the Toronto subway system may play a similar role now, though the financial model and the likely reaction of the rating agencies would be different this time.

Politically, while McGuinty no longer has a majority, the Liberals have the advantage of straddling the political centre, making it hard for the Conservatives and NDP to find common cause and bring down the government. Furthermore, McGuinty has an advantage over the Conservatives in that leader Tim Hudak still chooses to wear the mantle of Mike Harris’s common sense revolution. McGuinty’s response would be that, if austerity is inevitable, it would be better to have it delivered by a leader who will do his best to mitigate the damage than by a leader who relishes it.

Ultimately McGuinty’s challenge will be to find some way to both recast himself and maintain continuity with a self-definition that has worked.

This will be my last post of the calendar year. I wish my readers a relaxing holiday season and healthy and happy new year.

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