Volume 12 Week 5

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Commentary:
Enough already with the Greek comparisons

By Fred Sherwin
Orléans Online

I don't know about you, but I'm starting to get a little sick of hearing politicians, political pundits, radio talk show hosts, office cooler economists and the guy at the end of the bar trying to compare Ontario, or Canada, to Greece.

Half these people can't even find Greece on a globe, let alone profess to have any real knowledge of the Mediterranean country's economic meltdown.

You know, the self-professed experts who during the last six months and especially following the release of the Drummond Report.earlier this week, who are warning that if Ontario doesn't make drastic spending cuts and soon we're going to end up like Greece.

Well, as much I would hate to let a poor attempt at hyperbole get in the way of a good story, lets take a look at a few facts.

Fact # 1 Ontario's current debt is $220 billion and our deficit is $16 billion

Fact # 2 Canada's current debt is $581 billlion and the deficit is $30 billion

Fact # 3 At the height of Greece's economic crisis it's national debt was 125% of its GDP and the deficit was 12.5%

Canada's estimated GDP is $1.574 trillion, meaning our net federal debt to GDP ratio is 37%. Ontario's GDP is approx. $640 billion, meaning the province's net debt to GDP ratio is 34%. Both are a far cry from 125%.

Even when you take into account Canada's total net debt, combining all three levels of government, the ratio is still only 84%.

To put the provincial figure into perspective, in order for Ontario to have the same realtive net debt to GDP ratio as Greece, we would have to have a total net debt of $800 billion, and in order to have the same net deficit to GDP ratio, our deficit would have to be $80 million. It's currently $16 million.

In his report, Drummond warns the deficit could rise to $30 million by 2017. That's still a fraction of what Greece faced, and only if our GDP remained stagnate for the next five years.

As it is, Ontario's GDP has increased an average of two per cent a year over the past 10 years. If it were to continue to grow at the same rate over the next five years it would reach $706 billion. Going by that figure, the provincial deficit would have to hit $88 billion to place it in the same ballpark as Greece. That just isn't going to happen.

Besides being grossly in debt, Greece's economy was also plagued with corruption at all levels, and tax evasion was rampant.

News flash: Canada isn't Greece and neither is Ontario, and they never will be. They're not even close. So enough already with the headline-grabbing comparisons.

Ontario is in the mess it's in for three reasons:

1) the global recession combined with the high Canadian dollar wreaked havoc on the manufacturing sector;

2) the recession led to a sharp decrease in reveune which made increases in spending in areas such as education, infrastructure and health care stand out that much more; and

3) decisions made by the former Conservative government pre-2003 to cut taxes and reduce spending forced the Liberal government to restore spending in areas such as health care and education during a temporarily robust economy that came to a screeching halt in 2008.

The provincial deficit is no more Dalton McGuinty's deficit than the federal deficit is Stephen Harper's.

That being said, Ontario's economy in 2012 is vastly different than it was in 2011. The manufacturing jobs that were lost in 2008 and 2009, may be gone forever. We have to somehow reinvent ourselves and we have to tighten our belts, which is what the Drummond Report is all about.

Changes will be made and spending will be curtailed, but I'm not as pessimistic as Mr. Drummond when it comes to forcasting our future economic growth. If it rebounds even incrementally higher that what is predicted in his report, thaen the deficit won't be as severe and a balanced budget will be easier to attain.

(Posted 1:00 a.m., Feb. 18)

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