Next Ontario Liberal leader faces huge task

At their Jan. 26 leadership convention, Ontario's Liberals will select the province's 25th premier. How long the victor remains premier given the minority government depends on how successfully they can grapple with a daunting set of intertwined issues.

First, the ritual political cleansing afforded by a new leader may not be enough to deal with the extraordinary political inheritance of a decade in power. This legacy includes the proroguing of the legislature, the province's large debt and deficit, the expensive and controversial wind and solar energy policies, rising hydro rates, the eHealth scandal, the Ontario Lottery and Gaming scandal, the scandal at the provincial not-for-profit air-ambulance service ORNGE, the Mississauga power plant relocation scandal, as well as ongoing unrest with teacher unions, the health sector and other public-sector unions.

The diplomatic skills required of the next premier to deal with this political baggage train are considerable.

Second, Ontario's economy was hit hard by the global recession and has become a mid-ranked province in terms of per capita GDP, resulting in equalization payments and unaccustomed status as a have-not province.

Ontario has productivity problems brought about by high electricity and energy costs, a reliance on automobile manufacturing, and a political culture focused on bureaucracy and regulation rather than economic fundamentals and getting things done.

While the booming Canadian resource sector and its effect on the Canadian dollar are seen as a source of Ontario's malaise, Ontario's next premier would be better served by helping develop Ontario's own northern resource mining frontier. Moreover, Ontario companies need to make more of an effort to take advantage of economic opportunities from servicing Western Canada's resource sector.

Third is the sorry state of the province's fiscal affairs. According to the most recent edition of the Federal Fiscal Reference Tables, between 2002-03 and 2011-12, Ontario's total provincial government spending grew by 64 per cent, its revenues grew 46 per cent and net debt grew by 78 per cent and is poised to break $300 billion in the near future.

Ontario only recently came to grips with its economic and fiscal situation via the Drummond Report. Despite the talk of 30 per cent across-the-board spending cuts in the report's wake, Ontario's 2012 budget merely forecast a deceleration of spending growth. According to the 2012 Ontario budget, spending will continue to grow from $124.6 billion in 2011 to reach $134.4 billion by 2017 -- an increase of eight per cent. Meanwhile, revenues are projected to grow from $109.3 billion in 2011 to reach $135.9 billion by 2017 -- an increase of 24 per cent. There is an inherent optimism on the revenue side that may be politically convenient but expectations need to be adjusted by the next premier in the spring budget.

Fourth, the last provincial election saw Toronto, much of the Golden Horseshoe and Ottawa vote mainly Liberal red with tints of NDP orange. The more rural and resource areas tended toward the NDP or Conservatives.

Like ancient Gaul, Ontario is now divided into three parts: a prosperous urban economy rooted in the knowledge-intensive new economy, the traditional small-town and rural areas outside the largest cities with their mix of agriculture and small industry and the resource-rural frontier in the province's north.

The Liberals will need to craft policies that appeal to rural resource voters. The Conservatives must create policies that appeal to their rural base and also attract urban voters. It will be interesting to see how far the New Democrats can go with policies that largely protest against the job losses from economic change.

For Ontario's next premier to obtain a majority government, the coming provincial election requires forging a political coalition that unites these diverse economic interests.

Finally, the road ahead for Ontario's next premier comes down to a vision for the future. What is Ontario's role as a province within the Canadian federation? Despite its vast resources and economic infrastructure, Ontario is now, technically, a have-not province. Ontarians have been the cornerstone of the Canadian federation for so long that they have forgotten how specialized and externally dependent their economy is.

Years of affluence generated a culture of contentment and inward-looking policies that took the standard of living for granted. Ontario public debate has been blissfully unaware of the need to respond to economic change. Ontario's next premier needs to articulate a vision of economic change and progress that will restore and rejuvenate Ontario's economy and its sense of place within the Canadian federation.

Livio Di Matteo is professor of

economics at Lakehead University.

Republished from the Winnipeg Free Press print edition January 15, 2013 A7