The following is a column by Dwight Duncan, the former Ontario finance minister and current senior strategic adviser at McMillan LLP.

The midpoint in Premier Kathleen Wynne’s term is fast approaching and the political landscape for the next election is starting to take shape.

This year's provincial budget was a stark reminder of the fiscal and economic challenges the Liberals face as Ontario moves toward the spring of 2018.

The key takeaways from this year’s budget, and its aftermath, are that the government is moving aggressively to increase non-tax revenue (expenditure control initiatives are real enough to alienate large swaths of voters, but not deep enough to satisfy those who see the need for greater restraint), assets remain clearly under active consideration for monetization, and the government is calibrating decisions based on increasingly dismal poll numbers and an even tougher financial reality.

The Wynne government will likely present two more budgets before the next election. Arguably, this year’s budget was the appropriate one to deal with thorny challenges, such as pricing carbon and delaying the implementation of the Ontario Retirement Pension Plan.

The problem the government has with these issues is that neither is going to fall off the public agenda anytime soon. Pricing carbon and how it impacts on consumers has the potential to be more difficult to implement than the HST. No doubt next year’s budget, and the 2018 budget, will be much more ballot box friendly than this year’s.

For his part, PC Leader Patrick Brown has drawn his first lines in the sand around cap-and-trade and the ORPP. In his response to the budget, and at his party’s convention last weekend, he took some tentative but important first steps to defining how he intends to lead the PCs out of the political wilderness.

Brown has now voiced support for carbon pricing, but said it should be revenue neutral to the government. Moreover, he will kill the ORPP and refund contributions to employers and employees if elected.

Like the HST, carbon pricing has its supporters, but it is complicated and its potential impact is easily manipulated by opponents. This reality will be a particular challenge for Wynne and her supporters. Dealing with this, particularly in the context of stagnant wage growth and heightened sensitivity around pocketbook issues, will get more difficult with time.

Brown has his own challenges. He is trying to define himself (or redefine himself, depending on your point of view) as a moderate conservative within a party that includes climate change deniers and caucus members who came to prominence as part of the Lanark Landowners.

On the ORPP, the concept is popular, so Brown is clearly betting that, while people like the idea, ultimately, they won't want to pay for it

Politically, Brown must hold his fractious party together while not sacrificing his ability to win seats in urban Ontario, particularly Toronto.

Andrea Horwath and the NDP cannot be ignored in any of this. Horwath is reasonably well known and, among those who know her, well liked. Horwath’s policy bromides will likely find resonance with many voters in 2018, in much the same way as Bernie Sanders' has in the U.S. presidential election. In fact, the NDP and Liberal pitches to progressive voters between now and 2018 will likely resemble the approaches taken by Sanders and Hillary Clinton in their unexpectedly contentious nomination battle.

It is hard to imagine that Horwath’s NDP will concede the left to Kathleen Wynne in 2018 as they did in 2014. Moreover, it is reasonable to assume that they will actually be prepared this time when the writs come down.

All three parties and their leaders will face an electorate that is as angry, if not angrier than what we are seeing in the U.S. today. This kind of anger was evident in the 2011 and 2014 provincial elections, and drove the rise of Rob Ford and Ford nation.

This should be of particular concern for Wynne and her Liberals. In a world that seems to always hunger for change, she is captaining a party and government that has been around for many years. You cannot, however, ignore the fact that she was able to brilliantly overcome exactly the same challenge in 2014. While it is fair to say that she was assisted in this by the incompetence of her opponents, there were many clever strategic and tactical moves by Wynne and her team.

Still, 2018 will be a very different battle.

Wynne, Brown and Horwath all have many tough political and policy choices ahead of them. These choices will be taken in the context of today’s electoral and economic environments.

Politically, the greatest challenges rest with Wynne. She must continue to govern and make difficult choices in the lead up to the next election. Policy creativity will be necessary on the part of her government. The budget announcement of free tuition for students from families with incomes under $50,000 is an example of the kind of creativity that will be required. The policy was also a stark reminder of the fiscal noose the government finds around its neck.

The redeployment of existing tax credits to fund free tuition for one group of students (in this case, students with family incomes under $50,000) involves taking away benefits from others. No new money to the system coupled with a less than transparent redistribution of resources meant that within a few days the policy was being picked apart by critics on the right and the left.

While the 2018 election may seem a long way off, the budget, followed by last weekend’s Progressive Conservative convention, are the early stirrings of what promises to be an interesting two years.

Dwight Duncan
Senior Strategic Advisor, McMillan LLP
@DwightDuncan

Dwight Duncan has been a senior strategic adviser to McMillan LLP, the Toronto-based business law firm, since March 2013. He advises the firm's clients on investing and operating in Canada and abroad. A long-time MPP from Windsor, Duncan became Ontario finance minister in 2005 and held the cabinet post until he left politics in 2013. Duncan was also minister of energy, revenue minister and deputy premier, among other posts in the McGuinty government.

Duncan: Political landscape taking shape ahead of ’18 election

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