The fact that public servant and fee for service physician compensation must get your utmost attention should not totally blind you, Premier Wynne, to the equally powerful constituencies of Finance.

The power of finance is often more subtle, but no less determined and certainly no less articulate. And finance often has a hugely influential ally in the ministry of finance as well as in the federal department of finance.

What a minister of finance wants and what the ministry believes is important will have a powerful voice in all of your most substantive decisions. As a rule, that voice will be unique in your cabinet and amongst your public service advisors.

The minister of finance, and by extension the ministry, will have one over-riding objective – the bottom line of the government’s revenues minus expenditures. Concern for deficits, and then correspondingly for debt as a ratio of GDP, will dominate their advice.

For example, your government’s most recent Budget stated quite bluntly, “Eliminating the deficit is the single most important thing the government can do to secure Ontario’s prosperity”.

This statement reflects more than simple rhetorical licence. The ministry of finance employs many economists, but economic analysis can easily be overridden by the central preoccupation, and easily measured performance benchmarks, of deficits and debt ratios.

There is no theoretical basis that links economic growth to government debt ratios. You will recall that some Harvard economists thought they found an empirical link after studying many jurisdictions over time. They have since been pilloried for a simple statistical error.

I am not arguing that you do not have to be concerned about debt. You should be. But how much debt is too much is a contextual matter. It depends on lenders’ assessment of your ability to service and repay. Much of that depends on the real growth rate of the economy. And this depends in part in how wisely you are spending and taxing.

Of course, it’s possible to be caught in an unsustainable deficit and debt spiral. Low or no real economic growth combined with high real interest rates can trap you in an unrelenting debt disaster – witness the dismal condition of those European states who have become the poster children for fiscal and economic mismanagement.

But the potential for some truth doesn’t make it the whole truth. And focusing solely on deficits and debt ratios can lead you to make very poor public investment decisions.

For example, they might lead you to an uncritical embrace of private equity capital to substitute for public sector borrowing in building public infrastructure. Public-private partnerships are all the rage in the business community, particularly since private investors must now look to more risky investments in faraway places if they want high yields.

But private equity is extremely expensive compared to the cost of public borrowing and should only be employed when there are demonstrable offsetting cost reductions and real risk transfer. If not, then Ontarians will pay too much and this hurts overall economic performance.

QP Briefing recently ran a story that illustrates the point in a small way. Investors in solar energy co-ops are promised a safe investment earning 5 percent annually for 5 years, much above the rate on an Ontario Savings Bond. But who pays for this premium? Electricity consumers pay.

The problem, however, isn’t just about solar electricity. Scale up this financial cost premium for private capital over many other large public projects and sectors and you have a massive financial cost imposed on the Ontario economy, for potentially no corresponding benefit.

Of course, by substituting private capital for public borrowing you could be meeting your public sector debt targets. But so what?

The financial industry has a powerful voice in Queen’s Park and, needless to say, in Ottawa too. And chartered banks, in particular, employ many skilled economists in their marketing departments, with ready access to the mass media.

Judging from the QP Briefing story on the Toronto Financial Services Alliance, it appears your government even subsidizes the sector’s efforts to lobby for favourable tax and regulatory treatment – all in the name of creating jobs of course.

This is just business as usual for the financial industry in Canada. Bay Street is well populated with former ministers and officials from finance departments. No one even raises an eyebrow.

Make no mistake Premier Wynne, whether union bosses or private financiers, they all want something you possess – access to the near monopoly power of governments to tax and to charge for some essential services. When they succeed, it makes, for them, a secure job or investment with high payoffs/yields.

But if you are to pursue the best interests of the people of Ontario, those who are not public servants or large scale private investors or employed in financial services, you must find ways to hold these powerful constituencies in check.

Don’t be fooled by business buzzwords or fiscal benchmarks. There is no shortcut to doing the economics on a case by case basis.

Purchase: Beware the power of finance

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