What a difference a few months can make to the Wynne government’s economic policy.

Recall this statement from Finance Minister Charles Sousa’s 2013 Ontario Budget in May: “Eliminating the deficit is the single most important thing the government can do to secure Ontario’s prosperity.”

That’s pretty definitive. Nothing is more important than a balanced budget. But I guess more thoughtful minds, or at least those with more understanding of economics, have since gained control of the pen.

In last week’s Economic Outlook and Fiscal Review, the deficit reduction priority has been replaced with: “We are on track to balance the budget by 2017-18. However, should global economic conditions falter, causing revenue growth to fall further, our priority is clear – this government will continue to protect investments in jobs and families ahead of short-term targets.”

This is a clear signal that the deficit target now would be sacrificed if government revenue growth falters from forecast.

Personally, I applaud the change of priority in this instance. But does Kathleen Wynne's government really mean what Sousa says this time around? We can only wait and see. And, of course, does he mean that the deficit reduction targets would be sacrificed “if and only if” revenue growth falters? The even bigger question mark is spending growth.

On that matter, however, the Finance Minister’s statement gave us no direct new guidance. Instead, he points only to past accomplishments (at least from the government’s perspective). And then he is critical of “reckless across the board cuts …” by which he seems to mean indiscriminately laying off public servants.

Now, this message is far more problematic in my mind. The crucial issue for spending is the growth of real wages for public servants, employees of public agencies and those who receive their income from governments (such as physicians).

Most Queen’s Park observers predict that the Wynne government will have no stomach for further tough action against the unions, especially with an election looming next year. More confrontation with organized labour would not fit with the left-shift feint of the Liberal party strategists.

Unfortunately, I agree with that prediction, although certainly not the policy. We need a comprehensive and independent review of total compensation in Ontario’s broader public sector. But we will not get it because neither the Liberals nor the NDP will step up on the issue. They will hope that economic growth will somehow speed up and save them from having to do an honest assessment of a growing divide between total compensation in the public sector and that of the vast majority of the Ontario work force.

This will not go unnoticed by those with a vastly more potent voice than mine. It seems to me that bond buyers and credit rating agencies will be alarmed by the implications of a sub-national government becoming overly fearful of the political power of public sector unions.

If the Wynne government shows any more signs of going soft on the labour front then I would predict a credit rating down-grade a distinct possibility.

The other policy signal in the Economic Outlook and Fiscal Review that I find ominous is with respect to financing of public infrastructure.

I totally agree with the renewed emphasis on public infrastructure, especially transport, as a viable source of productivity improvement in the province. This should be a priority for all political parties.

I can agree with the idea of a Trillium Trust, dedicated to public infrastructure spending and on the need for long term planning. These ideas fit with some of my thinking about governance on the subject. And I might even go along with the idea of “green bonds,” although they seem a bit hokey. The idea that some people will forgo yield on these bonds in return for achieving some political objective in Ontario might be possible. However, I see the potential for local sellers (and buyers) of the bonds to become a lobby to get some preferential tax treatment … making them not so cheap after all.

Moreover, if the bond market is so easily segmented, then perhaps the Tories should propose “free trades bonds” to be used for infrastructure projects that are open to both union and non-union contractors alike. The list of possible bond market segments based purely on political preferences could go on and on.

In any case, if we borrow a great deal more money to finance public infrastructure, especially for transportation and water, that would vastly improve productivity in the Ontario economy; as such, I see no good reason for concern by credit rating agencies. In this instance, our net debt will not be increasing and yet our potential income, our ability to repay, would be increasing. This does not happen with simply higher salaries for public sector workers.

My concern, however, is with two things also clearly signalled by Sousa. The first is with an uncritical acceptance of “public private partnerships” as the best way to finance Ontario’s needed public infrastructures. My second and related concern is with opening up restrictions on Ontario pension plans from participating in the financing of Ontario infrastructure.

These issues and Ontario’s pension reform ideas will be addressed in future columns.

Purchase: Sousa’s silence on public pay is loud and clear

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