Drummond Report Sets Stage for Ontario’s Competitveness

LONDON, ON: To slay the deficit and keep Ontario competitive, The London Chamber of Commerce believes the government must seriously consider the package of reforms coming out of the Commission on the Reform of Ontario’s Public Service (the Drummond Report).

The Chamber supports the innovative nature of the report as it takes a systematic approach to change in very challenging economic times. It attempts to manage fiscal realities as it seeks to return the province to fiscal balance without sacrificing investment in future innovation.

The London Chamber has been asking the government to get the province’s fiscal house in order by setting out a deficit reduction plan, negotiating a new fiscal deal with the federal government, finding efficiencies in service delivery and managing public sector compensation. This report responds to those ideas, while calling on the private sector to play a role of its own.

“The business community is certainly willing to do their part and welcomes the invitation to contribute to service delivery”, said Gerry Macartney, CEO of the London Chamber. Now more than ever, the government needs to look to the private sector to partner in the delivery of services and financing of public projects. It is this push towards innovation that will increase productivity and provide Ontario with a sustainable economy in the 21st century.

However, the window of opportunity will not be open to us for very long and if the government doesn’t respond to the majority of these recommendations we are on a certain collision course towards a $30 billion deficit by 2017, a cumulative debt of +$400 billion, and a debt-to-GDP ratio of 51%. That’s exactly the same track that Greece, Spain and Italy were on this past decade.

“The Ontario Chamber of Commerce supports the spirit of the Drummond report as it sets the stage for Ontario’s future competitiveness,” said Allan O’Dette, the President/CEO of the Ontario Chamber of Commerce. “It advises a fundamental shift in the way Ontario does business, yet offers a pragmatic approach to productivity based on innovation and collaboration.”

This is a radical but informed report and, as a province, we need to put Ontario on a new path towards competitiveness and prosperity.

Indeed, all sectors and all Ontarians need to play a role in balancing the provincial deficit and moving Ontario into its next great economic era.

A Thank You for Trains, Planes and Automobiles

Events this month have me thinking of development issues akin to a certain 1980s movie.

TRAINS:

Readers may not be aware but the London Chamber of Commerce has a direct stake and an historical connection to Electro-Motive Diesel.

The chamber played a role in negotiating the establishment of the General Motors Diesel Division plant with city officials in 1949. Bringing that plant to London was a benchmark in the industrial growth, paving the way for other substantial companies, such as 3M, to locate here.

Skip forward 63 years and we’re saying goodbye to the current owners and regrettably its workforce, at least for now.

It’s a good a time to say thank you to the many hundreds of workers who put those excellent products out to market over the years and who now find themselves without work. So, thank you for all of your efforts over the years and your contributions to London’s economy. It’s been very much appreciated.

In contrast to the aforementioned workforce, it would be easy for me to say we saw this coming a long time ago. It might also be easy for me to climb on the Caterpillar-bashing bandwagon, but for what purpose and to what end?

Instead I thought I would offer the following mockup of an ad that as a city we should consider sending out to the rest of the world:

Attention Global Markets:

Offering: One world-class manufacturing facility

Location: London, Ontario, Canada

Available workforce: More than 600 fully trained professionals, tops in productivity and quality output

Compensation requirements: Fair and competitive wages and benefits

Quality of living standards: Second to none

Corporate tax rates: Best among G7 or G8 or G20 countries

Health-care facilities: Best in country

Post-secondary education facilities: Tops in their class

Economic development services: Ready, willing and more than able

PLANES:

Thanks are also in order over at London International Airport.

A huge chamber thank you has to go out to retiring president and chief executive Steve Baker for his enormous contributions over his 20-year career in London. Steve provided extraordinary leadership, including the development of an airport that is modern and ideally positioned to serve its customers as well as support economic growth in Southwestern Ontario.

Steve’s tireless efforts have transformed our airport into a modern, efficient and fiscally fit operation that acts as the regional hub for air services.

Moreover, he’s also turned the airport into an economic development dynamo with more than 53 businesses calling it home.

AUTOMOBILES:

I had the unique opportunity this week to be interviewed by Fox News out of its Chicago bureau. It flew a crew in to London to follow up on a story they were doing about why an American auto parts firm would elect to move to London in spite of all the noise south of the border by President Barack Obama and his party about repatriating jobs to the States.

Fox had caught wind of the editorial I had authored earlier in this paper about the importance of a combined 25% federal/ provincial corporate tax rate and why we as a country need that rate to overcome the many hundreds of incentives American jurisdictions offer companies.

More importantly, I emphasized the need for the premier to follow through on his promise to drop the current 13% provincial corporate tax rate down to 10% by 2013, thus enabling a 25% combined rate with the feds.

I’ll be the first to admit that this particular auto parts firm did not elect to move here based solely on our corporate tax advantage. Indeed, location, proximity to the Toyota plant and the availability of high-grade steel played critical parts.

But that corporate tax rate is starting to reverberate south of the border and for my money, it’s a trump card that we have and we had better learn how to play it and soon.

So, thanks to Fox News for covering the story. Thanks, too, to this auto parts firm for its conviction, trust in our economy and investment in our community.

Ontario’s Corporate Tax Plan

With Ontario’s economy still reeling from this seemingly never-ending economic downturn that began in 2008, you would think this Provincial government would do anything in its power to ensure that Ontario’s business sector had the best competitive advantages possible.

The fact is we do, or at least we did until the Provincial government starting floating the notion that they were going to retreat or delay on their promised corporate income tax (CIT) rate reduction – down to 10 percent by 2013.

Federal Finance Minister Flaherty’s long-term goal of marketing Canada as a 25-per-cent corporate tax zone now appears to be threatened if not completely slipping away just at the most critical time, perhaps in Ontario’s history.

Why? Flaherty’s plan required two critical elements to succeed. One was to have the federal government’s five-year plan to reduce corporate taxes to 15 per cent (it was 22.1% in 2007) implemented in early 2012. That part was accomplished on January 1st 2012.

The second part of the plan required that the province of Ontario also reduce its corporate income tax rate (CIT) to 10-per-cent by 2013 (11% in July 2012 then to 10% in 2013) and for all intents and purposes it appeared Premier McGuinty and Finance Minister Duncan were totally on side.
All was going well until – Oops! – the Liberals in Ontario did not get their coveted majority in the Fall 2011 elections and now the provincial NDPs are pushing McGuinty and Duncan to if not totally cancelling them to at least put the corporate tax cuts on hold. This political reality coupled with large annual deficits and spiraling debt numbers have put Ontario’s credit rating at risk.

In our letter to the Hon. Dwight Duncan, the London Chamber asks the Minister of Finance to commit to implementing its comprehensive tax package in full.
A reduction in Ontario’s CIT rate is an essential part of the province’s tax reform package, designed to create jobs and foster economic growth in the province. According to a report by tax expert Jack Mintz of the University of Calgary, Ontario’s comprehensive tax reform package will create 591,000 jobs and increase capital investment by $47 billion.

Interestingly, Mintz’s own Province of Alberta and neighboring B.C. (two of Ontario’s fiercest competitors) already have their CIT rates set at 10%.
And let’s not forget that Ontario’s business community put its support behind the HST with the caveat that the Province would follow through with it Corporate Tax Plan strategy which included these scheduled cuts.

The planned CIT rate reduction is important to securing much needed Foreign Direct Investment (FDI) into Ontario. According to a joint study by Harvard University and the World Bank, on average, a tax rate decrease of one percentage point results in a 3.3 percent increase in FDI inflows.
At the local level, even the threat of taking these proposed tax cuts out of play will doubtless have a damaging effect on the LEDC’s ability to close the deal on a number of foreign direct investment opportunities.

And in talking with several of our larger accounting firms here in London, we are told that a number of their clients have already budgeted for these proposed tax cuts in their three to five year planning strategies. Removing those tax advantages can and will have dire consequences for those clients and the resultant impact on our economy.
The London Chamber is urging the provincial government to fully implement its comprehensive tax package and to work cooperatively with its partners in the private sector to find ways to create jobs and grow Ontario’s economy. Breaking promises to Ontario’s business community is not going to get the job done.

New Year’s Resolutions for Governments

As we head into yet another year of bleak to modest at best economic performance forecasts – I would love to have 12 pages of space to write down all of the resolutions I would like to see all three levels of government pledge to act on in the New Year. Wishful thinking aside, and with full understanding of the kind of economic turmoil that will persist around the globe, what follows are my limited but vital requests from our governments.

In Ottawa, the feds should resolve to continue the good work they have started with the US government in trying to reduce border delays between our two countries. They should also aggressively resolve to act on the implementation of a long-term infrastructure plan for Canada – one that has an investment strategy that includes solid funding models and increased private sector involvement. They should also resolve to remove disincentives that discourage seniors from working as a key strategy in avoiding the looming skills crisis.

And of course the feds will also resolve to not add any more to the national deficit even though they now tell us it will take two years longer than planned to balance the books. How you ask? Same as you and I. Don’t spend what you don’t have.

At the Provincial level, their resolutions (and quite rightly) should be far more abrupt. “We shall not under any circumstances spend any more than we take in” – EVER!

Ontario’s debt has become so obscene that we may soon be calling on Greece or Italy for financial advice. All kidding aside, Ontario’s soon to be $258 billion debt is the elephant in the room. And what’s worse is we keep adding to the total at a rate of $59 million each and every day. Imagine how many more things we could resolve in this province if we were not paying down that debt at a rate of $10.3 billion a year. Unbelievable!

It’s clear that Ontario’s debt is anything but sustainable and the only way we’ll ever get it under control is when we stop adding to it with chronic deficits. So if the revenue is not coming in as expected, your only alternative is to start cutting costs, but where to begin? In business the answer is quite simple – Everywhere and Anywhere. Does it get any simpler?

Locally there are a number of resolutions I would love to see Council pledge to act on. One would be to adopt a standard formula around the perennial issue of what to do with year-end surpluses. Far better this approach – than the annual drama that’s played out on Council’s stage that drives administration and most of the community nuts. It’s not that complex to figure out and many communities have already adopted the formula model to avoid such antics.

My resolution number two for Council would be to find a more diplomatic and sensitive way to tell would-be investors that their offers on our most prized industrial lands just don’t fit with our strategic development directions. Again, a standardized response delivered early in the game would surely avoid those nasty nose bleeds we seem to want to give ourselves in the media each time these events happen. Moreover, it may also prevent the internal bleeding we don’t see as some investors go away from London with the impression that we are in fact not open for business. And oh by the way, they can and do tell their friends.

Lastly, Council should resolve to take concrete action, if, as they claim, job creation is really Job #1 in London. And to create jobs you need to prime the jobs pump and that pump needs money – plain and simple. If we really want to put our money where our job creating mouths are, Council will need to re-align its priorities. How? By bringing funding levels for economic development and attraction up to at least per capita averages with those jurisdictions that we compete with. They will need to set aside more funds for economic development missions abroad in countries that hold the greatest promise for future foreign direct investments into London. Countries like Korea, China, Japan and Germany will need a lot more of our attention and time and both take more money along with patient (very patient) relationship building.

And we don’t need new money to fund these opportunities. What we do need is a full-on re examination of the funding we presently give to a wide array of external boards, commission and organizations who receive money from the City of London. To be frank, if they do not provide a demonstrable economic or social ROI to the City then monies will need to flow from them and go to where that ROI can be achieved and that is economic development.

It’s a proven fact that economic development does attract investment which does create jobs which does increase the City’s assessment which can eventually be channeled right back to those organizations that will need it in the future.

Yes, it’s the classic case of robbing Peter to pay Paul, but in this environment we need what Paul has to offer a lot more than what Peter is selling. Happy New Year to you both.

Global Experience a Global Market Must!

Could there be any greater asset when trying to compete in the global marketplace than having an abundance of global experience and talent right in our own back yard?

The London Chamber, and many chambers across Ontario feel quite strongly that the foreign trained professionals and skilled immigrants we have right here in our communities are indeed the kind of assets we will need to grow our economy and expand our connections to a wider array of business opportunities around the world.

These skilled individuals can enable our business base in London to have a real tangible global advantage in today’s increasingly competitive and borderless business environment. How? By providing insight and knowledge about other business cultures which can often be the difference between success and failure when attempting to open up new global opportunities.

They can provide quicker access to international markets and connections that might take us years longer to develop. And as was the case with the Chamber’s recent foray into China with the rest of team London – it was a foreign trained professional and a member of the Chamber that provided a critical advantage in language and translation skills and a better understanding of the technological and business nuances that vary widely from country to country.

It’s been said that only by taking calculated risks and being open to learning from the experiences of immigrants will Canadian companies fully capitalize on the potential for innovation and growth. And the truly great thing is that we don’t have to go and look for them or lure them here – they are already here.

The London Chamber in partnership with the Ontario Chamber and the London Middlesex Immigrant Employment Council, are offering the first of its kind “Global Experience at Work” program whose principle aim is to connect more Chamber members with skilled immigrants here in our community through the following no-cost tools and resources:
• Search tools to access pre-screened local and province-wide talent
• Mentoring programs that strengthen leadership, coaching and cross-cultural skills of your employees
• Screening support for evaluating international credential and language skills
• Connections with other Chamber members who have successfully attracted and retained top newcomer talent

We are all aware that our workforce is getting older and that our emerging industries require more and more specialized skill sets. Because of this our economic prosperity will be directly linked to our business community’s ability to attract and retain international talent.

We have many talented and well-educated internationally trained professionals in London that can add greatly to the strength of our City, economic region and local economy. We highly encourage you to arrange a consultation with a program representative at global@LMIEC.ca or by calling 519-663-0774 to learn more about how your company can connect to a qualified talent pool, free of charge. We also look forward to your participation in workshops throughout the year ahead designed to support your company in attracting and retaining top newcomer talent.

Canadians know full well that this country was built on the backs, the brains and the sweat of skilled immigrants. In fact we were all immigrants to Canada at one point and it’s time we not only reflected on that, it’s time we figured out how to grow and prosper as a result. Global Experience at Work is how.

Four Issues Dominate Pre-Budget Recommendations to Feds

How to achieve a sustained economic recovery: create quality sustainable jobs; ensure relatively low rates of taxation; and achieve a balanced budget – these are the main areas of focus that we believe the federal government should concentrate on as we head into this year’s budget consultations.

Many of our members in London and indeed businesses across Canada entered this past summer with great optimism and most Canadians were brimming with confidence. Now, in the face of the alarming events abroad, most are less sure.

Because of this uncertainty and the instability of the global economy, many in Canada would prefer, in fact would strongly suggest, that the Government of Canada needs to change course. We politely disagree. As a reminder, it was this Chamber of Commerce supported by the national chamber in Ottawa that called on the Federal Government to balance its books by fiscal 2015-16 and to do so by restraining annual government spending growth. We have not changed our minds on this – nor should the Federal Government.

We only have to look at what is happening in Europe (Greece, Italy, Ireland, and Spain) or what happened in Canada in the 1990s to know that deficits can quickly spiral out of control triggering a huge financial and economic crisis. All Canadians and indeed markets worldwide need assurances that our government will not veer away from the current plan to return to surplus in the medium-term.

By delaying elimination of the deficit beyond 2015-16 we jeopardize the long-term interests of the country. It’s imperative that we get our finances in order to regain the kind of financial flexibility we will need in order to deal with the monumental challenges of an aging population and be able to tackle areas that are crucial to Canada’s long-term competitiveness. These include reducing high and uncompetitive marginal personal income tax rates that discourage people from working, saving and upgrading their skills.

To create quality, sustainable jobs in Canada, it’s become obvious that we must embrace a culture of innovation. And it’s innovation that has led to new industries and new jobs in high-tech and advanced manufacturing sectors like aerospace, agri-business, medical devices, life sciences and alternative energy.

Sadly, when it comes to the capacity for innovation, the World Economic Forum ranks Canada in 24th place and we are near the bottom among OECD countries in getting innovative products and services to the marketplace.
To encourage innovation, the government must focus on implementing a national strategy with particular attention on research, training, retraining, and education. We must build a strong entrepreneurial interface between post-secondary institutions and the private, public and non-profit sectors to accelerate the pace of discovery and commercialization and turn Canadian research efforts into successes in the marketplace. By strengthening Canada’s intellectual property rights regime and ensuring investment tax credits are being delivered in a predictable, consistent and timely manner, we can improve our chances for success. However, this is presently not the case.

Boosting our country’s trade and investment ties with other nations will also ensure ongoing job creation but that will require an ambitious and comprehensive strategy. We will need greater efforts to diversify Canada’s international trade to faster growing markets given the likelihood that the U.S. will see only a modest growth environment for several years to come.

Here at home, by some accounts, interprovincial trade barriers cost the economy some $8billion each year. Remember, we are not talking about trade with Europe, or Asia, or South America – we are talking about trade with each other. How can that possibly make any sense? Eliminating interprovincial barriers to trade and labour mobility along with burdensome regulatory procedures are areas in need of urgent action.

Finally, our tax compliance system is too complex and too burdensome. We recommend that the government launch a national consultation process focused on identifying ways to reduce the complexity of Canada’s tax system and improve tax administration.

As part of this, the government should undertake an independent review of the 260 or so tax preference measures that are part of the federal tax system to determine if they are cost effective and are achieving their intended purpose. Those that are not should be phased out. A more comprehensive tax base would facilitate lower tax rates so all Canadians benefit and our economy made all the better for it.

Bottom line! Stay the course, or as Rudyard Kipling would advise – “bite the bullet”.

Suggested Top 10 Barriers to Canadian Competitiveness

As promised in my last article, London (Canadian) Businesses Struggle to Compete Nov. 1st 2011, I said I would follow up by identifying those things that may be preventing us from being truly competitive. At the recent Canadian Chamber of Commerce Policy Conference in St. John’s, we discussed and debated what the barriers to our competitiveness may be. These are what we agreed on.

1. Getting qualified workers to meet the needs of employers
Canada trails many other nations in the number of graduate degrees awarded, and Canadian firms lag in the employment of post-graduates, including those with PhDs, especially in sciences, engineering, and business. Yet, investment in higher education has among the highest pay-off of any investment government can make. Post-secondary graduates are key in building a competitive economy—they provide talent, skills, knowledge and creativity. A highly skilled and educated workforce is also crucial to attracting foreign direct investment.

2. Designing better policies to help people find and keep jobs
To enhance Canada’s competitiveness, it is imperative that we improve our labour market policies, particularly those that would help youths find their first job and the long-term unemployed re-enter the workforce. An assessment of minimum wage laws and employment insurance benefits is sorely needed. Additionally, we must undertake reforms to ensure Canada’s labour market policies and programs provide Canadians with the incentive to work and help to reduce voluntary unemployment.

3. Delivering a better tax system
Most OECD countries rely less than Canada on income and profit taxes and more on less economically-damaging consumption taxes, like the GST. Canada’s tax system over-relies on high-cost sources of tax revenue causing the Canadian economy to grow at a lower rate than might be possible with a more efficient tax system. Switching the tax mix towards consumption-based taxes would encourage both work and capital formation and, thus, stimulate productivity and economic growth.

4. Abolishing interprovincial barriers
Interprovincial trade barriers discourage small businesses from operating across Canada and cost large companies time and money, hampering productivity and ultimately the competitiveness of the Canadian economy. In an era of increasing globalization, internal trade barriers artificially raise prices and significantly increase the cost of doing business, keeping firms from growing to a size large enough to compete effectively in foreign markets.

5. Implementing regulations that make things easier for business
Although high regulatory standards, such as environmental policies or health and safety regulations, can enhance Canada’s reputation globally, how they are applied and administered can be the difference between success and failure for business. If Canada’s regulatory regime remains inefficient, it will undermine our international competitiveness as well as our attractiveness to entrepreneurs, knowledge workers and domestic and international investors.

6. Facilitating foreign investment in Canadian businesses
Canada can benefit greatly from openness to the world. Foreign direct investment can convey great advantages by bringing to Canada knowledge, technology, efficiencies and economies of scale, all of which are critical to competitiveness. As an enduring policy, Canada should embrace foreign direct investment and reduce barriers to it. Canada is one of only a few countries (Australia being another) with a formal investment review process for foreign acquisitions that exceed prescribed monetary thresholds.

7. Stimulating the need for research, innovation & development of new products & tools
Innovation boosts productivity growth and is a competitive advantage for businesses. Yet, Canada ranks low among OECD countries when it comes to business sector R&D spending and innovation.
R&D in Canada can be stimulated by adopting a strong intellectual property regime, fostering collaboration among educational institutions, developing robust innovation clusters and investing in the education and skills of our people. Canada must strengthen its laws in protecting its intellectual assets.

8. Encouraging investment in new technologies and equipment to boost productivity
Canadian businesses are well behind other countries, including the U.S., the UK and Germany, in investing in machinery and equipment, particularly in information and communication technologies (ICT). Between 1987 and 2009, Canadian businesses invested 23% less per worker in machinery and equipment compared to their American counterparts; 41% less per worker in information and communication technologies.

9. Investing made easier for the launch and growth of Canadian businesses
Venture capital is often associated with scientific research, innovation, entrepreneurial start-ups and successful technology companies. Yet, Canada’s Venture Capital and Private Equity Association reports that “fundraising continues to be the major challenge facing the venture capital industry.” New commitments to venture capital funds in Canada fell 24% in 2010 (year-over-year) to their lowest level in 16 years. The lack of availability of start-up capital in Canada has real repercussions for Canada’s ability to develop global leading enterprises and competitive Canadian brands.

10.Creating reliable funding for investment in infrastructure
Modernization and refurbishment of physical capital is a critical factor in broad economic competitiveness and is a goal that is shared across the economy. Canada has pursued an inconsistent approach to infrastructure financing over the last two decades, often allowing programs to wind down, only to be re-announced in a different form. A more strategic approach to infrastructure investment that includes funding models that take into account the broad range of challenges and opportunities in communities across Canada is needed. A consistent and reliable funding mechanism will not only simplify the planning of federal, provincial and municipal investments, it will also leverage significant private sector investment.

London (Canadian) Businesses Struggle to Compete

Pointing fingers at a problem has seldom if ever resolved anything. And, for those who continue to point fingers at more local targets such the LEDC, the Mayor, or the Premier when it comes to job losses and a sluggish economy, they should perhaps consider what’s going on around the globe first. As developing countries, such as China and India, continue to step up their economic activity and innovative capacity, Canada is more and more at risk of being swept aside as our ability to compete becomes more and more hampered. Canadian businesses including many located right here in London, must become more ambitious, more aggressive and a lot more innovative to compete globally and be able to profit from the enormous opportunities offered by these faster-growing regions of the world.

The commonly accepted definition of competitiveness is the efficiency with which a country uses its human capital and natural resources to generate wealth. But true competitiveness is measured by productivity. And there’s the rub for Canada. Productivity allows a country to support high wages, attract investment and maintain a high standard of living. And it’s here where we are in serious trouble.

While Canadians once enjoyed the highest standard of living, we are now struggling to remain competitive. In the last decade, Canada’s business sector productivity growth has slowed resulting in a loss of market share. Economies in Asia and elsewhere invest heavily in science and innovation and maintain growth rates two or three times the size of ours.

Yes, we need to be concerned about the productivity of our export-oriented economy and yes, the dramatic rise of the Canadian dollar has magnified Canada’s loss in competitiveness. But the Canadian dollar is likely to remain a competitive challenge, and it’s one we can’t control. In fact, counting on a much weaker dollar to bolster business competitiveness is not a strategic business strategy at all – it’s a crap shoot.

How do we stack up on the competitiveness front?
Sadly, Canadian workers have fewer tools to do their jobs. Between 1987 and 2009, Canadian businesses invested 23% less per worker in machinery and equipment compared to their American counterparts; and 41% less per worker in information and communication technologies.

Canadian exports as a share of real Gross Domestic Product (GDP) dropped from 45% in 2000 to 33% in 2010, and Canada’s share of world exports fell from 4.3% to 2.5%. Canada also ranks a disappointing 17th among the Organization for Economic Co-operation and Development (OECD) countries when it comes to business sector R&D spending.

When it comes to innovation, we are in 19th place, far behind the U.S., Germany and Japan and we rank 20th for international patent applications per million of population. And on the export side Canada ranks 28th when it comes to the world’s export share of high-tech products.
As for hiring practices, Canadian firms lag in the employment of post-graduates, including those with PhDs, especially in sciences, engineering, and business. And the real kicker is the OECD has consistently ranked Canada as having among the most restrictive barriers to foreign direct investment among industrialized nations.

Regaining Competitiveness
Strategic investments and smart public policies have never been more urgent and more essential to regaining Canada’s competitiveness. So who should do this? Who is responsible? Fact is we all are. Building a more productive and, thus, a more internationally competitive economy is a shared undertaking. It is the responsibility of business, and government and it will require greater investment in innovative practices and technologies, equipping Canadians with the rights skills and education, in order to position Canada as an attractive environment for investors and entrepreneurs.

We are losing our place in the world economy, and we need to fight hard to reclaim our standing. Canada’s business community has to play a greater role in regaining our competitiveness. We need to work together to uncover the solutions to building a more productive and more competitive economy. We need to determine what specific policies are currently acting as barriers to Canada’s competitiveness and what should be done to change these policies to trigger better performance. We need to establish how much of the responsibility for action lies with governments and how much with business and labour.

And finally, we need to admit that doing business the way we have always done business is clearly not going to get the job done. “That’s the way we’ve always done it” may work for the standard railroad gauge of 4 feet, 8.5 inches (which is derived from the original specification for an Imperial Roman war chariot – it’s a long story), but it’s not going to get us back in the game. In my next article I hope to share with you what the top ten barriers to competitiveness are and more importantly, what we need to do to remove those barriers. Meantime, perhaps we should all take a real hard look at just what we are investing in innovative practices and technologies to see how we stack up against today’s competition — and tomorrows.

Now that the Dust has Settled… it’s the DEBT

So we had an election with a record low voter turnout and we saw some shuffling of a few party seats in the provincial legislature. What was all the fuss you ask?

Evidently not much!

The Liberals didn’t do anything bad enough to have voters turf them out and the Conservatives didn’t do anything good enough to sweep them in to power. And the NDP most likely picked up their added seats as a result of the “Layton” factor.

No matter, it’s over – the dust has settled and we’ve got what we’ve got. And in London’s case, we’ve got two cabinet ministers (we think) along with a new PC member in Elgin Middlesex and a new NDP member in the London Fanshawe riding. Hmmm? Is this reminiscent of London’s old “We’re All Mixed Up” theme all over again?
Time will tell how well this mixed bag of representation works for either London or the entire province, but one thing is certain – legislators of all stripes have some really serious issues to deal and chief among these issues is the 400 pound debt gorilla in the room which seemed to have escaped the priority list of any of the party platforms. Sure we want to hear about jobs and the economy but we have to start focusing seriously on debt and deficits or jobs and the economy may be rendered moot.

The debt of the Ontario government now stands at an unprecedented $236 billion on which we pay $40 billion in annual borrowing to finance that debt. This on top of a federal debt of $567 billion – which by the way, if you are not already nauseated, places every man, woman and child in this country nearly $17,000 in debt before you ever start adding the debt of the provinces.

Equally worrisome is the province’s Debt-to-GDP ratio (the commonly accepted standard by which jurisdictions measure their indebtedness). This Chamber has lobbied for years that the provinces Debt-to GDP should never exceed 25%. And in 2003/04 we came oh so close to achieving that at 28%. Sadly at the end of the 2009/10 fiscal year we were at 33.5% and very likely headed towards an unsustainable 35% to 37%.

In fact Ontario’s debt, with the exception of Quebec and Nova Scotia is the highest Debt-to-GDP in the country. And the projected $16 billion deficit this year will only make matters worse as each year’s deficit gets added to the accumulated debt.

Ontario’s appetite for debt is a bit like an average homeowner paying more on credit card interest each month than on food and shelter, transportation, clothing and entertainment combined. So why is the debt so high and the cost to service that debt getting higher? Well without beating this horse to death (apologies to the horse), it’s purely mathematics. We simply can’t keep spending more than we take in or we could very easily slip into the same ugly predicament that many European countries are experiencing.

Annual budget deficits in Ontario are not only worrisome for you and I, they exposes the budget to the risk of higher interest rates, as was the case in the early 1990s and they leave a huge burden for Ontario’s next generation who will doubtless face either drastic spending cuts, increased taxes, or a combination of both to get the province’s house in order.

And who can we blame for this mess? -that’s an easy one as the Liberals, PC’s and NDP all piled on plenty of debt as they took turns in power and all have since washed their hands of it and pointed the blame at their political rivals. Well finger pointing won’t get us out of the hole and all three parties now have a shared responsibility and an obligation to clean up their mess.

While there are many arguments in favour of continuing to run relaxed fiscal policy during the coming fiscal year, it is imperative that the government move to credibly outline a plan to balance the budget by fiscal year 2015-16 (2017 latest).

There is no avoiding the fact that any plan will involve tough choices. Some simple calculations clearly illustrate that the Ontario government would have to hold expenditure growth to less than 1.7 % per year over 2012-2016 to get to a balanced budget.

What they can’t do is to address the deficit through cuts to existing municipal transfer payments, nor reducing investments in education and training and needed infrastructure which will promote our competitiveness and economic growth in the future.

In particular, the government has no alternative but to seriously explore ways of reducing the growth rate in health care expenditures – either by promoting efficiency “measures” or by allowing for more direct billing for some services. Tough choices – You bet!

But shockingly, in the time that it took me to write this article (about 1 ½ hours) the federal debt rose another $5 million. That’s about $1,000 per second. Ontario’s debt is about 40% of the federal debt…..need I say more? Houston we have a problem and the Ontario government – you have a job to do.

Elections Ontario…the BIG picture!

As the rhetoric heats up about whom to vote for or not to vote for in the upcoming October Provincial elections, it becomes all too easy to get caught up in the political jargonisms, mudslinging, and character slamming we are all familiar with here in Ontario. But what is really, truly important to Ontarians usually gets lost in the shuffle. The following may help to sharpen your focus when contemplating which party is best equipped to take on these difficult challenges and move Ontario out of the economic doldrums we find ourselves in.

For starters, Ontario is facing a very large deficit and with that a fast growing debt. You can add to this rapidly increasing energy costs and a crumbling infrastructure. The next Ontario Government will face tremendous challenges in attempting to cut costs while at the same time maintaining key public services. Our best prospects for success in these times will depend on bold leadership by Ontario’s political leaders and by its business community.

Clearly now is not the time for business as usual. For Ontario to confront the challenges that lay ahead, its political leaders must develop innovative ideas on how to tackle the top priorities of the business community ‐ red tape, debt and deficit reduction, innovation and R&D, as well as affordable and sustainable energy

To make matters worse, the next government will have the complicated challenge of managing health care costs to avoid negatively impacting investments in other public services. The ability to manage health care costs is critical to making strategic investments in economic priorities such as R&D and energy and it will be a critical determinant in attracting new inbound foreign investments.

Further trouble for the next government can easily be forecasted in Ontario’s transportation system which is arguably one of the most congested and inefficient in the world. Ontario’s next government needs to address this situation through targeted support for reliable and sustainable transportation infrastructure.

From a purely business perspective, we at the Chamber have argued for many years that reducing red tape is a key priority for strengthening Ontario’s economy. It is imperative that Ontario’s next government advance regulatory reform as a top government priority to drive economic growth. The annual cost associated with red tape in Canada is an estimated $30 billion so it’s not an issue to be taken lightly. Regulatory reform is not simply about reducing the number of rules. The government must adopt a new culture which recognizes businesses as valuable partners in achieving economic growth along with higher social and environmental standards.

All levels of government must work together to ensure consistency in the application of regulations. A one‐size fits all approach to regulation is out‐of‐step with the needs of the business community. Ontario needs an approach to regulation which encourages business‐led solutions to social and environmental sustainability.

REDUCING THE DEBT/DEFICIT

Ontario emerged from the recent economic downturn in the worst fiscal position of any province or territory in the country. The next government will need to implement short term‐actions and long term planning to ensure Ontario’s economy continues to flourish.

Municipal governments provide many key services needed for economic development, but are financially over‐burdened by spiraling operating costs such as public sector wages. The next provincial government must ensure that municipal governments have the capacity to stimulate regional economic growth through greater accountability measures and wage restraints.

Raising taxes to address the structural deficit is not sound economic logic. Strengthening
Ontario’s tax advantage will bring foreign direct investment and jobs to the province. The next Ontario government should stimulate growth in this time of uncertainty by striving for greater efficiency and effectiveness in the delivery of public services.

FOSTERING INNOVATION

Canada continually receives low rankings on its innovation performance, with Ontario businesses consistently investing less in R&D than other jurisdictions. Innovation must be market‐driven to be effective. Ontario’s government needs to work closely with business to address the key barriers to innovation.

Many small firms find that innovation is out of reach for them. Ontario’s next government must help small Ontario firms leverage their capabilities through enabling strategic partnerships with innovators.

Adequate financing, whether in the form of R&D programs or venture capital, is key at all stages of the innovation process. Ontario’s next government must support innovative ventures through a healthy mix of innovation financing

SECURING A SUSTAINABLE, AFFORDABLE ENERGY SUPPLY

Ontario’s future economic growth and prosperity will depend on our ability to remain competitive in an increasingly global marketplace. A stable, abundant and affordable energy supply is fundamental to Ontario’s competitiveness. The industrial hydro rate has been cited by many companies as the main reason for closing the doors to Ontario facilities, especially in Northern Ontario.

The Government of Ontario should promote investment in new energy infrastructure such as green energy and nuclear. It should provide long‐term planning for supply and energy affordability and foster conservation. And it should maintain a predictable and stable regulatory framework.

Now, just figure out which party is best equipped to manage all of these challenges and voila! Ontario can get back to being Canada’s economic engine. Ask your candidate how he/she plans to deal with these challenges – measure their responses, check their records and vote accordingly. Good luck.