Ontario and Canada both need a tax-cutting, budget-balancing, expenditure-reducing Mike Harris revolution like the one 30 years ago
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Here’s a tale of two Ontario Premiers.
In May 1994, Progressive Conservative leader Mike Harris unveiled a Common Sense Revolution (CSR) election platform that promised to cut tax rates to produce more revenue for the government and more jobs in the economy while balancing the budget by the end of the first mandate. In June 2018, Progressive Conservative leader Doug Ford promised tax cuts and a return to fiscal responsibility after years of Liberal “fiscalamity.”
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Today, the Ford Conservatives have largely failed to cut taxes and instead have raised spending and deficits. Thirty years ago, however, Mike Harris Conservatives followed through on innovative policies that reduced taxes and spending and drove what the CSR document termed a “fundamental change” in government.
As we document in a chapter of a new Sutherland House book — The Harris Legacy: Reflections on a Transformational Premier — fundamental fiscal change did take place, the kind of change Ontario and Canada need to experience again.
The CSR’s fiscal goals were set out in bold, declaratory sentences: “This plan will cut your provincial income tax rate by 30 per cent . . . reduce non-priority government spending by 20 per cent . . . (and) fully balance the budget in four years.”
The Harris Conservatives were not alone in the neoliberal political arena, of course. They were local players in a global phenomenon. In Ottawa, Prime Minister Jean Chrétien was leading Canada through a major fiscal reform that culminated in a 1995 federal budget that set the federal government on a balanced budget path — four months before Ontarians elected Harris.
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The idea that spending reductions and tax cuts would be the source of economic renewal was part of a worldwide 1990s economic re-think then disparagingly known as “neoconservatism” but today better understood (though equally disparaged) as “neoliberalism.”
The basic tenets of economic neoliberalism were clearly at the heart of the fiscal revolution that lifted Ontario out of its “Lost Decade” of Liberal-NDP rule that had begun in 1985. Liberal premier David Peterson (1985-90) never met a tax he didn’t raise. He raised income taxes in four of five budgets, hiked investment-killing corporate taxes, increased retail sales tax from seven to eight per cent, and raised land-transfer, alcohol and tobacco taxes.
Bob Rae’s NDP (1990-95) pushed federal-provincial combined income tax rates to over 53 per cent (roughly where they are today in Doug Ford’s Ontario) and introduced a corporate minimum tax. It initially reduced corporate taxes for manufacturing, resource, and small businesses, but later raised them for financial institutions.
The Harris revolution largely reversed the trends of the Lost Decade. It did not quite deliver the balanced budget promised for its first mandate, but deficits fell from almost $1,200 per capita in today’s dollars to $115. Thanks to the strong economy of the mid-1990s, revenues per capita actually rose even as the government cut personal tax rates by a third and eliminated employer education and health tax on payrolls below $400,000. Mike Harris was a tax-cutting pioneer, reducing personal taxes before Alberta, British Columbia and the federal government did.
Except for a small reduction in the rate for small businesses, however, the Harris government did little to reduce corporate income tax rates and it actually raised capital taxes on banks. It was also more than willing to provide tax credits for politically favoured business activities, such as film-making, research and development, digital media and co-op education. In these areas, it forgot neoliberalism.
As for government spending, the flattening of per-capita real spending observed during the Rae government’s final years continued through the first Harris mandate. Once the budget was balanced, however, real per-capita spending picked up to match revenue growth.
Could we have a common-sense fiscal revolution today? There are good reasons to be skeptical. No current political leader could bring Mike Harris’ low-key credibility (to say nothing of Ronald Reagan’s or Margaret Thatcher’s higher-octane persuasiveness) to a new crusade to reform government.
Neoliberal ideas have been under vigorous attack since the end of the Harris years. Hundreds of books have disparaged market principles and the ideas of neoliberal thinkers such as Milton Friedman and Friedrich Hayek. Not surprisingly, however, abandoning neoliberalism has brought a rising tide of debt, deficits, government spending, and regulation and, in most places, declines in business investment, productivity and economic growth.
Rather than stepping aside and reducing spending and taxes, governments are pushing greater reliance on public provision of goods and services. Deficits supposedly are OK, since they are “investments” for the future. Instead of privatization, governments are using industrial policy to pursue “moonshot” technologies and reorder the economy in their political interests.
Canada and the world desperately need a new revolution of common economic sense based on a renewal of core neoliberal economic values. Would the CSR work today? Yes, almost certainly. Although the intellectual and political coalitions lined up against it are formidable — as in fact they were in the 1970s and 1980s — the fiscal and governance meltdowns now roiling Ottawa, Ontario, and all the provinces look similar to, if not worse than, the crisis Ontario faced at the end of the Lost Decade of the 1990s. Voters may soon be as ready for a new approach as they were this time 30 years ago.
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