1. Outline / overview What is the game here? Drummond key points Drummond howlers Framing the debate: an exercise in manipulation Bad news / good news whats the starting point The politics behind the crisis Fun with figures the black art of projections Whatever happened to the adult conversation about taxes and public services; wheres the discussion of fiscal capacity? How did the government manage to forget the $16 billion millstone left behind by Mike Harris? What happened to the structural deficit inherited by the Liberals in 2003? How can we afford a pointless corporate tax cut in a fiscal crisis? Alternative futures What if Drummond is right about Ontarios real growth prospects? And what if he isnt?

2. 10 20 30 40 50 60 0197019711972197319741975197619771978197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002 General Government Total Outlays National Accounts Basis -- % of GDP20032004200520062007200820092010 What this is really about Canada United States

3. Forecasting good news Ontarios conveniently conservative budget balance projections302520 2-year forecast 1-year forecast15 Budget Fall ES Next budget10 Next Fall ES (public accounts) 5 0 2009-10 2010-11 2011-12 2012-13 2013-14

4. Changing deficit projections Fall Statement 2009-10 to Fall Statement 2011-1230.025.020.0 Fall 2009 ES Budget 201015.0 Fall 2010 ES Budget 2011 Fall 2011 ES10.0 5.0 - 2009-10 2010-11 2011-12 2012-13 2013-14

5. Deficit path from peak Canada and Ontario6050 Change from peak40 estimate: 40% Change from peak Fall 2009-1030 estimate: Public Accounts 2010-11 43%20100 Federal Provincial

6. One size6050 Change from peak estimate: 40%40 Change from peak estimate: 43%30 Fall 2009-10 Public Accounts 2010-1120100 Federal Provincial

7. Does not fit all6050 Change from peak estimate: 40%40 Change from peak estimate: 43%30 Fall 2009-10 Public Accounts 2010-1120100 Federal Provincial

8. Projections, projections It is all in the assumptions Fun with compound arithmetic140135130125 2% nominal growth120 Real per capita 2% real growth115110105100 2012 2013 2014 2015 2016 2017 2018 2019 2020

9. Projections: how they shape the debate Fun with compound arithmetic A real world example160150140 2% real growth130 Real per capita 2% nominal growth120110100 2012 2013 2014 2015 2016 2017 2018 2019 2020

10. Ontarios fiscal capacity crunch Another Harris legacy untouched Annual Tax Cut Impact on Fiscal Capacity in Ontario 1995-96 to 2011-12 --- Debt Carrying Cost and Revenue Loss Personal Income Tax Cuts offset by Health Premium - -2,000 Corporate Income Tax -4,000 Cuts -6,000$ million -8,000 -10,000 Employer Health Tax Cuts -12,000 -14,000 -16,000 Other Tax Cuts -18,000 -20,000 Direct Debt Carrying Cost

11. Fiscal crisis? What fiscal crisis? Deficit forecasts in perspective5045403530 Revised forecast25 Drummond forecast Official forecast20 Structural deficit1510 5 0 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18