Let’s start off by stipulating that nobody actually knows what effects the $14 minimum wage is having on Ontario right now. It’s the second week of January, and nothing remotely like reliable data is going to be available for a while, and even once it’s available, it will take time for economists and activists alike to chew it over and come to an answer. (Even then, they probably won’t arrive at the same one.) The headlines about various businesses being cruel or kind to their respective workers are good, perhaps, for helping people decide where to spend their money, but they don’t tell us much about the overall economic effect.
The pro-business argument for potential harms from the minimum wage is pretty straightforward: the minimum wage in Ontario, as of 2017, was already at its highest-ever inflation-adjusted rate, and the increase to $14 on January 1 was larger and faster than any increase the province had seen before. Unsurprisingly, some businesses are trying to recoup their losses by increasing prices or reducing worker hours. Either of these results is, from an economist’s perspective, a bad thing.
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Labour Minister Kevin Flynn, however, doesn’t see it that way. In an era of relatively low inflation, marginal price increases aren’t the worst thing in the world if they help workers.
“I really believe that, intuitively, the people of Ontario understand that people should be paid at least enough to get by,” Flynn said at Queen’s Park on Monday. “If it’s gone up by a few cents, but they know that the person who served them coffee isn’t living in poverty, I think that Ontarians are built that way — they’ll agree with that.”
Flynn’s answer is unlikely to mollify critics (the Liberals probably won’t get the endorsement of the Ontario Chamber of Commerce in the coming election), who would prefer the government to help low-income workers through targeted assistance (like the HST credit for low-income tax filers) not by imposing higher costs on businesses.
And this is where the government’s choices on the minimum wage are illuminating. Premier Kathleen Wynne has been open about her socially progressive aims, but the Liberals are also committed to balancing the budget and not substantially increasing corporate or personal taxes — so they often find their policy choices limited to things that sound great and have costs that can be fobbed off on someone else.
Housing is one example. For decades after World War II, both the federal — and, crucially, provincial — governments spent heavily on housing subsidies. While the feds covered things like mortgage insurance, the provinces generally subsidized housing construction through grants to municipalities that covered water and road infrastructure. Such funds weren’t always wisely spent, but massive expenditures of hard cash helped build almost all of what affordable housing Canada has, and guaranteed middle-class housing affordability as well.
The federal government has committed billions of dollars to new housing affordability — an underwhelming amount, considering the scale of needed investment. Ontario, of course, couldn’t commit billions of dollars in new housing expenditures even if it wanted to. Even so, the housing plan Wynne and Finance Minister Charles Sousa announced last year, which expanded rent-control rules, dedicated only a relative pittance to stimulating new rental-housing construction. As they’re currently doing with the minimum wage, economists will argue over who actually benefits from rent control — but one clear beneficiary is Queen’s Park, which gets to fly the affordable housing banner without actually spending money.
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What’s true for wages and housing is also true for electricity. The government’s much-touted plan to lower electricity prices is expressly structured to keep a mountain of Ontario Power Generation debt off the government’s books. The plan did also include the sensible measure of shifting some programs that had been paid for through electricity prices into the provincial budget, but the effects of this move will be small in comparison: $5 billion over 10 years, according to the government, as opposed to the nearly $40 billion the Financial Accountability Officer estimates hydro customers will have to repay until 2045. The government is happy to spend huge sums exactly as long as the final bill doesn’t show up on the public accounts.
There are exceptions the Liberals could point to as evidence of an honest effort to expand the social safety net. OHIP+, the plan to provide free prescription drugs to anyone 24 and under, is a real expenditure of real money, and it’s one of the government’s more notable expansions of the social safety net. Its effectiveness, and its real cost, are still very much up for debate. The Liberals have also made noises about a basic income, but it’s still in the pilot stage.
There’s also a recent example that proves the Liberals at least understand the costs they’re imposing: the government’s recently published draft rules on inclusionary zoning. The legislature passed Bill 7, the Promoting Affordable Housing Act, more than a year ago. That bill theoretically lets cities in Ontario implement inclusionary zoning rules requiring builders to include cheaper-than-market-rate units as part of their permitting rules — except the rules proposed by Queen’s Park would require municipalities to subsidize the construction of affordable units with cash, either up front or in the form of forgiving development charges and other levies cities have come to rely on.
There are arguments for and against this measure: municipalities could fairly say the province isn’t giving them the financial tools to meet the burdens they already have, much less subsidize new affordable housing; developers, in turn, could say that without subsidies, inclusionary zoning will simply put the cost of affordability on new homebuyers. But for our purposes, the most salient fact is that the Liberals really do recognize that if governments want to accomplish social policy goals, it’s best to put real money on the table instead of trying to accomplish the same thing through creative accounting.
They believe that’s true for municipalities, anyway. When the province’s own bills arrive, the government has other ideas.