Reality Check: New report shows that austerity does more harm than good

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A new study by the Canadian Centre for Policy Alternatives’ (CCPA) Ontario office reveals how austerity policies are damaging the province’s economy. More damning, the austerity agenda is also slowing the rate that Ontario reduces its deficit, and is therefore self-defeating.
The CCPA makes several important observations:

  • The case for austerity – a supposed “deficit crisis” – was based on deliberately misleading assumptions, and a flawed analysis of Ontario’s fiscal situation and options.
  • The deficit was caused by the recession, not by over-spending.
  • In the absence of a jobs strategy, employment has not returned to pre-recession baselines.
  • Income inequality in Ontario has worsened, and is now the second-worst in Canada (after Alberta).
  • Cuts to the public sector create a “fiscal drag” which stifles economic growth

The study also reveals the false logic of the austerity agenda and the public sector constraint that comes with it:

“There is no need for a downward shift in provincial program spending. There is no need to reinvent, or privatize, public services. There is no need to curtail fundamental labour rights in the name of deficit reduction. The data in this report point to the self-defeating logic of the current cycle enveloping Ontario: recession causes a deficit; austerity is advanced as the only solution to the deficit; but then, cuts to public spending, wage freezes and job losses create a fiscal drag on an already tenuous economy, potentially pushing the whole fragile system back into recession.”

The report concludes with recommendations for kick-starting real economic growth in Ontario, including a higher minimum wage, increased public capital spending, and “sector development strategies” that revitalize manufacturing and other key industries.

Austerity logic has been active in Ontario’s higher education sector, and has led to declining per-student funding, rising tuition, and attacks on the rights of faculty. As the CCPA suggests, re-investment in the province’s universities is key to student success, lower unemployment, and an innovative economy. 

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