Reckless spending and tax hikes have turned Ontario, once the economic engine of Canada, into a “have-not” province. As British Columbia has fallen into “have-not” purgatory in the past, the B.C. government might want to look east to ensure the province's economy doesn't also turn into a lemon. 

According to Bay Street economist, Dale Orr, living standards in Ontario fell from 15 percent above the Canadian average in the mid-80's to 5 percent now. What went wrong? Canadian finance minister Jim Flaherty rightfully pointed to the higher personal and corporate taxes that made Ontario a less attractive Canadian province for business investment. 

Analysts expect this to get worse by 2010. Why? In part because of an unsustainable spending spree by the Ontario government.

Government spending in Ontario is expected to skyrocket to $108-billion in 2009-10, almost double the 2003 spending level. The worst part about this out-of-control spending is that it diverts resources from up-and-coming industries to politically connected duds. Ontario has channeled untold millions into its industrial heartland, mostly to the auto industry. Even so, Ontario's failing auto sector has become less important to Ontario's economy, falling from 23 percent of GDP in 2000 to about 18 percent in 2008. 

This, and other misguided spending, has created a deficit of $14.1-billion for 2009. As a result, Ontario's debt is expected to hit $177-billion. Even with Ontario’s government-supplied "stimulus," early forecasts show that Ontario's economic decline, at about 2.9 percent in 2009, is expected to be the largest in Canada. 

What this means for B.C. is clear -- creating a competitive tax system is important for the health of the economy, but lowering taxes while running up debt is unsustainable. 

B.C. has made significant across-the-board tax cuts and has one of the more competitive tax regimes in Canada, second only to Alberta. However, the government has ramped-up spending at the same time, creating a big increase in the provincial debt. And it’s getting worse. According to columnist Don Cayo, "the Campbell government pumped out $2.8-billion in announcements in the 13 days between the closing of the legislature and the official start of the election campaign." 

Since 2003, B.C. government spending has increased by 29.5 percent. Big surpluses have disguised the debt reality -- B.C.'s debt has increased by 7 percent since 2003, and with the return to deficit spending, it will get bigger. The deficit is expected to be $495- million in 2009 and $245-million in 2010, boosting B.C.'s debt by 25 percent over the 2003 level. 

To see what this debt run-up means, we don't need a crystal ball, we only need to look at Ontario. Ontario is raising personal income taxes -- it lowered the income thresholds for the top two tax brackets to capture more people at higher tax rates! Taxing the most entrepreneurial members of society at punishing rates only discourages people from working, saving and investing.

What are the lessons for B.C.? Cut taxes across the board, control government spending, balance the budget and stop diverting scarce resources into politically connected sectors. Eliminating targeted tax cuts to favoured industries would allow for an even bigger tax cut to businesses of all sizes, no matter how much they donate to political campaigns or who their lobbyists are.