Kathleen Wynne ‘ready’ to face spring election over unpopular plan to raise additional $2B a year to fund transit

Bright sun streams through the second-floor, south-facing window of Kathleen Wynne’s Queen’s Park office, and on this freezing weekday morning it feels like the warmest place in Toronto.

The Premier of Ontario confirms that she was out before the sun was up for her morning run, despite the cold. “It’s not so bad when it’s not that windy,” she says.

Ms. Wynne runs a lot. Most mornings, even while travelling, and in a Liberal Party television ad that shows her trudging up a switchback in Dufferin County. She’s also still running from the legacy of Dalton McGuinty, who left office under the cloud of the gas-plant scandal and having alienated the party’s one-time union allies. Coming up on the one-year anniversary of her election as party leader, Ms. Wynne has kept just enough distance between herself and her predecessor to remain at the head of a minority government.

But the Premier is by all appearances also running out of time. Just before the provincial legislature rose for its winter break, Ms. Wynne received a report from a panel she appointed that recommends options for raising $2-billion a year from taxpayers to fund transit expansion and other infrastructure. She has vowed to move forward with some version of that plan in the spring budget, which will almost certainly act as a poison pill. The opposition Progressive Conservatives and leader Tim Hudak have been trying to defeat the government for what seems like forever, while Andrea Horwath’s NDP, which has propped the Liberals up through two budgets, has for months said a transit plan funded by new taxes and fees is a non-starter.

Ms. Wynne insists the transit report, itself the product of a panel that was reviewing the work of an earlier panel, will not be punted again.

“We’re going to carry on,” the Premier says, sitting in an armchair across the office from her large wooden desk. “My hope is the opposition will see that it’s critical that we have a revenue stream,” she says. “I know that Tim Hudak has said that he has a plan, I don’t know how exactly he would fund his plan, but Andrea Horwath doesn’t have a plan at all.”

Ms. Wynne says she still believes one of the two parties might buy into her transit strategy.

“But if they don’t, we’ve said all along that we’re ready. Whether it’s on this issue or whether it’s on the broader issues that are part of the budget, we are ready for a general election.”

And so, Ontario moves toward a crossroads. The province has been governed by the Liberals for more than a decade, with Mr. McGuinty twice coming from behind to win elections he was expected to lose. Mr. Hudak, who lost the last of those campaigns, has spent much of his time since lamenting the Liberal management of the economy, which even under rosy government forecasts is not scheduled to climb out of deficit until 2017-18, or three years after the federal government is expected to do the same.

But while the Liberals and PCs would have been expected to do battle on the campaign trail over the economy and persistent deficits, the coming campaign may be fought over different issues entirely. Mr. Hudak’s party has released a series of white papers that promote fundamental policy shifts across all levels of government. Though the PCs aren’t expected to include all of them in an election platform, the leader has made labour reform, or rewriting the law that allows unions to make membership mandatory, one of his consistent targets. He told a Toronto business audience this month that his plan, which he calls modernizing labour laws and union leaders call an attempt to destroy their organizations, was an important part of stemming the manufacturing job losses that in the past few weeks alone have seen companies such as Heinz and Kellogg announce plans to relocate work from southwestern Ontario to the United States.

A floor above Ms. Wynne’s office at Queen’s Park, Mr. Hudak says he is aware that picking a fight with organized labour in the province is risky.

“I get the advice almost on a daily basis that I should just stay out of the way, let the government defeat itself and walk into the Premier’s office,” he says. “But I am going to need a mandate to bring the kind of change that’s required to the province.”

This is pretty much the opposite of what Mr. Hudak tried in 2011, when he ran against Mr. McGuinty without saying a lot about what he would do differently. The unions went after him anyway. This time around, no one would be under any illusions, which might have the effect of driving labour supporters back to the Liberal camp. (The austerity measures brought in under Mr. McGuinty had unions literally protesting in the street against the Liberals.)

A battle over labour laws could also have the effect of distracting the electorate from the economy, which should be fertile ground for the PCs, who have been arguing for months that the Liberals can’t control spending enough to wrestle the deficit down. Rising hydro prices, the continuing fallout over the $1-billion dollar gas-plant scandal, an audit that pointed to wildly excessive compensation at the public power generator and those manufacturing closures point to plenty of ammunition for a party keen to attack the Liberals over fiscal mismanagement.

There’s also the fact that the Liberals this fall for the first time acknowledged that the target date of their long-term deficit-reduction plan is not as rigid as once thought.

In our year-end interview (which came before the ice storm and its aftermath), Ms. Wynne repeated the theme of the Fall Economic Statement, telling the National Post that while she expects to remain on target to balance the budget by 2017-18, if economic conditions are such that “those interim targets are going to be difficult for us to hit as we make investments that are going to make the economy grow, we are not going to stay on course.”

“I really believe we have the capacity to reach that long-term target,” the Premier said. “The interim targets? We’ll see.”

Of course, “investments that make the economy grow” could in theory be, well, anything. And given that Ms. Wynne is already planning for a multi-billion-dollar transit spend, and has indicated her party is prepared to spend billions more on a public-pension plan after the federal government said it wanted to hold off on expanding CPP, it’s a reasonable assumption that the forecasts of the 2014 budget will look nothing like the forecasts of the one delivered in 2013. The government was already facing major challenges on the spending side, where according to its own targets it was going to have to reduce total program spending in the years between 2015 and 2018. Not hold the line on spending, and certainly not keep it in line with inflation: actually spend fewer discretionary dollars in 2018 than it will spend in 2015. That is a huge undertaking. And it’s entirely possible that the Wynne government has decided not to undertake it. Big new programs like a 20-year transit plan and a public-pension scheme would muddy the budget waters enough that earlier forecasts would no longer be comparable. Move the target date for a balanced budget out a year or two, add in some optimistic growth forecasts, and the Liberals could present a roadmap that makes for good campaign material.

The Premier insists that spending goals have not been abandoned. “We’ve said we do not have money in the budget to fund increases, so there are going to be difficult discussions about tradeoffs within the [spending] envelopes,” she said. “But we’re still in a period of constraint, it’s very important that people understand that. We’re going to have to continue [make changes] in all of our ministries that allow us to keep services, but reduce costs.”

But will that be enough? When economist Don Drummond headed the commission on public services that produced what became known as the Drummond Report in 2012, it considered the possibility of extending the target date to return to balance by a year or two. “We examined this option, but found that it offers little relief from the need for severe spending curbs,” the report says. “The minor additional flexibility on spending does not outweigh the risk of slipping out of fiscal control.”

Search all the statements of Ms. Wynne and her Finance Minister, Charles Sousa, meanwhile, and you will find no references to severe spending cuts, no matter the target break-even date. Both instead have been training their focus of late on Ottawa, which they say is shortchanging the province.

“I just want to say that it’s really important to me to work collaboratively with the federal government,” Ms. Wynne said in her office. “So far there doesn’t seem to be a willing partner.”

Again, it’s a message that seems road-tested for the campaign trail.

Mr. Hudak, for his part, says the Liberals have had more than enough time to prove they can improve the provincial economy, and they have come up wanting. He says he will enter the new year still pushing his party’s policy proposals, even though they will draw fire from opponents.

“It’s not about winning the keys to the Premier’s office. It’s about turning the economy around,” he says.

“I want to prove to [voters] that I’m the alternative.”

The smart money says he will soon have that chance.