Premier of Ontario
The Liberals and NDP defeated Miller's government on June 18, 1985, when Rae introduced a motion of no confidence on the speech from the throne. Peterson was sworn in as Premier of Ontario eight days later. Peterson's top three cabinet ministers were Robert Nixon as Treasurer, Sean Conway as Education Minister, and Ian Scott as Attorney General.
After the expiration of the Liberal-NDP Accord in 1987, the Liberals called another provincial election, and won the second-largest majority government in Ontario's history, taking 95 seats out of 130, at the expense of the NDP and the Progressive Conservatives who dropped to third place in the legislature. After the 1987 election, Peterson told the newly enlarged caucus at their first meeting that his popularity may have got most of them elected, but warned that he would likely need their help getting re-elected next time, since he understood that his massive victory had created expectations that simply couldn’t be met.
Peterson's government introduced several pieces of progressive legislation. It eliminated "extra billing" by doctors, brought in pay equity provisions, and reformed the province's rent review and labour negotiation laws. His government also brought in pension reform, expanded housing construction, and resolved a long-standing provincial controversy by honouring the Davis Tories promise to extend full funding to Catholic secondary schools. Peterson was also a vocal opponent of free trade with the United States in 1988. His administration was less activist in its later years, though it still introduced progressive measures on environmental protection, eliminated health insurance premiums, and brought in no-fault automobile insurance for the province.
Peterson's prominent role in creating and promoting the "Meech Lake" constitutional accord gained criticism from some. While initially popular, this attempt at revising Canada's constitution proved extremely divisive in most of English-speaking Canada. Many believed that it gave too many concessions to Quebec, while others believed that it weakened the federal government's authority in relation to the provinces. Peterson's continued support for the accord, in the face of increased opposition, damaged his personal popularity in Ontario. The accord was not endorsed by Manitoba and Newfoundland, and did not pass. As Ontario's economy slowed down, the public also questioned Peterson's devotion to nation-building issues such as the Meech Lake Accord, instead of "more mundane kitchen-table issues such as rising taxes and skyrocketing auto-insurance premiums".
Peterson and the Liberals also faced controversy over the Patti Starr affair. Starr, a prominent Liberal fundraiser, was found to have improperly diverted money from a land development scheme and charitable organizations to the provincial Liberal Party. Several Liberal cabinet members were recipients of her largesse including Health Minister Elinor Caplan, Transportation Minister Ed Fulton and Revenue Minister Bernard Grandmaitre. These revelations led to a cabinet shuffle by Peterson in which five ministers who had received contributions lost their positions. On June 24, 1989, Peterson ordered a judicial inquiry be set up to investigate the matter. Initially Starr wanted to participate in the inquiry saying, "I stand by all the things I participated in ... I think the inquiry will be a positive thing." Later on she moved to have the inquiry quashed. In January 1990, the Ontario Court of Appeal dismissed her request. Two weeks later the Supreme Court of Canada gave her leave to appeal. In a decision in April, the Supreme Court declared the inquiry unconstitutional. Starr successfully argued that an inquiry investigating criminal charges would deny subjects their full legal rights. Public inquiries can compel witnesses to testify but criminal trial defendants can refuse to testify. Starr was eventually sentenced to six months' jail time. Although no-one in Peterson's administration was accused of criminal activity, the scandal eroded public confidence in the integrity of the government. Polls showed that more than half of respondents felt that Peterson had poorly handled the matter and 61% felt that it revealed widespread corruption in the government.
The Peterson administration also developed a reputation for fiscal prudence, under the management of Treasurer Robert Nixon. The Liberal government was able to introduce a balanced budget for 1989–1990 following several years of deficit spending in Ontario, at a time when deficit spending was commonplace in most of North America.
In the early 1990s recession, Ontario faced a weakening North American economy. Productivity levels were falling throughout the United States and Canada during this period. While there was little that Peterson, or any other Ontario Premier, could have done to prevent this downturn, it weakened his government's reputation for fiscal competence. (Indeed, the government's projected surplus budget for 1990–1991 ultimately yielded a deficit of at least three billion dollars.) Peterson "was getting a ton of advice to call an early snap election after less than three years" and "pundits warned Peterson he certainly didn’t want to call an election in 1991, in the middle of a deep recession".
Notwithstanding all of this, Peterson's Liberal Party still retained a comfortable lead over the Progressive Conservatives and NDP in mid-1990 public opinion polls, as their party leaders Mike Harris and Bob Rae, respectively, were not expected to be strong challengers. The PC Party was broke after the 1987 election, and anticipating an early election call they held their leadership contest in May 1990 with a membership vote instead of a delegated convention, they still struggled due to newly minted leader Harris's inexperience as well as an association with Prime Minister Brian Mulroney's growing unpopularity. The NDP having never won an Ontario election and Official Opposition leader Bob Rae was considering retiring from the legislature after one more term. As a result, Peterson decided to call a snap election, less than three years into his mandate. This proved to be his greatest mistake.
During the first week of the campaign, then-attorney general Ian Scott, claimed that 'while the voters might be cranky at the moment, they ultimately would hold their noses and re-elect the Liberals. After all, he added, “They’re not going to vote for Mike Harris, and what are they going to do — vote NDP?”' However many voters saw the early election as a mark of arrogance, and a sign that Peterson's Liberals had become detached from the electorate. There was no defining issue behind the campaign, and many believed that Peterson was simply trying to win re-election before the economic downturn reached its worst phase. Some Liberal cabinet ministers, most notably Greg Sorbara and Jim Bradley, were strongly opposed to the early election call. Sean Conway, a member of Peterson's inner circle, would later acknowledge that most backbench MPPs also opposed the timing of the campaign.
At the time the writ was dropped, the Liberals stood at 50% support in the polls. Peterson's personal popularity rating based on his Meech Lake record was 54%. However, his luck turned immediately upon calling the election. One of the seminal moments in the campaign was at a press conference called to announce the forthcoming election. Peterson justified the early writ claiming "especially after the failure of the Meech Lake Accord, Ontario faced 'profound changes in this country and the world' and that he needed to protect the province in the event of a national-unity crisis", while denying "that he was being an opportunist and trying to capitalize on polling results that put Liberal support at 50 per cent". It was soon interrupted without intervention by security or police by Greenpeace activist Gord Perks, who arrived with a briefcase handcuffed to his arm, with a tape recorder inside playing a pre-recorded list of broken Liberal environmental promises. Peterson sat in front of the room full of reporters, awkwardly silent and clearly uncomfortable.
Peterson's Liberal party, regarded as a challenger in 1985, was seen by the end of the 1980s as a "juggernaut that became arrogant and didn’t listen to its critics". As the PC and NDP opposition parties were weakened after the 1987 election, it fell to the media and other special interest groups (particularly teachers’ unions and environmental groups) who were criticizing the Ontario government at a level not seen with past administrations. Disappointed by high expectations from Peterson's 1987 massive electoral victory, as well as perceiving that the PC and NDP parties would not be strong opposition, groups representing various interests (such as teachers, doctors, and environmentalists), came out against Peterson on television, radio, in print, and at Liberal campaign events, despite the Liberals having worked cooperatively with these special interest groups prior to the election call. Protesters would follow the Premier throughout the campaign, and often received considerable media coverage. The media reported the election call as cynical, and the party appeared desperate when they unexpectedly proposed to cut the provincial sales tax halfway through the campaign. It did not help that the provincial election campaign was being run in the aftermath of the failed Meech Lake constitutional accord of Brian Mulroney's federal government, with which Peterson had significant media exposure in association with the other first ministers.
Peterson felt that the Liberals’ fading poll numbers "reflected greater anxieties about the world and that the party had failed to successfully communicate his government’s accomplishments"; by contrast the NDP's hastily assembled platform called "Agenda for People" managed to escape heavy scrutiny due to their underdog status. As the NDP gained momentum, the Liberals panicked as many candidates removed Peterson from their campaign materials and distanced themselves from Peterson, while Treasurer Robert Nixon proposed a cut to the sales tax. The Liberal campaign slogan shifted from “Effective leadership for a strong Ontario” to “Warning: An NDP government will be hazardous to your health.” Toronto Sun columnist Michael Bennett summed up the divergent fortunes of the Liberals and NDP as campaign progressed, writing “As Peterson became more strident, Rae assumed an almost statesman-like attitude. He’d used up most of the venom early in the campaign. Now he didn’t need it.”
On September 6, 1990, the NDP scored one of the greatest upsets in Canadian political history, taking 74 seats for a strong majority government. Due to the nature of the first-past-the-post system as well as numerous fringe parties contesting this election, one third of NDP seats were won with less than 40 per cent of the vote. While the NDP only outpolled the Liberals by a narrow six-point margin, they managed to unseat many Liberal incumbents in the Greater Toronto Area. The Liberal caucus was decimated as they plunged from 95 seats to 36, at the time their worst showing ever. The 59-seat loss surpassed the 48-seat loss in 1943 that began the Tories' long rule over the province. This was also the second-worst defeat for a governing party in Ontario. Peterson lost his own seat, having been resoundingly defeated by NDP candidate Marion Boyd in London Centre by over 8,200 votes. The loss ended Peterson's political career. He announced his resignation as Liberal leader on the night of the election.
