Today, the Government of Ontario tabled its 2014 Budget. What follows is a summary of the key highlights from a business perspective.
On the whole, this is a ‘two-steps back’ budget for Ontario businesses. The budget does little to address Ontario’s most significant problem: its runaway debt and deficit.
Spending, deficit, and debt are going up.
This budget increases government spending by $3 billion, from $127 billion in 2013-14 to $130 billion in 2014-15.
The deficit will grow from $11.3 billion to $12.5 billion over the same period. Meanwhile, Ontario’s overall debt will grow to $289.3 billion by end of 2014-15 and $317.2 billion by the end 2016-17. The province’s debt-to-GDP ratio will grow to an alarming 40.3 percent in 2014-15.
Servicing the debt will cost $11 billion in 2014-15, approximately $3 billion more than government spends on colleges and universities.
The budget includes an annual program review savings target of $250 million for 2014-15 and $500 million for each of the subsequent two years.
Ontario requires a robust plan to reduce spending and tackle the debt. Controlling spending in an effort to reduce the deficit and debt is a top priority for the OCC and the number one means by which Ontario can guarantee its long-term prosperity.
This budget falls short on the pace of deficit and debt reduction. The annual program review targets are too modest. For the OCC’s vision for a smarter, more efficient government, see Unlocking the Public Service Economy in Ontario.
Ontario is introducing a new pension plan, but at what price?
The government plans to establish the Ontario Retirement Pension Plan (ORPP) in 2017. The new pension plan will coincide with expected reductions in Employment Insurance premiums. Employers and employees will each contribute 1.9 percent of wages to a maximum of $90,000. These premiums would be in addition to existing Canada Pension Plan (CPP) contributions.
The government will also introduce legislation on Pooled Registered Pension Plans (PRPPs) in 2014. PRPPs are a new form of tax-assisted individual retirement savings plan for workers without employer-sponsored pension plans.
According to an OCC survey, 72 percent of members feel that pension reform should be a provincial priority. Eighty-six percent of members support PRPPs.
The OCC does not support a stand-alone Ontario pension plan, as the plan will create administrative duplication with the CPP, further fragment Canada’s pension landscape, and potentially deter job creation.
Only 23 percent of those surveyed said they could afford additional employer premiums. See An Employer Perspective on Fixing Ontario’s Pension Problem for more details on the OCC’s position.
The budget includes no real plan to tackle energy prices.
The budget includes a Five-Point Business Energy Savings Plan for small business owners, which focuses on conservation. This plan is in addition to the Northern Industrial Electricity Rate and the Industrial Electricity Incentive program.
Ontario’s energy prices are among the highest in North America and one of the biggest barriers to business expansion in the province. Reducing the costs of electricity must be a priority.
The government is committing significant funds to the development of the Ring of Fire.
The government has announced that it is willing to commit $1 billion toward the development of Ring of Fire infrastructure. This investment, however, is contingent on a matching federal contribution.
The OCC applauds this strategic investment. A recent OCC economic analysis projects that the Ring of Fire will contribute up to $9.4 billion to Ontario’s Gross Domestic Product and sustain over 5,000 jobs annually over the first 10 years of its development. In the analysis, it is estimated that government will receive between $1.8 and $1.95 billion in revenue in the first 10 years of Ring of Fire development, and up to $6.7 billion over the first 32 years.
The federal government has a history of investing in large transformational economic development projects (e.g. Alberta’s oil sands and Churchill Falls in Newfoundland and Labrador). The federal government should match the province’s commitment.
The government is dedicating revenue for transit and transportation infrastructure.
The Government of Ontario is dedicating $29 billion in funding over the next 10 years to public transit and transportation infrastructure projects. The money will come from new sources (including a 148 percent increase in the provincial aviation fuel tax over the next 4 years) and repurposed revenues from the HST on gasoline and road diesel.
Improving transit and transportation in the Greater Toronto and Hamilton Area is a priority for the OCC. The OCC is disappointed that the government has not looked to reducing costs to help fund any new government spending.
Some taxes are going up.
The government is raising some taxes, including tobacco taxes (up 1.5 cents per cigarette), personal income taxes (a 1-point increase for those who earn between $150,000 and $220,000 annually, and a 2-point increase on those who earn between $220,000 and $514,000 annually), and aviation fuel taxes (148 percent increase in the provincial aviation fuel tax over the next 4 years).
Further, government will no longer allow larger businesses to use the Small Business Deduction (SBD). The SBD reduces the general corporate income tax rate from 11.5 percent to 4.5 percent on the first $500,000 of income.
Any measures that diminish the province’s tax competitiveness will hurt job creation and detract from investment. For example, the government’s plan to more than double the provincial aviation fuel tax will increase the cost of flying domestically and internationally. Fuel is already airlines’ biggest cost, and Canada already loses nearly 5 million passengers to American airports every year.
The government is creating a $2.5 billion fund to attract investment to Ontario.
The government is creating a 10-year, $2.5 billion Jobs and Prosperity Fund aimed at attracting business investment to Ontario. The fund will be used to secure investments that will create jobs in Ontario and/or improve the province’s productivity and export performance.
Ontario must focus its efforts on the overall business climate, including lowering energy prices and holding the line on payroll taxes.
The province will impose registration and licensing requirements on road-building machines that use public roads and highways.
Road-building machines, including mobile cranes, hydrovacs, and concrete pumpers, are currently allowed to use tax-exempt diesel fuel in unlicensed commercial vehicles. The government will end this exemption and dedicate the revenues to public transit and transportation infrastructure.
The OCC will consult with its members to further understand the impact of these changes.
Ontario is moving forward with sector-based strategies in an effort to capitalize on the province’s competitive advantages.
The province is partnering with industry and, in some cases, providing new funding to boost growth in key industries, including Information and Communications Technology, Manufacturing, and Agri-Food.
The OCC is pleased to see the government taking a sector-based approach to economic development. The OCC’s economic agenda for Ontario, Emerging Stronger, calls on government to support the province’s competitive advantages.
Questions or comments?
Contact Josh Hjartarson, VP Policy Policy & Government Relations.