Ontario Budget 2017: The Re-Election Two-Step

Apr, 2017


We know, we know. The next Ontario election is not until June 2018. But, the reality is that fixed election dates have had an indelible and discernible effect on how governments govern and how political and policy decisions are made. From the moment a government is elected, all eyes remain firmly fixed on the date circled on the calendar four years hence. The April 27 budget, inherently a political document, represents the first step in the government’s two-step re-election plan, aimed squarely at June 7, 2018. This one is designed to prime the pump and set the stage for the second step: Budget 2018 – the Liberal’s de facto election platform.

Long-time Ontario political watchers will recall the Speech from the Throne delivered on July 3, 2014 on behalf of Premier Wynne’s then-newly elected majority government. In it, the Premier clearly articulated her core beliefs in the role of government: “…a force for good – a full and active participant in your communities and in your lives.” Yesterday’s budget, tabled in the Ontario legislature by Finance Minister Charles Sousa, bears full witness to these core beliefs. It puts an activist government, armed with both a balanced budget and a willingness to spend, on full display.

Charting An Active Course

In tandem with a string of government program announcements in the days leading up to the budget – the Basic Income Pilot, the 16-point “Fair Housing Plan”, 24,000 new childcare spaces, a Caregiver Tax Credit, plus the March 2017 “Fair Hydro Plan” – the budget seeks to move the dial on a number of socio-economic policy issues that the government is eager to address. Additional social policy measures announced in the budget include:

  • OHIP+: Children and Youth Pharmacare, effective January 1, 2018, to provide free prescription drugs to those aged 24 and under.

  • Health budget boosted by $7 billion over three years.

  • A cash infusion of $250 million in home care.

  • An additional $30 billion in infrastructure spending, largely devoted to hospitals, schools and childcare.

  • $190 million over three years to launch a Career Kick-Start Strategy aimed at providing students with work-related experience while in school.

  • A new $68-million Career Ready Fund to help post-secondary institutions and employers create more opportunities for students and recent graduates.

  • Ontario Student Assistance Program reform to consolidate grants and provide up-front grants.

  • 15 per cent Refundable Seniors’ Public Transit Tax Credit.

Snapshot: Ontario’s Fiscal Condition

A Budget in Balance: Premier Wynne promised in the 2014 election campaign that her government would deliver a balanced budget by 2017-18. With this budget she has accomplished this goal – the first balanced Ontario budget since the 2008-09 global recession. It bears noting that the colour of the budget document is usually Liberal Red. This one is black, a visual metaphor for returning the provincial books to black ink.

[Note: The Ontario Financial Accountability Officer disagrees with government forecasts of future balanced budgets due to one-time asset sales and revenue from the Cap and Trade program. Expect the opposition parties to focus on this discrepancy over the next year and during the 2018 election campaign.]

Debt-to-GDP Ratio: While the government’s net debt continues to grow, largely as a result of promised infrastructure expenditures, the net debt‐to‐GDP ratio is projected to be 37.8 per cent in 2016–17. The government is setting an interim net debt‐to‐GDP ratio target of 35 per cent by 2023–24 and continues to maintain a target of reducing the net debt‐to‐GDP ratio to its pre‐recession level of 27 per cent, with current projections showing that this will be achieved by 2029–30.

Taxes: The 2017 budget includes no appreciable personal or business tax changes. The only tax measures of note are the aforementioned Refundable Seniors’ Public Transit Tax Credit, a hike in the tobacco tax of $10 per carton over three years, and a promise to amend the City of Toronto Act and the Municipal Act permitting cities and towns to levy a hotel tax. Budget Impact on Ontario’s Business Community

TACTIX maintains a close watch on political developments and public policy issues of importance to our clients. To that end, we have examined the 2017 Ontario budget for initiatives that directly affect the business community. Our conclusion? From this perspective, the budget is yawn inducing: there is very little to cheer about or to condemn.

Nevertheless, we have identified a few points of interest to some of the key sectors of the Ontario economy:

1. Agriculture and Agri-Food

The government has given a couple of nods to Ontario’s agriculture community in this year’s budget. Farmers will be happy to know the province is making it easier to access biodiesel in the coloured fuel market. The government has proposed to add a new category of registered biodiesel in the coloured fuel marking regulations that would be exempt from fuel taxes.

Moreover, the budget makes a step to address farming community concerns over how their operations are taxed. The government plans to introduce legislation enabling municipalities to reduce property tax rates for small-scale value-added commercial activities on the farm. Rather than taxing farmers the full rate for commercial activities, the province plans to give municipalities the option to tax a portion of these activities at a reduced rate.

2. Automotive Sector

The budget reiterates recent government investments made in automotive OEMs through the Ontario Jobs and Prosperity Fund, as well as its Automotive Supplier Competitiveness Improvement Program (ASCIP), launched in October 2016. Moreover, Ontario is investing $80 million over five years to create the Autonomous Vehicle Innovation Network, in partnership with Ontario Centres of Excellence. Finally, the budget notes the province will invest more than $22 million in 2017–18 in electric vehicle (EV) charging infrastructure, including at government facilities.

3. Energy, Resources, Environment

The budget aims to ease the burden on businesses that are large consumers of electricity by lowering the Industrial Conservation Initiative (ICI) from the 1 Megawatt threshold to 500 Kilowatts. It also reinforces the Ontario government’s commitment to a low-carbon economy by detailing how the funds raised by the province’s approach to carbon pricing will be allocated. Ontario is investing $377 million in 2017–18 through the Green Ontario Fund to make it easier for businesses to adopt proven low‐carbon technologies and will also work with SMEs and large industries to adopt new technologies to reduce GHG emissions.

4. Financial Services

Finance Minister Sousa used the budget to provide an update on the province’s new financial services regulator being established pursuant to the Financial Services Regulatory Authority of Ontario Act, 2016, passed in December of 2016. The next step is the appointment of the board of directors to oversee the management of the new regulatory authority, expected sometime this spring. Work is ongoing regarding the mandate and governance structure of the regulator and of the Financial Services Tribunal, with legislation to be introduced by the end of 2017.

In other news related to Ontario’s financial services sector, the government will:

  • Transfer responsibility for incorporating co-operative corporations from the Financial Services Commission (FSCO) to the Ministry of Government and Consumer Services.

  • Shift oversight of syndicated mortgage investments from FSCO to the Ontario Securities Commission.

  • Establish investment limits on syndicated mortgages.

  • Partner with educators on pilot projects across the province to help students develop, among other things, financial literacy skills.

5. Transportation

The province seeks to confront challenging commuting and transportation issues across the province by diversifying transit options and boosting public transportation services. To that end, the budget allocates $56 billion for public transit and $26 billion for highways over the next 10 years.

Several rapid transit projects are to be built in Waterloo, Hamilton, Mississauga, Brampton, Ottawa and Toronto. GO Transit will be improved through the GO Regional Express Rail, aimed at providing faster, more frequent service on the GO rail network. The Ontario’s Connecting Links program receives $25 million for nineteen municipalities to help repair roads and bridges connecting a provincial highway through a community, or to a border crossing.

Although it is not yet reality, the government is continuing plans for a high speed rail project from Windsor to Toronto by moving forward with an environmental assessment of the rail corridor, and considering a governing body that would provide oversight for the design and implementation of high-speed rail.

And, lest we forget the province’s cycling community and the businesses supplying it, Ontario continues to invest in cycling projects, dedicating $50 million in 2017-18 to commuter cycling infrastructure. Hearing from the Opposition Benches

The two main Opposition parties have staked out their positions on Budget 2017. As the governing Liberals try to demonstrate fiscal responsibility by delivering a balanced budget as promised, the Progressive Conservative Party is looking to poke holes in that claim. PC leader Patrick Brown characterizes the budget as a “so-called balanced budget”, noting that the provincial debt has more than doubled since the Liberals first came to power in 2003, with no plan to get it under control.

For her part, NDP Leader Andrea Horvath is defending her party’s position on the progressive left in the province, criticizing the government for not going far enough on pharmacare and for having no plan to stop school closures. This is, frankly, an uphill battle against a budget filled with progressive spending initiatives.

In Closing

With an eye cast firmly on the 2018 election calendar, the return to balance in Ontario’s 2017 budget gives the Wynne government the breathing space to place a heavy focus on retail politics. To that end, the vast majority of budgetary measures are targeted to individuals, seniors, and families, through increased spending on health care, childcare and education, core responsibilities of provincial governments.

Balancing the province’s books is aimed at muting criticism from the right side of the political spectrum; a multitude of progressive spending measures are clearly aimed at delivering a left hook to the NDP.

Perhaps coincidentally, we conclude our Ontario 2017 Budget Commentary in identical fashion to our Federal 2017 Budget Commentary: we await the sound of the second shoe dropping.

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