Winnipeg Free Press - ONLINE EDITION

Ont. budget a train wreck

  • Print
Ontario Finance Minister Charles Sousa

DARREN CALABRESE / THE CANADIAN PRESS FILES Enlarge Image

Ontario Finance Minister Charles Sousa

VANCOUVER — With Ontario lagging behind other provinces on a wide range of economic indicators and recently becoming a "have-not" province, it desperately needed a bold plan to improve competitiveness and foster economic growth. Unfortunately, last week’s budget failed to deliver and will only exacerbate Ontario’s fiscal and economic challenges.

Most importantly, the province needed a plan to rein in large budget deficits and growing government debt. That didn’t happen. In fact, the government explicitly deprioritized deficit targets and is now expecting this year’s deficit to be $12.5 billion — $2.4 billion higher (or 24 per cent more) than previously projected. The planned deficits for 2015/16 and 16/17 also increased by $1.7 billion and $1.8 billion, respectively. Despite these setbacks, the Ontario government still plans to miraculously return to a balanced budget in 2017/18 although details are slim.

Not only are deficits expected to be higher, the revenue and spending underpinning them are questionable. Finance minister Charles Sousa expects revenues to grow to $134.8 billion by 2017/18 from $115.7 billion in 2013/14, a $19.1-billion increase. This works out to 3.9 per cent average annual growth over the period. Is it possible? Maybe. But for perspective, revenue growth averaged 2.6 per cent annually in the previous three years.

On spending, Sousa expects to hold the line on annual increases. Program spending is slated to grow a meagre $3.0 billion to $119.4 billion in 2017/18 from $116.4 billion in 2013/14. In other words, program spending (without adjusting for inflation) will increase by just 0.6 per cent annually. How Sousa plans to achieve this is an open question in light of no major spending reductions announced in the budget. Ontarians deserve to see his math.

With growing deficits, government debt is also increasing. In fact, it’s projected to hit $324.5 billion by 2017/18 (almost 40 per cent of Ontario’s economy). Ontario’s debt has more than doubled since the Ontario Liberals came to power in 2003/04 when the provincial debt stood at $138.8 billion (or 27.5 per cent of the economy).

Rising government debt means growing debt interest payments. Debt interest payments are expected to hit $11 billion or 9.3 per cent of revenue in 2014/15. The government also estimates that interest payments will grow, on average, by 7.9 per cent over the next three years, making them Ontario’s fastest-growing expense. By 2017/18, interest payments will consume nearly 11 per cent of government revenues.

As for the rest of the budget, the story isn’t much better.

The government’s plan to introduce a new tax rate of 18.97 per cent (including surtax) on Ontarians earning more than $150,000 and lower the income threshold for the top rate (20.53 per cent) to $220,000 will exacerbate Ontario’s uncompetitive personal income tax regime. Once implemented, Ontario will have seven separate tax brackets with the combined top federal-provincial personal income tax rate a hair under 50 per cent, making it one of the highest taxed jurisdictions in North America.

The trend of raising taxes on Ontarians will undermine "the culture of innovation and entrepreneurship" that the government purports to support. And the tax hikes will especially hit workers that the modern economy relies on the most, such as engineers, accountants, doctors, lawyers and other professionals. As a result, the province will find it more difficult to attract and retain highly skilled individuals.

And for what? The tax increases likely won’t increase government revenues by as much as Sousa hopes. Ontarians will likely change their behaviour in response to higher rates. Workers may report less income, arrange their affairs through tax planning techniques to minimize their tax burden, change their working hours, or less aggressively pursue higher paying jobs.

The plan for a new "made-in-Ontario" pension program is similarly misguided. If implemented, the program could result in an additional 3.8 per cent payroll tax on Ontarians up to $90,000 which is almost double the current maximum of $52,500 under the Canada Pension Plan.

Payroll tax hike aside, the reality is that Canadians aren’t facing a looming retirement income crisis. A full accounting of all the resources available in retirement along with changing labour market patterns suggests this move is unnecessary. And it likely won’t increase overall retirement savings to the extent expected if Ontarians simply save less voluntarily, in response to increased forced savings.

In sum, Ontario’s budget does nothing to improve the province’s economic competitiveness or the economic prospects for Ontarians. It simply pushes the province further in the wrong direction.

 

Sean Speer, Charles Lammam and Milagros Palacios are economists at the Fraser Institute.

 

 

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Maurice Leggett on his three interceptions vs. Alouettes

View more like this

Photo Store Gallery

  • Perfect Day- Paul Buteux walks  his dog Cassie Tuesday on the Sagimay Trail in Assiniboine Forest enjoying a almost perfect  fall day in Winnipeg- Standup photo – September 27, 2011   (JOE BRYKSA / WINNIPEG FREE PRESS)
  • A one day old piglet glances up from his morning feeding at Cedar Lane Farm near Altona.    Standup photo Ruth Bonneville Winnipeg Free Press

View More Gallery Photos

Poll

Does Canada need a national inquiry into the disproportionately high number of missing and murdered aboriginal women?

View Results

View Related Story

Ads by Google