On March 28th, 2018, the Government of Ontario released its 2018 Budget, A Plan for Care and Opportunity. The following is a summary of key highlights from the perspective of Ontario’s business community.
The Ontario Government is harmonizing with the federal government’s eligibility criteria, leaving over 20,000 employers paying $100 million more in Employment Health Tax over the next three years. In addition, businesses will be phased out of the small business deduction if they earn between $50,000 and $150,000 of passive investment income, resulting in an additional $350,000 million in new taxes for Ontario businesses over the next three years.
In an effort to support businesses making significant, long-term investment in research and development (R&D), the provincial government will enhance the Ontario Research and Development Tax Credit (ORDTC). Companies qualifying for the ORDTC will be eligible for an enhanced 5.5 percent exemption (from 3.5 percent) on expenditures over $1 million in a taxation year.
The government is also enhancing the Ontario Innovation Tax Credit (OITC) in an effort to encourage smaller companies to make investments in R&D that will aid growth. If a company qualifies for the OITC and has a ratio of R&D expenditures to gross revenues above 20 percent, it will be eligible for an OITC rate of 12 percent.
Ontario Chamber of Commerce (OCC) Analysis
Budget 2018 has chosen to follow the federal government’s lead on changes to the tax code, resulting in a new tax burden on Ontario employers of nearly half a billion dollars over the next three years.
In Budget 2018, the government indicates it will focus on providing fare integration across a number of transit systems. The Province will work with the Toronto Transit Commission (TTC), York Region Transit, Mississauga MiWay, Brampton Transit, and Durham Region Transit to introduce discounts to transit users who transfer between these municipal transit networks. This initiative could save cross‐boundary transit commuters up to $1.50 per trip, saving regular commuters about $720 per year.
Further, PRESTO card users at stations such as Port Credit, Malton, Pickering, Ajax, and Markham will also see fare reductions when taking GO Transit back and forth to Union Station. All GO Transit trips under 10 kilometres will cost PRESTO card users just $3 per trip anywhere on the GO Network.
Continuing the trend of Greater Toronto and Hamilton Area (GTHA) regional transit planning, the Province will explore whether major transit assets, particularly heavy rail, can be optimized with a different ownership model. The Province will begin discussions with the City of Toronto to determine whether Provincial ownership of TTC subway lines could provide better transit services for residents in the GTHA, and allow for a better sharing of costs for transit expansion between the Province and the City of Toronto.
The OCC has long advocated for fare integration within the GTHA. The proposed initiative in Budget 2018 is a step in the right direction to ensure transportation connectivity across the GTHA in support of regional economic growth.
In Budget 2018, the government is providing $500 million over three years to expand broadband connectivity in rural and northern communities. This will include an investment of up to $71 million towards improving cellular coverage in Eastern Ontario and up to $20 million to Telesat to support a Low Earth Orbit (LEO) satellite constellation project.
The OCC has consistently advocated for trade-enabling infrastructure, including both traditional infrastructure and digital infrastructure such as high-speed broadband internet. The OCC is pleased to see this investment in broadband as the province’s competitiveness relies on infrastructure that can connect communities and open access to foreign markets.
Good Jobs and Growth Fund/Skills Development
In Budget 2018, the government has made investments in a variety of areas to expand skills and workforce development and Ontario’s apprenticeships. These investments include $935 million over the next three years for the Good Jobs and Growth Plan and $170 million over three years in the new Ontario Apprenticeship Strategy. Ontario is also investing an additional $12 million to extend the Career Ready Fund to 2020–21, supporting 28,000 more experiential learning opportunities for students and employers.
Other investments include innovative post-secondary programming to match Ontario’s changing labour market, institutional and employer partnerships for experiential learning, bridge training programs for new Ontarians, services to increase access to labour market information, and skills training services for employers.
In order to prioritize investments and growth to help Ontario businesses grow and retain jobs, the Province will renew, enhance, and extend the Jobs and Prosperity Fund (JPF) with an increase of $900 million over the next 10 years. In addition, the Province’s New Economy Fund will help companies stay at the leading edge of innovation and industry to create and retain over 20,000 jobs and attract $5.7 billion in investments.
The OCC has consistently emphasized skills and workforce development as a priority for Ontario’s business community, with 77 percent of OCC members stating that the ability to recruit and retain talent is critical to their organizational competitiveness. We commend these commitments from the Province and would welcome further investments and program redesign. For our recommendations with respect to skills and workforce development see the OCC’s report, Talent in Transition: Addressing the Skills Mismatch in Ontario.
Regional Economic Development
The Good Jobs and Growth Plan includes an investment in the Southwestern Ontario Development Fund and the Eastern Ontario Development Fund to support the needs of all businesses, particularly those in rural and small communities. The Province will invest an additional $100 million in these funds over the next 10 years and will aim to create and retain approximately 19,000 jobs and attract more than $800 million in investments. The government will also create a new Greater Toronto and Hamilton Area Fund to invest in and support small- and medium‐sized businesses. The government’s $100 million commitment over the next 10 years aims to create and retain approximately 19,000 jobs and attract about $800 million in investments. The Northern Ontario Heritage Fund Corporation (NOHFC) would see an investment of $85 million over the next three years, increasing NOHFC funding to $150 million in 2020–21 and introducing new NOHFC programs.
The OCC supports an economic strategy that recognizes and is responsive to the province’s many regional differences. The Ontario Chamber Network looks forward to working with the government and public agencies in ensuring that their investments are well spent.
Health Care and Child Care
The government is prioritizing spending on care in Budget 2018, particularly with regard to expansions to health care and child care.
The Budget includes total health care investments of $5 billion over three years, with $822 million being devoted to hospitals in 2018-9. This investment will support service demands related to growing and aging population, more hospital beds, new patient spaces, and specialty services.
As previously announced, OHIP+ will expand to seniors in August 2019. This program will eliminate the deductible and co-payments for Ontarians aged 65 who already use the Ontario Drug Benefit program. This is estimated it cost $575 million per year by 2020-1.
The Ontario Drug and Dental Program is newly announced in the Budget and will begin in 2019. It will reimburse 80 percent of eligible drug and dental expenses for families without workplace or public health benefits at an expense of $800 million for the first two years of the program.
Finally, the government will spend $2.2 billion over three years to increase child care accessibility and affordability, including free preschool starting in September 2020.
While hospital funding has been limited in recent years, this influx of spending does not address the fundamental challenges within the health care system nor is it directed towards the solutions identified by the OCC in our report, Health Transformation: An Action Plan for Ontario. Similarly, the expansion of OHIP+ is not aligned with the principles of an effective pharmacare program outlined in our recent Pharmacare Report. As for investments in child care, the government must find ways to supplement and augment the current market rather than override or replace it.
Debt and Deficit
Budget 2018 forecasts a $600 million surplus for the 2017-18 fiscal year. This is because many new programs announced by this government will only be designed in this fiscal year, with new costs not being realized in a meaningful way for the next one or two years. As such, the government is projecting a $6.7 billion deficit in 2018-19 and further deficits for five more years after that.
With regard to debt repayment, the government has argued that debt repayment has gone from 15 cents per year several years ago to 8 cents, which is the lowest in 25 years. Such an analysis does not take into account that the overall size of the provincial budget has increased exponentially in that time.
The OCC is concerned with the precarious fiscal situation that many of the government’s new investments will create. While the near-term deficit is projected to be less than one percent of the GDP, this comes at a time when the economy is relatively strong. The Budget also projects slower GDP growth on the horizon due to global factors.
Government Transparency and Accountability
Budget 2018 indicates that the government is committed to modernizing and transforming public services through cost-saving program improvements, reducing duplication through harmonization, scaling down investments that do not demonstrate value for money, and establishing investment priorities to manage overall sustainability.
It similarly notes that the government hopes to harness expertise through consultation, noting that industry leaders, academics, and representatives from the general public will be asked to make recommendations regarding how the government can best achieve its outcomes and improve user experience.
Improving government accountability is one of the four pillars of our Vote Prosperity platform. We have long called for improved value-for-money and return on investment assessments of government programs and services as well as more robust consultation with stakeholders.