Ontario Budget: Not Quite A May Day Budget

You may be forgiven for feeling like you already know what’s in today’s Ontario budget – it had more leaks than a sieve in the weeks leading up to budget day.

There weren’t really any big surprises in the budget, but reading it in its entirety makes one thing crystal clear: the Wynne government is getting election battle ready.

This is very much an election budget.

It gives multiple nods to NDP Leader Andrea Horwath’s insistence that middle-income Ontarians be spared tax and fee increases.

It extends the 2012 NDP-driven deal to implement a small marginal tax on Ontario’s richest 0.2% of tax filers. Now the Ontario government is asking the richest 2% of tax filers – those earning $150,000 or more – to contribute a little more.

That means if your taxable income is from $150,000 to $220,000, the government is asking you to pay an additional 1% marginal tax on earnings in that range. With the surtax, that’ll increase the rate by 1.56%. If you earn between $220,000 and $500,000 the government is asking you to pay an additional 3.12% marginal tax.

To underline just how high we are in the nosebleed section of the income scale, the government takes pains in the budget to specify that 98 per cent of Ontarians will not be affected by this measure. So middle class Ontario can relax now.

There are a few small tax increases worth mentioning: a small increase in aviation fuel tax; a tax increase in cigarettes as part of a “Smoke-Free Ontario Strategy”; and revenue tools dedicated to transit and transportation improvements.

What’s encouraging about these revenue options: the Ontario government appears ready to start a conversation about the value proposition of taxes, albeit timidly.

Asking the richest 2% to contribute more in the wake of a worldwide recession that battered Ontario isn’t exactly bold, but it is a start. And it opens up a conversation about how the progressive income tax system can be used to redistribute income – one of many tools in the toolkit available to reduce income inequality in Ontario.

And given that Ontario is the second worst province in Canada (next to oil-blessed Alberta) for the income gap between the richest 1% and the rest of us, this is a conversation whose time has come.

Fuel and gas taxes haven’t gone up since 1992, incredibly, despite mounting concerns about climate change. The aviation tax is chump change comparatively, but it opens up a discussion about how governments can turn to revenue tools to nudge desirable behavioural outcomes.

Pair it with dedicated revenue tools to expand and improve public transit, and we have the beginning of a conversation about the role taxation can play in addressing environmental concerns – let alone gridlock.

But before the tax deniers get too heated, the most important thing you need to know about the price of 15 years of tax cuts is on page 149 and 150 of the Ontario budget:

  • Ontario’s per capita program spending in 2012-13 was the lowest in all of Canada – it’s provinces like Saskatchewan and Newfoundland that are leading the way in supporting their population with public services;
  • Ontario’s total revenue per capita in 2012-13 was the lowest in all of Canada – it’s provinces like Saskatchewan and Newfoundland that are leading the way in revenue capture. So what does that mean for Ontarians?

First of all, it means the Wynne government isn’t exactly ending the austerity budgeting program it inherited from its predecessor. In fact, Budget 2014 shows just how seriously the 2012 Drummond report recommending 362 spending cuts has been taken as bible at Queen’s Park: the government is now 80% of the way through implementing those cuts.

Program expenses in 2013-14 are planned to be $587 million lower compared to the 2013 budget forecast. In fact, page 145 of the budget says “the government has undertaken an expenditure review to find greater efficiencies and is projected to exceed its 2013-14 year-end savings target by over 50 per cent.” [Emphasis mine]

And page 154 of the budget shows a chart illustrating how Ontario’s public sector wage settlements are well below those in the private, federal and municipal sector average increases.

Secondly, in case you’re wondering how a government can cut so much in public service spending and still grapple with a lingering $12.5 billion deficit in 2014, the answer lies in the cumulative revenue loss in 2013 to the spate of tax cuts implemented from Mike Harris on down. Ontario lost $19 billion to cumulative tax cuts in 2013.

The budget documents say total revenue in 2013-14 is estimated to be $1.19 million below the amount projected in the 2013. Why? “The decrease is largely due to lower taxation revenues.”

And guess what? There are more tax cuts to come, which should make Bay Street happy: cuts to the Corporate Income Tax rate for large and small businesses, the elimination of the Capital Tax and removing embedded sales taxes for businesses amount to a loss of $9 billion in revenue per year. Page 320 of the budget describes it as “savings to businesses”.

In terms of new spending, the big ticket item is a long-term investment in infrastructure repairs and expansion – something the province has spent too long avoiding and the jig is up. We’ll be talking infrastructure spending for years to come. The danger is that the infrastructure improvements will come at the expense of investments in public services and turn into a boon to the private sector by way of public-private partnerships (now dubbed Alternative Financing and Procurement). Page 80 of the budget says the government is now engaged in 80 such projects.

There are several other holdovers from the Mike Harris era influencing this budget. References to “tax relief” as though there is no inherent good in a tax. References to “further reduce the regulatory burden on businesses”. References to “red tape reduction”. Ontarians have been subjected to this language since Mike Harris stormed into power and for some politicians it never gets old.

While Budget 2014 is clearly an election budget that reflects the Wynne government’s attempt to outflank the NDP on some social justice line items while attempting to silence Hudak’s complaints about public spending and taxes, it also shows hints of an attempt to press the reset button of what has been a tumultuous minority government run.

There are more nods to First Nations commitments than there has been in a long while in this budget (though the dollars attached to it are minimal).

There is finally progress in terms of raising social assistance rates for single adults.

There’s the minimum wage increase (though it doesn’t go far enough).

There’s the announcement of consultations for a made-in-Ontario pension plan.

And the political commitment to finally get the Greater Toronto Area’s public transit expansion moving cannot be understated – it’s been a long time coming.

But Ontario hasn’t exactly entered a brand new post-austerity world, which leads me to this conclusion: Budget 2014 could be worse, but given the multiple pressures facing Ontarians, it most certainly could be better.

Trish Hennessy is director of the Canadian Centre for Policy Alternatives’ Ontario office. Follow her on Twitter: @trishhennessy and follow the CCPA Ontario: @CCPA_Ont

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