The person sure to be most bemused by the recent Ontario budget is Justin Trudeau.
While pundits on the left braced Ontarians for a hailstorm of program spending cuts, what they got instead was a red Tory special, as the Ford government took a surprisingly measured approach to fiscal restraint. That was bad news for a Prime Minister hoping to juxtapose his sunny ways against the draconian policies of Doug Ford’s Progressive Conservatives—the two are gearing up for a major battle over the federal carbon levy, against which Ford and his counterparts in Ottawa are already campaigning in the run-up to this year’s election.
The province and the PM were treated to a Bill Davis-style budget in place of a barnstorming Common Sense Revolution, à la Mike Harris. In fact, many fiscal conservatives were left scratching their heads, giving a thumbs up to the ‘Open for Business’ outlook, but wondering if the budget didn’t go far enough to tackle the province’s massive debt.
But at least they got a timeline for bringing the provincial balance sheet back to black (unlike the federal Liberals’ spend-now, pay-never approach). On that front, Finance Minister Vic Fedeli promised a modest surplus by 2023-24, with deficits of $11.7 billion scheduled for 2018-19 and $10.3 billion estimated for 2019-20. It’s unclear whether massive education protests at Queen’s Park spooked the Tories into tempering their budget cuts, but it is worth noting that program spending—while slashed in many departments—will actually increase over the next few years in priority areas such as health care and education.
One of this budget’s most important victories was setting a new tone for business. Gone are the hostile attacks on the SME owners and large corporations that create the majority of Ontario’s jobs—even if much of the heavy lifting to restore that balance happened well before budget day. As the plan notes, Ford’s Tories had months earlier taken steps to:
- “Cancel the cap-and-trade carbon tax;
- Keep the minimum wage at $14 per hour;
- Reduce Workplace Safety and Insurance Board (WSIB) premiums;
- Help small businesses by not paralleling the federal government in phasing out the benefit from the lower small business Corporate Income Tax rate.”
Savings from these measures are estimated at $5 billion in 2019, but other moves such as the repeal of most of Bill 147, The Fair Workplaces, Better Jobs Act—burdensome legislation that introduced everything from increased vacation allotments to up to 10 personal emergency leave days for employees—and the passage of Bill 66, Restoring Ontario’s Competitiveness Act, which eases overtime rules and labour restrictions, are sure to provide additional financial breathing room to cash-strapped businesses across the province.
Even if many of the budget’s business-friendly policies are largely undefined or symbolic, they send a message that the government is finally on the side of entrepreneurs with commitments to lower their tax burden and ease the regulatory red tape that tends to top most lists of governmental gripes.
On the former, the Conservatives have taken steps to mirror similar incentives at the federal level with the Ontario Job Creation Investment Incentive. The program will provide $3.8 billion in corporate income tax relief over six years by allowing businesses to write off capital investments faster. The Tories hope cash-hoarding companies will pour investments into areas such as research and development and new capital expenditures, thereby juicing the economy and helping key industries such as manufacturing remain competitive.
This is a major priority area after the Trump administration introduced sweeping tax cuts South of the Border that all but obliterated Canada’s corporate tax advantage. Fedeli says the move will inject $10 billion of new investment into the economy and create 93,000 net new jobs. That may be wishful thinking but, again, it’s a step in the right direction.
On the estate administration tax front, the first $50,000 of an estate’s value will now be tax exempt, and estate administration tax information return filing timelines will stretch to 180 days from the current 90. The estate administration tax rate will remain at 1.5% for every $1,000 on an estate’s value exceeding $50,000. The changes take effect on January 1, 2020.
The budget also offered families a new childcare income tax credit applicable in the 2019 tax year. The credit is based on a family’s household income and will be calculated by multiplying the taxpayer’s eligible childcare expenses by a rate that will vary based on the taxpayer’s level of income, declining gradually and cancelling out when that income exceeds $150,000.
Fedeli also announced that he’s expediting the government’s commitment to cutting bureaucratic red tape. The government had planned to lower administrative hurdles by 25 per cent by 2022, a timeline he’s now promising to move up by two years. The Tories say they’ll look for areas to reduce regulation “with a focus on streamlining and eliminating unnecessarily complicated, outdated and duplicative regulations affecting businesses.”
Where the government declined to make changes is to Ontario’s corporate tax rate, this after promising to drop the rate by 1%. That means the province’s combined federal-provincial marginal income tax rate will stay at 53.53%, with eligible dividends taxed at 39.34, and non-eligible dividends and capital gains taxed at 47.4% and 26.76%, respectively, again, all at the top marginal rate.
Overall, Budget 2019 sent the right signals at the right time to a business community sorely in need of support from its government. While many on the left were quick to decry its cuts, the budget’s sense of restraint and, as Fedeli put it, “Goldilocks approach,” with the push towards a balanced budget not happening too quickly or taking too long, could easily be mistaken for a Liberal government’s fiscal strategy.
At a time when Justin Trudeau’s scandal-plagued government was looking for a provincial foil in Doug Ford, he didn’t get the slash-and-burn budget he was expecting. Instead, Ontarians and entrepreneurs, in particular, were offered a sensible, measured strategy to restore the province’s financial health.
Armando Iannuzzi is a tax partner at KRP LLP, a Markham, Ont.-based accounting firm for entrepreneurs. Learn more at www.krp.ca