Ontario to hit record $14.1B deficit in 2009: budget
Finance minister announces accord with Ottawa to bring in single sales tax
Ontario will rack up a record $14.1-billion deficit in 2009 as it commits billions to infrastructure projects and job retraining aimed at pulling the province out of a recession, provincial Finance Minister Dwight Duncan revealed on Thursday in the tabling of his $108.9-billion budget.
The fiscal plan also proposes corporate tax cuts to ease costs for struggling businesses and stimulate investment in Ontario’s sagging economy, which has shed hundreds of thousands of jobs in recent years.
The budget forecasts a deficit of $3.9 billion in the 2008-2009 fiscal year, followed by a deficit of $14.1 billion in 2009-2010. It anticipates Ontario will run deficits for the next seven years, with a proposed return to balanced books no later than the 2015-2016 fiscal year.
The province and the federal government have also agreed to harmonize the provincial sales tax and GST into a single 13 per cent sales tax by July 1, 2010, which Duncan called the "next essential step" in growing the province's economy and improving competitiveness.
It also allocates a $3.4-billion contingency fund, from which an unspecified amount can be directed toward a bailout package for the province’s beleaguered auto industry once negotiations with automakers are completed.
Duncan confronts the challenge
The 2009 deficit figure cracks the record of $12.4 billion set by the NDP led by Bob Rae in 1992-93. But the deficit is not a record in terms of the province's overall GDP, since the Ontario economy is significantly larger today than it was 16 years ago.
"It's a different world than last year," Duncan told reporters ahead of the budget's release in the provincial legislature at Queen's Park in Toronto. "We're moving ahead on all fronts to confront this challenge and create jobs all over Ontario."
To ease the pinch at the cash register from the sales tax merger, the province will issue three cheque payments totalling $1,000 to all households with total incomes under $160,000.
The final cheques are slated to arrive just a few months ahead of the next provincial election in 2011.
Among the measures proposed in the budget are:
- $32.5 billion in proposed infrastructure spending, including $5 billion from the federal government, over the next two years to build and repair roads, schools, hospitals and public transit in an effort to create 300,000 new jobs.
- A cut in the general corporate income tax rate from 14 per cent to 12 per cent by July 1, 2010, with the rate being reduced to 10 per cent by 2013.
- A one per cent decrease in the personal income tax of those in the lowest income tax bracket who earn under $36,848 a year.
- An acceleration of the child benefit by two years to give low- and middle-income families a maximum level annual benefit of $1,100 per child by July 2009.
- $1.2 billion over two years, combined with federal funds, proposed for additional social housing and renovation of existing units.
- An emerging technologies fund of $250 million over five years for clean technologies, as well as health and life sciences information and communication technologies.
- Tax relief and funds for the province's manufacturing sector and northern regional economies, including forestry and mining.
- A one-year freeze in MPPs' pay and a five per cent reduction of the size of the provincial civil service over the next three years through attrition "and other means."
Billions for infrastructure, jobs training
In a move similar to the federal government’s pre-budget disclosures in January, the finance minister and Premier Dalton McGuinty provided many details of the spending plan well ahead of Thursday's presentation.
Transportation projects will get the biggest chunk of the two-year infrastructure fund at $9 billion, followed by health care at $7 billion and education at $4 billion.
The investment is expected to translate into 146,000 jobs in the first year and 168,000 in the second, the government said.
Duncan's budget also forecasts that the province's economic recovery will begin in the latter half of this year and completely rebound over 2010 and 2011.
Budget means higher taxes for families: opposition
Opposition parties have accused the Liberal government of squandering billions of dollars in tax revenues during the previous six years of good economic times, and failing to develop a solid plan to deal with the current recession.
"This is the triple crown of tax-and-spend," Runciman said.
While he agreed business taxes are too high in Ontario, Runciman said it was McGuinty who cancelled planned corporate tax reductions five years ago and "gave us the biggest hike in Ontario history."
The premier faced stinging criticism for introducing a highly unpopular health premium of up to $900 in the 2004 budget after promising during the 2003 election campaign not to raise taxes.
Not enough job protection, says NDP leader
"The government had an opportunity to reassure Ontarians that a lifetime of blood, sweat and tears for a company would count for something," Horwath told reporters on Thursday.
She said the budget should have tied infrastructure funds to a "Buy Ontario" policy for goods such as steel and public transit vehicles, and should have included "ironclad" job security provisions as part of any bailout package offered to automakers.
Progressive Conservative finance critic Tim Hudak, considered the frontrunner in his party's upcoming leadership race, decried the lack of incentives in the budget to support the province's auto sector.
His party had proposed sales tax "holidays" for "big-ticket item" purchases as well as rebates of up to $2,000 on new car purchases for trading in old vehicles.
Ottawa to give $4.3B for sales tax transition
During the budget lockup, the province also circulated a tax harmonization agreement between Duncan and federal Finance Minister Jim Flaherty, who has long pushed for Ontario to adopt a single sales tax.
Under the agreement, the province will receive $4.3 billion in transitional funds to bring in the single sales tax over two years, Duncan said.
Business groups, as well as manufacturers and exporters, have pressed for the harmonized tax, but critics warn the plan would add the PST to currently exempt items such as new homes and place additional burdens on consumers.
TD Bank Financial Group senior economist Derek Burleton described the single sales tax as a "win-win-win" for all parties in the long run.
"In the short-term, no doubt, not everyone's a winner, but we’re hopeful of the longer-term benefits," he told CBC News.
"It's something that we do need to remove from the equation if we want to see our economy grow … It's only a matter of time before other jurisdictions should start to move on this."
The harmonized tax was part of the campaign platform of former Progressive Conservative leader John Tory, who resigned earlier this month after failing to gain a seat in the legislature.
But Runciman said the tax harmonization means it will cost more for Ontarians for basic things such as home heating, putting gas in their cars and using the internet.
"We have said for some time now, as Mr. McGuinty has, that this was the worst possible time to be increasing taxes," he said.
Criticism of single sales tax
The NDP's Horwath accused the Liberals of "trying to bribe people with their own money" with the payments.
She said the single sales tax would leave families "feeling the pinch" from having to spend more on a range of goods as many are already struggling to deal with job losses.
"Make no mistake, behind the thin veil of rebates, families will be paying more," Horwath said.
The single sales tax would not be charged on items such as basic groceries, prescription drugs and medical devices, the province said.
Other items such as children's clothing and footwear, car seats, books, diapers and feminine hygiene products would be exempt from the provincial portion of the merged tax.
But Duncan dismissed the opposition parties' criticism, insisting about 93 per cent of Ontarians would see a tax cut and businesses would see savings of more than $500 million in reduced paperwork alone.
"Most Ontarians will be ahead," the minister said. "I think they’ll see the fairness in this package."
ABOUT THE AUTHOR
