2015 Ontario Budget Analysis
Today, the Government of Ontario tabled its 2015 Budget. What follows is a summary of the key highlights from a business perspective.
On the whole, this is a no-surprise, mixed-bag budget for Ontario businesses. The government is making much needed investments in transportation infrastructure across the province, but little is being done to address the growing burden on businesses and get the province’s fiscal house back in order.
The provincial deficit has risen
The 2014-15 deficit is projected to rise to $10.9 billion, up from $10.5 billion in 2013-14. The total debt is projected to grow to $284 billion this year – equivalent to $20,772 of debt for every Ontarian. Ontario now spends $11.4 billion a year on interest payments to finance its debt.
Government remains committed to eliminating the deficit by 2017-18 by managing compensation costs and continuing its comprehensive program review.
Budget 2015 makes the right commitments but is vague on details when it comes to how the government will meet its deficit reduction targets.
We applaud the government for making difficult decisions in terms of wage restraint measures. Government has held average annual growth in program spending to 1.5 percent and they are making difficult spending cuts in education, health, and other vital areas.
However, the government of Ontario needs to win the confidence of employers by adopting a clear plan to achieve their deficit reduction targets. As a start, it should adopt new service delivery models in areas where these models can bring efficiencies.
Addressing the fiscal situation should continue to be the top priority for government. Eliminating the deficit is the most important step the government can take to improve Ontario’s competitiveness and create jobs in the province.
Government is plowing ahead with the Ontario Retirement Pension Plan
The government is reiterating its commitment to establishing a standalone, mandatory Ontario pension plan by 2017. The Ontario Retirement Pension Plan (ORPP) will require employers and employees to contribute 1.9 percent of an employee’s yearly earnings (up to a maximum of $90,000) per year.
Budget 2015 commits government to establishing a body (the ORPP Administration Corporation) that will be responsible for administering the plan and investing contributions.
The OCC remains concerned about the impact that the ORPP could have on the economy. According to our recent survey, only one in four businesses in Ontario can afford the costs associated with the new plan, while 44 percent of businesses will reduce payroll or hire fewer employees in response to the ORPP.
Budget 2015 provides little in the way of clarity for employers on the details of the ORPP. We continue to call on government to develop a comprehensive understanding of the impact of the ORPP and to re-examine the narrow exemption rules it has in place. As it stands, only employers that offer defined-benefit pension plans are exempt from making contributions to the ORPP. These narrow parameters ignore the contributions that many employers are already making to their employees’ retirement through defined-contribution plans, for example.
Government is making important investments in transportation infrastructure
Budget 2015 increases dedicated transportation infrastructure funds by $2.6 billion to $31.5 billion available over 10 years. These funds will be used for transit, transportation, and other priority infrastructure projects across Ontario. About $16 billion of this will be invested in transit the Greater Toronto and Hamilton Area (GTHA) while $15 billion will be invested in transportation and other priority infrastructure projects outside the GTHA.
We welcome increased spending in areas of strategic, economic importance, including transportation infrastructure. The Province should continue to make use of its world-leading Alternative Financing and Procurement (AFP) expertise in order to ensure it is getting the best bang for its infrastructure buck.
Employers will continue to be shocked by rising electricity rates
Budget 2015 makes a few small tweaks to existing electricity programs. The Industrial Conservation Initiative (ICI), which provides a financial incentive to larger businesses to shift their electricity consumption from peak periods, is being expanded by lowering the threshold for qualifying industrial sectors from five megawatts to three. The Northern Industrial Electricity Rate (NIER) program is being extended beyond March 2016, with annual investments of up to $120 million.
Budget 2015 does little to address business’ concerns over rising electricity rates. According to the OCC’s most recent survey, rising electricity prices are the number one factor hurting business competitiveness.
While the expansion of the ICI and the extension of the NIER program is encouraging, we remain very concerned about out-of-control electricity rates. Coupled with the announced sale of a portion of Hydro One, there is significant uncertainty in the business community in this respect.
Same old, same old on Ring of Fire
Budget 2015 reiterates government’s previous commitment of up to $1 billion towards the development of transportation infrastructure in the Ring of Fire region. Since making this commitment, the government has established the Ring of Fire Infrastructure Development Corporation (ROFIDC) to facilitate investment decisions.
Budget 2015 shows little in the way of progress on development of the Ring of Fire since this time last year. There is still no infrastructure plan in place, there remains little agreement between the most important players, and delays in issuing exploration permits have stalled any potential development. As we have noted previously, we are still years away from opening a mine in the Ring of Fire. Further, development timelines are increasingly characterized by uncertainty.
Government is aggressively pursuing an asset recycling strategy
The government has increased its asset optimization target to $5.7 billion, up from a $2.6 billion target in 2014. The government reiterated its earlier announcement that it is selling 60 percent of Hydro One and will inject the profit into transportation infrastructure.
The OCC supports the government’s goal to maximize the value of its assets. As it undertakes its asset review, government must ensure that its actions do not hurt domestic industry and, as it relates to the sale of electricity infrastructure, do not put the rate payer at risk.
Government is implementing a Cap and Trade regime to combat climate change
The government has reiterated that it is introducing a cap and trade system, and will set an overall emissions limit (the cap) on those facilities included in the program. Businesses will have their own greenhouse gas quota and will then be able to sell (trade) their quota if they are under their emissions limit.
The government has only recently announced its intention to move forward with a cap and trade system, and so questions about the parameters of the system remain. We do not yet know which sectors will be subject to the system, how emissions limits will be set, or the timelines for implementation.
We are concerned that this cap and trade system could add to the already onerous burden that government seems to be placing on the shoulders of employers.
Other notable announcements:
Good news for forestry: The government is enhancing the Jobs and Prosperity Fund by $200 million and is extending eligibility to the province’s forestry sector.
Innovation initiative: The government is investing $20 million to establish a Health Technology Innovation Fund and appoint a Chief Innovation Strategist.
Cuts to the Apprenticeship Training Tax Credit: The government is returning ATTC funding levels to their pre-recession level, resulting in $30 million in cost-savings.
Beer coming to a grocery store near you: The government is reiterating its commitment to permit the sale of beer in grocery stores for the first time in Ontario history.
Youth employment: The government is renewing the Ontario Youth Jobs Strategy to the tune of $250 million in the next two years. The strategy provides incentives to employers to employ young Ontarians.