When Doug Ford swept into power last year, he promised that Ontario would once again be ‘Open for Business.’ The new Progressive Conservative premier went so far as to plaster his campaign slogan on highway signs at the Ontario-U.S. border. It was a not-so-subtle, all-caps reminder to our American friends of his commitment to undoing the free-spending policies of Kathleen Wynne’s previous Liberal government.
With the first budget of their majority mandate, the Progressive Conservatives have made a move towards achieving that ambitious promise by introducing a range of cost-cutting measures and by delivering business-friendly policies that should help lower entrepreneurs’ tax burden and ease regulatory red tape. In addition, they also introduced some new key spending initiatives. The main focus of this year’s budget was deficit reduction, child-care support, education and health care, and transit (read our full budget summary here).
The reality, however, is that many of the budget’s tax and job-creation measures are symbolic at best. Whether they deliver a substantive boost in business confidence or to fiscal prosperity remains to be seen.
That’s partly because, as the budget notes, the government had already delivered on several campaign promises, namely:
- “Cancelling the cap-and-trade carbon tax;
- Keeping the minimum wage at $14 per hour;
- Reducing Workplace Safety and Insurance Board (WSIB) premiums;
- Helping small businesses by not paralleling the federal government in phasing out the benefit from the lower small business Corporate Income Tax rate.”
The government pits savings from those changes at $5 billion this year alone.
The Tories had previously cancelled other changes contained in the highly-unpopular Bill 147, The Fair Workplaces, Better Jobs Act—which implemented a range of financially-challenging measures from providing the province’s workers with up to 10 personal emergency leave days to increasing minimum vacation entitlements. They also passed Bill 66, Restoring Ontario’s Competitiveness Act, omnibus legislation that, among a wide range of legislative changes, eased overtime rules and a handful of other onerous labour restrictions.
What Budget 2019 does promise is an extra $3.8 billion in corporate income tax relief over six years by expediting capital write-offs on certain assets, mirroring measures introduced at the federal level last year. The intent is to encourage stronger investment by Ontario businesses, and to improve cross-border competitiveness in the wake of sweeping U.S. federal tax cuts that significantly eroded Canada’s corporate tax rate advantage. The Ford government is predicting that the incentive will create up to 93,000 net new jobs and $10 billion in new investment. Although likely an exaggerated estimate, the measure should help encourage new spending on the part of businesses across the province.
In addition, as was previously announced, Ontario will not adopt the federal measures that would have clawed back the small business deduction on the first $500,000 of active business income earned when passive income in an associated corporate group starts to exceed $50,000. This will mitigate the impact that the onerous federal rules will have on entrepreneurs.
It should be noted that Ford will not keep his promise to cut the province’s corporate tax rate by 1%. Nor will the government lower personal income tax rates. Ontario’s top combined federal-provincial marginal income tax rate will remain at an eye-watering 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.
The budget does promise to expedite plans to lower bureaucratic hurdles in the province by 25 per cent by 2020, two years sooner than originally planned. Finance Minister Vic Fedeli says the government will continue to analyze areas to reduce regulation and make it easier to succeed in Ontario “with a focus on streamlining and eliminating unnecessarily complicated, outdated and duplicative regulations affecting businesses.” While the specifics of these potential changes are unclear, any trimming of red tape would be welcome. Count this as a ‘win’ for the province’s entrepreneurs, assuming Queen’s Park does follow through on this long-overdue promise.
Other notable tax changes include the elimination of the estate administration tax on the first $50,000 of an estate’s value, with an extension of the filing deadline on information returns and other related reporting requirements to 180 from 90 days, effective January 1, 2020. The estate administration tax rate will remain at 1.5% for every $1,000 on an estate’s value exceeding $50,000.
Also, as previously announced in the Ontario Fiscal Update, there will be a new non-refundable tax credit, the Low-income Individuals and Family Tax credit, or LIFT, that will provide low income individuals or families some tax relief. The maximum amount of the credit will be the lesser of $850 and 5.05% of employment income. The LIFT credit will be ground down when an individual’s income exceeds $30,000 or the family’s income exceeds $60,000. LIFT will not be available where an individual’s income exceeds $38,500, or the family’s income exceeds $68,500.
Lastly, parents will laud the budget’s new childcare income tax credit for 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.
Many economists were watching closely to see how the government would tackle the province’s massive deficit. On that front, Fedeli is offering a slow-but-steady return to balance with $11.7 billion in deficits predicted for 2018-19 and $10.3 billion in red ink estimated for 2019-20, before reaching a modest surplus in 2023-24. While some will argue this was a missed opportunity to slash the deficit sooner, it seems the Tories were aiming for a moderated approach that would help to minimize public sector spending cuts. It’s worth noting that although the government has limited new funding commitments, health and education spending will actually increase throughout this mandate.
In that sense, Budget 2019 is more red than blue tory in its approach to addressing Ontario’s many fiscal challenges, but it offers a welcome change in fiscal tone, nonetheless. The good news is that it seems that the days of Queen’s Park taking a hostile stance against entrepreneurship and economic development across the province are over. Election slogans aside, maybe Ontario really is open for business again.
Armando Iannuzzi, Partner