Compared to the 2022 edition, the 2023 Ontario budget is relatively restrained in its spending commitments. That’s due in large part to what various members of Doug Ford’s Progressive Conservative government have been eager to signal in the lead-up to budget day: that we’re living in a period of economic uncertainty. Queen’s Park is pulling in the reins, putting fiscal prudence above all else—or so the talking points go.
This could easily be deemed the ‘mixed message’ budget. Persistent inflation, labour shortages, slowing growth—and a possible recession that looms large, even if it refuses to officially arrive—continue to dampen the economic outlook. At the same time, the provincial treasury is awash in tax revenue, has overflowing contingency reserves and is watching pandemic-era deficits steadily recede. Finance Minister Peter Bethlenfalvy signalled in advance of budget day that he wasn’t in favour of program cuts, but that new, headline-grabbing spending measures were not in the offing. It’s not surprising, then, that the 2023 Ontario budget preaches moderation just as it paints a sunnier-than-expected fiscal picture.
Indeed, government projections put the province on track for a budget surplus in 2024-25, three years earlier than expected. The budget shortfall for 2022–23 is projected to come in at $2.2 billion, decreasing to $1.3 billion in 2023–24 before shifting to surpluses of $200 million in 2024–25 and $4.4 billion in 2025–26. Bethlenfalvy stressed, however, that slower economic growth could still push Ontario back into the red. The budget cautiously projects GDP increases of 0.2 per cent in 2023, 1.3 per cent in 2024, 2.5 per cent in 2025 and 2.4 per cent in 2026.
That explains the lack of marquee budget measures, even as program spending is set to climb to a record of more than $202 billion in 2025–26, up from $189 billion in 2022–23. Instead, the government has opted to boost spending for existing programs in areas such as healthcare, while offering tax breaks to help increase the competitiveness of the province’s small to medium-sized businesses.
The first is the proposed New Ontario Made Manufacturing Investment Tax Credit. The 10 per cent refundable corporate income tax credit would be available to Canadian‐controlled private corporations with a permanent presence in Ontario and would apply to capital investments in machinery, buildings and manufacturing equipment. To be eligible for the credit, qualifying corporations would need to make investments in Class 1 or Class 53 capital property for capital cost allowance purposes. Class 1 property includes buildings used for manufacturing or processing buildings, while Class 53 property includes machinery and equipment used in the manufacture and processing of goods. The qualifying investment limit would be capped at $20 million.
The government is also moving forward with a previously proposed extension of Ontario’s small business Corporate Income Tax (CIT) phase-out range. The CIT currently phases out when a Canadian-Controlled Private Corporation has between $10 million and $15 million of taxable capital employed in Canada. The phase-out range would be increased to between $10 million and $50 million of taxable capital, mirroring a phase-out extension recently implemented by the federal government. The measure would apply to tax years beginning on or after April 7th, 2022. The government says the change will return about $265 million to roughly 5,500 eligible SMEs over four years.
Other notable measures in the budget include:
- More than $48 billion over 10 years to fund upgraded hospital infrastructure—both new build and redevelopment projects
- $15 billion in capital grants over 10 years to improve school infrastructure
- $224 million in funding in 2023–24 for the worker-focused Skills Development Fund
- $200 million in funding this year to address immediate health care shortages and grow Ontario’s workforce of healthcare workers
- $80 million over three years to expand enrolment in provincial nursing programs
- Accelerating investments in patient home care, earmarking as much as $569 million in funding for 2023–24
- $33 million over three years to increase Ontario’s pool of medical students
- Expanding the list of ailments for which pharmacists are allowed to prescribe over-the-counter medication
- The launch of a new voluntary clean energy credit registry to help businesses demonstrate that electricity used in production or operations has been sourced from sustainable resources
- $15 million over three years for the Racialized and Indigenous Supports for Entrepreneurs Grant Program
- An additional $425 million over three years for mental health and addiction services
- $170 million over three years for the Ready, Set, Go program in support of youth life skills development
- An additional $202 million each year for the Homelessness Prevention Program and Indigenous Supportive Housing Program
- An expansion of the Guaranteed Annual Income System (GAINS) program for seniors beginning in July 2024
- $25 million over three years to enhance the Ontario Immigrant Nominee Program, designed to attract skilled workers to the province
- An additional $2 million in funding in 2023–24 to Futurpreneur Canada, a non-profit organization that helps young entrepreneurs build and grow their businesses
On another interesting note, the province has stated that it will be reviewing its tax system, in an effort to “prioritize competitiveness and long-term growth in the province, as well as the fairness and effectiveness of tax relief and supports.” In conjunction with this comprehensive review of the tax system, the province will look for ways to modernize Ontario’s tax administration system, whereby it will look to “simplify tax administration by creating a more convenient, modern and digital platform.”
A review of the tax system is long overdue, not only in Ontario, but also federally. There wasn’t much more information relating to the tax review, so we’ll have to wait to see where the province takes this initiative. We can only hope to see similar efforts at the federal level, as well.
Time will tell if the Ontario government’s anxiety about a potential economic downturn was justified. If not, the province’s fiscal position could be even better for the next budget. The PCs’ under-promise/over-deliver approach to fiscal management could well pay long-term electoral dividends, with years still left on their current mandate.
Armando Iannuzzi, Co-Managing Partner
For more information on the 2023 Ontario budget, contact a member of our team.