The business community in Ontario just received a modest, yet business-friendly, tax reduction courtesy of Doug Ford’s Progressive Conservative government. The move is a step towards achieving balanced budget while looking to encourage economic activity within the province
Specifically, Wednesday’s Fall Economic Statement announced proposals to reduce the small business Corporate Income Tax rate to 3.2 per cent from 3.5 per cent on January 1, 2020. The government estimates the cut would reduce the tax burden on SMEs by $70 million in the first year.
The update would also see the aviation fuel tax rate cut to 2.7 cents per litre from 6.7 cents per litre, a move to help lower air travel costs for residents of Northern Ontario.
To promote its business-friendly bona fides, the government took the opportunity in the update to promote previously announced measures designed to improve business competitiveness, including:
- Cancelling the cap-and-trade carbon tax;
- Keeping the provincial minimum wage at $14 per hour until October 1, 2020, after which it will increase based on inflation;
- Supporting a 17 per cent cut to the average WSIB premium rate for 2020, which is on top of a nearly 30 per cent reduction in the average premium rate in 2019;
- Providing accelerated write-offs of capital investments;
- Not paralleling a federal measure that would have increased Ontario Corporate Income Tax on about 7,900 small businesses earning passive investment income; and
- Proposing to cut the small business Corporate Income Tax rate to 3.2 per cent, which would provide tax relief of up to $1,500 annually to over 275,000 small businesses
As the statement claims:
“These tax measures, along with the proposed small business CIT rate cut, would deliver a total of $255 million in Ontario income tax relief to small businesses in 2020.”
All told, Ford’s bean counters estimate that Ontario businesses would save a combined total of $5.4 billion in 2020 as a result of these measures. While those figures could well be inflated, they do underscore the government’s continued commitment to improving the overall economic well-being for companies of all sizes doing business in the province. This comes in stark contrast to more than a decade of Liberal government policies that were at times openly hostile to entrepreneurs, not to mention recent actions by Justin Trudeau’s federal Liberals that have heaped unreasonable complexity and tax burden on owners/operators of Canadian-controlled private corporations across the country.
On the fiscal front, the province took another step towards improved budgetary sustainability with a projected deficit of $9 billion in 2019-2020—a downward adjustment from a deficit prediction of $10.3 billion in the budget tabled last spring—$6.7 billion in 2020-21 and $5.4 billion in 2021-2022. The deficit is still higher than last year, however, with a balanced budget only predicted for 2023-2024. While even greater fiscal restraint could well be embraced, Ford’s Tories are generally trending in the right direction. A bit of economic good fortune hasn’t hurt.
Budget cuts have been effective, but their impact has been enhanced by an improved revenue picture and lower borrowing costs that have helped carry the government toward its deficit-reduction goals. Still, a net debt-to-GDP ratio of 40 per cent is a cause for some concern. Only once that key barometer drops will the heat on Ontario’s finances truly be lowered.
The statement did include new spending announcements, however—the most notable being an investment of $1.3 billion for education and healthcare. This is widely seen as an effort by the government to partially roll back controversial cuts and hit ‘reset’ on the P.C. brand by embracing a more conciliatory, collaborative tone for the remainder of its mandate. Only time will tell whether the move works. The jury is out on whether voters will forgive the deficit-slaying leader of Ford Nation, especially after an often reckless and at-times impulsive first year-and-a-half in office.
In the meantime, the business community can only hope the Tories continue their drive to reduce tax complexity and regulation. If only a full overhaul and simplification of the federal tax code—not to mention a rollback of detrimental corporate tax policies—would follow, we’d have real cause for celebration.
Armando Iannuzzi, Tax Partner