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Ontario Premier Dalton McGuinty is photographed during a press conference at the provincial legislature or April 23 2012. (Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail)
Ontario Premier Dalton McGuinty is photographed during a press conference at the provincial legislature or April 23 2012. (Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail)

McGuinty agrees to NDP's tax-the-rich Ontario budget demand Add to ...

Ontario Premier Dalton McGuinty is making a major concession in a bid to save his minority Liberal government by agreeing to impose a new tax on the rich.

Those who earn more than $500,000 a year would be asked to pay a 2 per cent surtax, Mr. McGuinty announced at a news conference on Monday. The new tax would generate revenues of $470-million next year, all of which, he said, would be used to help reduce the deficit.

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Mr. McGuinty unveiled the new tax following a 40-minute, private meeting with New Democrat Leader Andrea Horwath in his Queen’s Park office on Monday. She has pushed for a tax on the rich in return for supporting the Liberals’ budget, and has said the proceeds should be used for other programs.

Mr. McGuinty said the two leaders struck a “sensible” compromise, saying every penny would be used to help his government erase the deficit, pegged at $15.3-billion this fiscal year.

“They wanted a tax on the rich,” he said. “I wanted a way to pay down our deficit faster, so we’re asking those who can do the most to do a little bit more.”

Ms. Horwath said the concession is enough to avoid a snap election.

“Did we get everything we wanted? Absolutely Not,” she told reporters at a separate news conference. “But we’re going to make sure we’re not plunged into an election tomorrow.”

The new tax was a key demand of Ms. Horwath in return for her caucus's support of the budget. She had earlier made a concession of her own, by dropping her demand for a break on hydro consumers’ home heating bills.

Mr. McGuinty announced the concession on the eve of Tuesday's crucial vote on his government’s budget. The Liberals need the NDP's support to avoid an election just six months after the previous one, because the Progressive Conservatives have said they plan to vote against the budget.

Mr. McGuinty also agreed to impose a broader freeze on all aspects of executive compensation at hospitals, universities and other government agencies. Initially, the budget froze only their salaries and not incentive pay for two years. He has already agreed to other demands made by the NDP, including providing more funding for day care spaces and boosting payments for those on disability. But the new tax was the sticking point.

Sources close to the talks said Mr. McGuinty and Finance Minister Dwight Duncan had vigorously opposed the new tax. But they were clearly in the minority. The sources said a many Liberal caucus members support the tax, including a majority of cabinet members. As well, opinion polls show that the tax also enjoys widespread support from the public.

Mr. McGuinty campaigned during the fall election on not raising taxes. But as head of a minority government, he said he had little choice but to put aside his own objections to a new tax.

“Along with that status came some pretty significant marching orders: make this government work for Ontarians, not for the PCs, not for the Liberals, not for the NDP.

Repeatedly referring to the measure as the “NDP surtax,” Mr. McGuinty said it would be eliminated once the budget is balanced. The government is planning to erase the deficit by fiscal 2017-18.

Mr. McGuinty also took aim once again at Progressive Conservative Leader Tim Hudak, saying he “abdicated a very important responsibility” by not participating in the talks to change the budget.

“You’ve got to be at the table,” he said. “It doesn’t matter what you feel about the government of the day. He’s in real danger of marginalizing himself because he didnt want to be an active player in lending shape to a stronger budget.”

Mr. Hudak said he is concerned about the direction Ontario is heading in under Mr. McGuinty’s leadership.

“The choice made by the Premier today leads us further down the same failed path we have been on for the last eight years,” Mr. Hudak said in a statement. “This is the path of more spending, more taxing, and no plan to create a better climate for private sector jobs. It tinkers with small change when what we need is big change.”

For her part, Ms. Horwath said the changes the Liberals have agreed to make do not in any way turn the budget into an NDP document. However, she added, “we’ve done the hard work to make the budget a little fairer.”

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