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TORONTO — Ontario stuck to its guns in rejecting a costly cut to corporate income taxes in its budget Tuesday, though it did offer a smattering of smaller measures aimed at providing some relief to the province's beleaguered manufacturers and other businesses.
The tight budget, which projects just 0.4 per cent of additional revenue and calls for just 0.2 per cent of additional spending in the 2008-09 fiscal year, didn't include any reduction in Ontario's general corporate income tax rate of 14 per cent – which is higher than every province except Nova Scotia and Prince Edward Island.
Federal Finance Minister Jim Flaherty has been vocal in recent weeks in calling for Ontario to lower the rate to 10 per cent by 2012. But the Ontario government had made it clear it didn't favour such a move, which would cost the province $2.3-billion in annual lost revenue.
Instead, provincial Finance Minister Dwight Duncan announced a series of more targeted business tax breaks totalling $750-million over the next four years, including further relief on capital taxes, an extension of the accelerated depreciation allowances on manufacturing machinery and equipment, and a 10-year tax exemption for new companies commercializing innovations coming out of Canadian universities and research institutes.
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The budget also includes job-training funding that will go directly to the auto sector, and regulatory changes to reduce costly paperwork for business taxpayers.
But John Tory, leader of the opposition Conservatives, criticized the Liberal government for moving to slowly to eliminate the “job-killing” capital tax, and for not providing “meaningful tax relief” for business.
“Ontario's [corporate] tax load is among the highest in North America, and they're not doing anything about it,” he said.
New Democratic Party leader Howard Hampton also criticized the budget for not going nearly far enough to support manufacturing, which he called “the heart and soul” of the provincial economy.
“If you look at this budget, it's as if manufacturing doesn't matter a whit,” he said.
The biggest immediate help for struggling sectors of the Ontario economy comes in the decision to make its elimination of the capital tax for manufacturing and resource companies retroactive to Jan. 1, 2007 – which will result in $190-million in tax rebates from the 2007 tax year. The tax relief had been originally announced in the government's economic and fiscal outlook last fall, but was to take effect in the 2008 tax year.
Companies pay capital tax based on their size, regardless of whether that company is profitable. Mr. Duncan stressed that the capital-tax break delivers money to the companies that need it the most – money-losing manufacturers. “That capital tax is going to apply to you – you'll get that money,” he said.
Prior to the province's economic outlook statement of last fall, companies paid a tax equal to 0.285 per cent of their enterprise values (equity plus debt). For a $1-billion company, that equates to a $2.8-million tax hit. In the fall statement, the government eliminated the tax entirely for manufacturing and resource companies, and lowered the rate to 0.225 per cent for other companies. It plans to eliminate the capital tax entirely by 2010.
Meanwhile, Ontario matched the provision in the federal government's budget last month to extend to the end of 2011 the 50-per-cent acceleration of depreciation for manufacturers' purchases of machinery and equipment. The measure, which aids manufacturers who are investing in upgrading their facilities to improve their competitiveness, will cost the government an estimated $427-million in lost revenues over the next three years.
The centrepiece of the budget document – the $1.5-billion job-training plan – includes $53-million from the 2007-08 budget year to go directly to company-run training programs in the auto sector. This includes $25-million for the Yves Landry Foundation, a private industry-education partnership organization; $22.8-million for Toyota's Canadian training and research centre in Cambridge; and $5.6-million for Chrysler Canada's training programs in Brampton, Etobicoke and Windsor.
The 10-year tax holiday for new companies developing Canadian-generated innovative products applies to businesses established between now and March 25, 2012. The program, which Mr. Duncan called “unique in Canada,” comes with a small price tag: Just $7-million by the end of the 2010-2011 budget year.
The province also took steps to ease the paper burden on tax filings for Ontario businesses, something that has been high on the agenda of small-business lobbyists such as the Canadian Federation of Independent Business. The proposed changes include transferring administration of Ontario corporate taxes to the federal government as of 2009, saving businesses up to $100-million a year in administrative costs, and simplification of the Ontario Taxes Administration Act that would simplify language and structure and cut down the size of the legislation by one-quarter.
