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TORONTO — The McGuinty government hopes to prop up Ontario's flagging economy with an immediate infusion of $1-billion in infrastructure spending, large investments in skills training, and a modest set of business income tax cuts in a budget overshadowed by the war of words it has provoked with Ottawa.
The centrepiece of the government's balanced spending plan is a “skills-to-jobs” scheme that will see $1.5-billion over three years poured into training and apprenticeships. It includes a $355-million second-career strategy that will offer as many as 20,000 unemployed workers job counselling, living expenses and needs-based tuition grants so they can attend college programs.
As previously announced, Ontario will spend $1-billion on infrastructure in the 2007-08 fiscal year, nearly half of which is dedicated to roads and bridges outside Toronto and another half for transit projects in the Greater Toronto Area and Hamilton.
The government expects the money will create 10,000 jobs during construction. But the additional dollars amount to one-time funds – well short of the municipalities' plea for permanent, stable provincial dollars to pay for big-ticket capital projects.
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The budget also contains $750-million over four years in business income tax relief, including the extension of the capital tax exemption for manufacturing and resource firms to Jan. 1, 2007, which amounts to an immediate rebate of $190-million, once the budget is passed. The tax measures also boast a 10-year income tax holiday for new corporations that bring to market products developed in universities, colleges and research institutes.
Still, that's a far cry from the demands of Finance Minister Jim Flaherty, who called on the province to cut its general corporate tax rate from 14 per cent to 10 per cent by 2012. Provincial finance officials are quick to note, however, that one of Mr. Flaherty's key demands – the elimination of capital tax on all businesses – has already been legislated and will come into effect in 2010.
Ontario Treasurer Dwight Duncan, who sported a new Ontario-made BlackBerry instead of the customary pair of new shoes Tuesday, said Mr. Flaherty's proposals would cost the province $3.5-billion in revenues.
“I would not spend all of our year-end money on corporate tax cuts. … We have a more comprehensive view of the economy,” Mr. Duncan said, adding he won't get into a verbal sparring match with his federal counterpart.
“We should be building partnerships. We should be building those partnerships today,” he said. “I'm not going to speculate on a federal election; I'm not going to speculate on whether or not [Mr. Flaherty's] running for the provincial Tory leadership.”
Premier Dalton McGuinty had earlier announced the budget's $267-million anti-poverty package, with $135-million over three years for a dental care plan for low income families, spending on student nutrition program at $32-million over three years, and another $100-million this year for repairs to 4,000 affordable housing units
Those signature investments, coupled with a 6-per-cent increase in health-care spending to $40.4-billion, leaves the government little room to manoeuvre, despite a projected $600-million surplus in 2007-08 (Ontario's surplus was $2.3-billion in 2006-07).
As Canada's most export-dependent province, the province has been stung by developments south of the border, where demand is collapsing amid a widespread economic slowdown. Surging oil prices and the high dollar have only exacerbated the situation.
Over the past year, 68,000 manufacturing jobs have been lost in Ontario, accounting for 6.5 per cent of the total.
The government has revised downward its gross domestic product growth forecast to 1.1 per cent in 2008, a drop of 1.7 per cent from last year's projections. Some private-sector forecasts are more pessimistic: Toronto-Dominion Bank recently slashed its GDP forecast for the province to just 0.5 per cent this year – the lowest for any province and its worst showing since the recession of the early 1990s. The national rate is 1.1 per cent.
Any single-point drop in real GDP would amount to a loss of $730-million in provincial revenues. To that end, the 2008 budget factors in a reserve fund of $800-million for next fiscal year while projecting balanced budgets in each of the next three years.
But the economic storm clouds are darkening. Hugh Thorburn, a Kingston-based political scientist, said the province could be in serious trouble if trade agreements with the U.S. are threatened by a new administration in the White House, or if firms with operations in both countries look to shed jobs north of the 49th parallel for political reasons.
Dr. Thorburn, an author of several books on politics and fiscal policy, said a spending spree on infrastructure is the “most obvious thing we need right now, given the current economic situation and outlook.”
But he said the Liberals should also have considered running a deficit, regardless of how “toxic” the word has become.
“In times of depression or recession, it's rational to run a deficit and stimulate the economy and pull yourself out of it,” he said in an interview before the budget was released.
“However, it has become rather toxic after the experience we've had recently, especially at the federal level, of getting too deeply in debt and therefore having these awful cutbacks and privation that we had in the period after 1995.”
A deficit would have undoubtedly raised the ire of the fiscally conservative Mr. Flaherty, who has been unusually critical of Mr. McGuinty for his refusal to commit to harmonizing the provincial retail sales tax with the GST or to cut the general corporate tax rate – the highest of any province in Canada except for Nova Scotia and Prince Edward Island.
Mr. Flaherty ratcheted up the war of words Monday by calling an extraordinary press conference at his Toronto office on the eve of the budget to make specific demands, even though the budget document was already printed and packaged, as he would have known from his own tenure as Ontario's treasurer. The Harper government also took the unusual step of sending an emissary to Queen's Park Tuesday to critique the budget.
Kathy Brock, a professor of policy studies at Queen's University, said the dispute is rooted in two fundamentally different economic philosophies.
“Ontario's approach is one that is based upon a government trying to help out industries, to sustain some industries,” she said in an interview before the budget was released.
“The federal approach is about pulling up the Ontario economy through tax cuts. … Both approaches can work, but they both have to be carefully applied.”
Dr. Brock warned the partisan sniping threatens to undermine the Conservatives' philosophy of open federalism and collaboration with the provinces.
“There's a real serious danger when a battle becomes this nasty and this public, then it's very hard to find a basis for moving forward in a collaborative way,” she said.
Other highlights in Tuesday's budget:
- $180-million over the next three years to reduce wait times in emergency departments, fulfilling a key election campaign promise. Another $64-million has been pegged for 12,400 additional general surgeries starting in the upcoming fiscal year, increasing to about 30,000 surgeries by 2010-11; $500-million over three years to hire 9,000 nurses by 2011-12, as well as funding for 2,500 more personal support workers for long-term care homes over three years.
- $293-million for a new computerized train control system on Toronto's Yonge Street subway line and $90-million for new investments at GO Transit, including 20 new bi-level rail cars for the packed Lakeshore line, new passing tracks on the growing Bradford and Stouffville lines, and 10 new double-decker buses, the first of which the Premier unveiled last week.
- a property tax grant for low-income senior homeowners of $250 in early 2009, rising to $500 in subsequent years.
- a new policy that stipulates cities and towns will get a share of any bigger-than-expected surpluses of $800-million or more for capital projects such as road and bridge repairs. However, municipalities shouldn't hold their breath: This year's surplus falls below the threshold and next year's projections of a balanced budget are based on optimistic growth assumptions compared to several private forecasts.
- $385-million for a textbook and technology grant for full-time postsecondary students, worth $150 per student this fall, rising to $300 in 2010.
- a commitment to fully fund the provincial share of costs for a road link between Highway 401 and the new border crossing in Windsor.
- a promise to introduce legislation that would place the onus on the Municipal Property Assessment Corporation to prove the accuracy of property assessments that are appealed to the Assessment Review Board.
- Extension of the retail sales tax exemption for energy efficient appliances and light bulbs to the end of August, 2009, worth about $37-million in 2008-09.
- the appointment of urban thinker Richard Florida, professor at Toronto's Rotman School of Management and a regular contributor to The Globe and Mail, and Roger Martin, Rotman's dean, to study the changing composition of Ontario's economy and work force.
- $25-million centre for research and innovation in the bioeconomy, to be located in Thunder Bay.
- $25-million in 2007-08 for a new Munk School of International Studies at University of Toronto.
- a $56-million grant to support research and animal health at the Ontario Veterinary College, University of Guelph.
Progressive Conservative Leader John Tory echoed the mantra of his federal cousin, criticizing the McGuinty government for ignoring corporate tax relief.
“Ontario's economy is in trouble,” he said. “We've been pleading with Mr. McGuinty and his Finance Minister to listen. From Day 1, they've been on the wrong track on taxes, on regulation and on spending.”
With reports from Caroline Alphonso, Elizabeth Church, Jeff Gray, Jennifer Lewington and Karen Howlett
