Mini battles test Liberal commitment to fighting provincial deficit

It seemed, at the time, like just about the safest thing Ontario's deficit-laden government could do to save a little money.

Nearly a decade after introducing a new tax credit for certain types of businesses in return for hiring apprentices, Kathleen Wynne's Liberals decided that call centres should not really have been included among the recipients. So in last spring's budget, it was announced that as of April, 2014, such companies would no longer be eligible.

As it turned out, however, the call-centre lobby proved more powerful than anticipated. Enough fuss was kicked up that, according to government insiders, there was an outcry within the Liberal caucus from MPPs with call centres in their ridings. And so it was that the decision was revisited – resulting in a promise, buried in this month's fall economic statement, that call centres would be compensated with up to two years of "transitional funding."

For those who have followed the Liberals' tortuous efforts to find easy targets for deficit-reduction measures, there are echoes here of the saga around funding supports – initially scrapped altogether, then partially reinstated – for Ontario's horse-racing industry. But more importantly, there are indications of how difficult it will be for the government to pursue one of its stated goals in the next few months: reducing the skyrocketing costs of business subsidies dressed up as tax credits.

Although it was expected to save about $45-million per year, the scrapping of the call-centre funding was more about sending a signal. Noting that the amount Ontario spends on refundable business tax credits shot up from approximately $270-million in 2003-04 to an estimated $940-million in 2012-13, Finance Minister Charles Sousa pledged in the budget last May to launch a review of such supports. Undoubtedly aware of their own reputation for punting every problem with a panel, the Liberals looked for an example with which they could immediately prove their seriousness, and settled on what must have appeared the lowest hanging of fruit.

The fact that they were caught off guard by the ensuing push-back, and that it convinced them a year's notice was not enough to stop subsidizing apprentices already on the payroll, means they did not end up sending exactly the message for which they were aiming.

If Liberal MPPs were so uneasy with cutting back call-centre supports they had previously not given much thought one way or another, they would probably be really nervous about something like the Ontario Film and Television Tax Credit – a much larger expenditure on a much more vocal industry, which rightly or wrongly would argue that thousands of jobs would be lost because Ontario would no longer be able to compete with other jurisdictions for major productions.

Realistically, it is unlikely that the government would simply do away with that or most other credits – to support creative industries such as digital media and book publishing, or to reward investment in research and development, or to encourage placements for co-op students. An approach that seems to have more traction in the Premier's office is converting some of them to grants, which would allow them to be more narrowly targeted and less open-ended.

But while that change might help both to limit costs and to ensure maximum bang for every buck, it would also pick winners and losers more than the current system does. And the losers, which is to say any employer that currently receives tax credits and would be unlikely to win grants, could be expected to raise a stink – as might industry groups trying to ensure a piece of the pie for all their members.

That grief might be mild compared with the reaction from the general public to other efforts to address an $11-billion budgetary shortfall, which helps explain why business tax credits are in the Liberals' sights at all. But as evidenced by the small saga around one of the government's most obscure tax expenditures, heading into a likely election next spring, even the smallest battles are enough to test the stiffness of Liberal spines.