Ontario's new budget is giving small businesses and manufacturers in the province a break, but the changes to corporate supports will not be hugely costly – an important factor for a government intent on balancing its books over the next three years.
After a 2012 budget that raised the hackles of the business community by freezing corporate tax rates that were scheduled to decline, the province has opted for minor tinkering in 2013.
Finance Minister Charles Sousa made it clear he will not reduce the general corporate tax rate – now at 11.5 per cent – until Ontario's deficit is gone.
"We cannot afford further reductions in Ontario's low corporate taxes that would make it harder to eliminate the deficit," he said in his speech to the legislature Thursday.
Ontario's deficit for 2012-2013 is estimated to be $9.8-billion, and the government projects it will rise to $11.7-billion in 2013-2014, then decline in the next few years to $3.5-billion in 2016-2017, showing a slight surplus in 2017-2018.
But businesses do get some benefits in the budget. The downtrodden manufacturing sector in Ontario will gain from an extension of the accelerated capital cost allowance until the end of 2015, essentially mirroring changes the federal government announced in its March budget.
That will make it less expensive for companies to buy new equipment and machinery, and will cost the province $265-million over the next three years.
Ian Howcroft, vice-president of the Ontario division of Canadian Manufacturers & Exporters, called the capital cost allowance extension a "big win" for manufacturers in the province. "Recognizing that these are extremely tight fiscal times, we are extremely pleased to see them continue with the three-year writeoff," he said.
Other changes to business programs will cost little, or even save money.
The help for small business involves a broadened exemption from the employer health tax – a per-employee tax that helps fund the health care system. Currently, all companies are exempt from paying the tax on the first $400,000 of their payrolls. Beginning Jan. 1, small businesses will see the threshold rise to $450,000, and this level will be adjusted for inflation.
To pay for most of the $50-million this will cost each year, large employers with annual payrolls of more than $5-million will no longer get an exemption on any of their payroll costs.
Satinder Chera, Ontario vice-president of the Canadian Federation of Independent Business, called the expanded exemption "modest tax relief," but added that it is "an important acknowledgment of the serious impact that payroll taxes have on creating jobs and growing a small business."
The provincial budget also marked the beginning of a longer-term process of cutting back on some expensive tax breaks the Ontario government thinks are no longer valuable, or are counterproductive. The first cuts involve an end of a fuel tax exemption that applied only to biodiesel, and the elimination of a small number of call-centre categories from an apprenticeship training tax credit program.
The fuel tax exemption "no longer serves its purpose" because Ottawa has put in place a renewable-content requirement on fuel, the budget documents said, and the training tax credits were ineffective in getting call-centre employees to complete their training. These two cuts will save about $120-million over the next three years.
There will be more consolidation and cuts to the splintered business support programs in the years ahead. The budget said a technical panel will be set up to look at specific refundable tax credits and direct financing programs, with a view to redesigning, replacing or eliminating some of them, while cutting administrative costs.