OTTAWA, May 2, 2014 /CNW/ - The 2017-18 deadline for balancing its
budget looms ever closer for Ontario's provincial government—and with
every new budget, it becomes clearer that the target might be elusive.
This is an activist Ontario budget, with plans for enhancements to
public pensions, significant infrastructure investment and improvements
to the business climate.
Ontario continues to "kick the can" down the proverbial road when it
comes to total program spending restraint.
Ontario will require strong economic growth in 2017 and 2018 to bring
revenues in line with the budget's projections, in order to balance the
budget in 2017-18 as still planned.
Budget 2014 announced a few new program measures, such as an ambitious
new infrastructure plan and a plan to improve the business climate and
create jobs—both of which will be rolled out over the next 10 years.
The centrepiece of this year's budget is the new Ontario Retirement
Pension Plan (ORPP), which will take effect in 2017. But these new
program measures simply add more fiscal pressure, as the government
looks at weaker revenue projections over the near term.
To offset the expected weaker revenues, the Ontario government has
introduced a few new tax measures, including an increase in taxes for
those earning more than $150,000 a year, as well as a tobacco tax
increase, and a hike in the aviation fuel tax.
Despite these measures, it remains abundantly clear that Ontario
continues to "kick the can" down the proverbial road when it comes to
total program spending restraint. In order to achieve a balanced
budget, the government plans to bring total spending growth to an
abrupt halt in the later years of the budget planning time frame. And
that alone won't be enough—strong economic growth will also be required
in 2017 and 2018 to bring revenues in line with the budget's
The centrepiece of Budget 2014 is, without question, the new Ontario
Retirement Pension Plan. The plan is modelled on the Canada Pension
Plan and represents a major expansion of Canada's retirement income
system. It aims to provide a guaranteed pension of up to 15 per cent of
maximum pensionable earnings (to be set at $90,000) in retirement. The
plan would be fully funded by increasing the contribution rate by 3.8
percentage points, half of which is to be paid by the employer and half
to be paid by the employee.
Annual contributions are expected to total approximately $3.5 billion
once the plan is fully ramped up. This will have a negative short-term
effect on household spending, with early estimates from our economic
model simulations suggesting that it would subtract between 0.1 and 0.2
per cent from GDP, beginning in 2017.
The Conference Board's most recent economic outlook for Ontario is
broadly consistent with the near-term outlook contained in Budget 2014.
However, beginning in 2016, the projection deviates from the forecast
contained in Budget 2014. Over the 2016 to 2017 period, the Conference
Board expects economic growth to average just 2.1 per cent per year, as
the economy approaches full potential. The budget estimate, meanwhile,
is a much higher 2.5 per cent. This more optimistic projection presents
a potential risk to the budget's fiscal outlook, which relies heavily
on strong growth during those years to meet the balancing deadline of
Tax revenues will rise by an average of $1 billion per year. Most of
this increase will come from a 1-percentage point increase on the tax
rate for individuals earning incomes between $150,000 and $220,000 and
a 2 percentage point hike for individuals earning between $220,000 and
One other significant tax change announced in the budget is a 4-cent
increase in the tax on aviation fuel, which will be phased in over the
next four years. In previous research, The Conference Board of Canada pointed out that the current 2.7 cents
per litre aviation fuel tax, because it applies even to international
flights, is already out of line with global norms and may be hurting
Toronto's role as an airline hub.
Read the full budget analysis, An Activist Ontario Budget, but Balanced Budget Remains Elusive.
SOURCE: Conference Board of Canada
For further information:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448