The Top Line

Premier Wynne’s Liberal Government unveiled its budget today in Ontario, coming in ahead of the usual timeline and before the federal fiscal plan. Overall, Budget 2016-17 is a continuation of last year’s ‘activist centre’ fiscal plan. The Liberal’s fiscal plan is built on large public investments and a plan to combat climate change through placing a price on carbon. Notably, several Government-led initiatives designed to support and stimulate private sector job creation in industries that the Liberal Administration envisions as part of a modernizing Ontario economy will receive significant funding.

The Ontario Liberal Party continues to demonstrate its belief that reducing greenhouse gas emissions and boosting innovation and the economy are not competing priorities. As such, Budget 2016-17 sets the stage for Ontario to begin the auctioning of carbon allowances in 2017.

Importantly, Budget 2016-17 re-affirms the Government’s commitment to balance the budget by 2017-18.  The Liberal Administration continues to be confident that it will meet that self-imposed deadline and success or failure on that front will have important ramifications for stakeholders, as 40% of the Province’s heavy debt load comes due within the next five years.

In conclusion, Budget 2016-17 delivered no big surprises and will not significantly alter the Province’s projected fiscal course. However, in a few short months, the two-year countdown to Ontario’s next election will begin. In that light, stakeholders can expect that Budget 2016-17, though not flashy, will be leveraged by the Liberals as a platform for buttressing their Administration’s record in the coming years.

Budget Highlights

Economic Highlights

Budget 2016-17 brings the Liberal Administration another year closer to its self-imposed deadline to balance the provincial books in 2017-18 – a goal that the Government maintains it will meet. In that light, the projected deficit for 2015-16 is $5.7 billion – or $2.8 billion less than the original 2015 projection (largely through the sale of Hydro One shares). The projected deficit for 2016-17 is $4.3 billion.

Ontario has enjoyed real GDP growth at a rate of 2.5% in 2015, and that growth is expected to continue at a pace of 2.2% in 2016. Indeed, Ontario’s GDP growth is expected to outpace the national average of 1.2%. It is projected that real GDP growth will grow on average by 2.2% from 2016 to 2019.

Budget 2016-17 reveals that asset sales and optimization exercises, good performance by public enterprises, and higher than expected tax revenue has been a windfall for the Liberal Administration, resulting in a projected $2.2 billion in unexpected public revenue (compared to the original 2015 projection). Specifically, total revenue in 2015-16 is estimated at $126.5 billion, or 1.7% above the amount projected in the 2015 Budget.

On the labour front, Ontario’s unemployment rate is at 6.7%, which is below the national average of 7.2%. The Province projects that unemployment will fall every year from 2016 through 2019.

Measures Affecting Business

Jobs Creation and Industry

Amidst persistent pessimism about Ontario’s economy, the Liberal Government touts its job creation record in Budget 2016-17, claiming that more than 600,000 jobs have been created since the recessionary low in June 2009. The Government projects that more than 300,000 more jobs will be created by the end of 2019.

To that end, the Government is spending big on several programs designed to support targeted Ontario businesses.  Notably:

• The Jobs and Prosperity Fund will disperse $2.7 billion over 10 years to help create and/or retain jobs and corporate investment in Ontario;
• The Business Growth Initiative, a five-year $400 million program, aims to create a high-growth and innovative economy, and to help businesses scale up globally, in part by modernizing business regulations and lowering industry operating costs;
• The Going Global Export Strategy will invest an initial $30 million over three years to help Ontario-based firms expand their exports and increase productivity; and,
• The Green Investment Fund commits $325 million to supporting jobs and spurring innovation in the clean energy sector.

Infrastructure Funding

Like its federal counterpart, the Ontario Liberal Government believes that Government investments in infrastructure are important in the current low-growth and low-interest rate economy. Budget 2016-17 allocates $137 billion over the next ten years for diverse public infrastructure projects, including roads, bridges, public transit, hospitals, and schools.

A key element in funding the planned infrastructure projects is maximizing the income that the Government collects from publically-owned assets. Budget 2016-17 predicts that $5.7 billion will be generated by the sale of Hydro One shares and other public assets, such as unneeded properties. Notably, net revenue gains from the sale of public assets will be funnelled to the Trillium Trust to help fund public transit networks and other priority infrastructure projects.

Indeed, public transit is a central plank of the Government’s infrastructure plans. Approximately $15 billion is available outside the Greater Toronto and Hamilton Area (GTHA) and about $16 billion is available within the GTHA for transportation related projects.

The Government is touting its infrastructure spending as a job creator, projecting that the planned projects will support more than 110,000 jobs each year, on average.

Cap-and-Trade System

In the past months, it has become clear that the Ontario Liberal Party is committed to a cap-and-trade system for carbon emissions. Budget 2016-17 sets the stage to begin the auctioning of carbon allowances in 2017. Total proceeds from the cap-and-trade program are projected to be $1.9 billion in 2017, and would be used to invest in green projects. The Liberal Administration plans to introduce legislation that, if passed, would ensure that the revenue cannot be allocated to another stream of Government spending.

Ahead of the budget release, Premier Wynne announced that the cap-and-trade system will add 4.3 cents to the price of a litre of gasoline and approximately $5 a month to natural gas bills.

Other Key Initiatives

Retirement Security

By 2020, the Government plans for all eligible Ontario workers to be covered by the ORRP or a comparable workplace plan. As of now, the ORRP Administration Corporation will begin employer verification and enrolment in 2017, with employer and employee contribution collection expected to begin in 2018. However, the program timeline has already been pushed back once.

Meanwhile, the Liberal Administration in Ontario maintains that it is open to collaboration with the Federal Government on CPP enhancement.  On that front, a Federal-Provincial-Territorial Finance Minister meeting is scheduled for June 2016.

Consumer Initiatives

Budget 2016-17 includes a number of targeted tax and fee reductions for Ontarians, including eliminating the debt retirement charge on electricity bills, as of January 1, 2016. That measure alone will reduce the average annual electricity bill by $70.

Meanwhile, the Liberal fiscal plan also allocates $3 billion capital grants to post-secondary institutions over the next 10 years and average tuition will be made free for students with financial needs from families with incomes of $50,000 or less.

Opposition Reaction

Both Opposition Parties were swift to attack the Liberal Budget.  NDP Leader Andrea Horwath asserted that the fiscal plan does not address the needs of everyday families and will make life harder for consumers. Progressive Conservative Leader Patrick Brown stated that the budget proves that the Government does not have a credible plan for the future of the Province and did not listen to stakeholders in developing the fiscal plan. The Conservatives are particularly opposed to the proposed cap-and-trade system, which the Party believes is a tax grab that will make life more expensive for all Ontarians. Neither Opposition Party believes that the Government will meet its pledge of balancing the budget in 2017-18.

What Comes Next

The Liberals hold a majority in the Legislature, and thus have the ability to pass all budget-related items into law quickly.  Both Opposition Parties will be extremely vocal against measures included in the budget, and they may also choose to exercise certain legislative tools to delay and stall the Budget Bill.

Overall, this is a stay-the-course budget for Ontario, though the Province’s fiscal landscape remains uncertain given the jurisdictions high debt-to-GDP ratio.  TSA looks forward to assisting its clients navigate the Ontario political environment. Possessing a strong network across Party lines, TSA is your ideal government relations partner.  Please contact us if you have any questions.