Pandemic budget breakdown

By Allison Smith and and Sabrina Nanji November 5, 2020

The Ford government’s second budget has landed. It’s a three-year fiscal outlook — delayed nine months thanks to economic uncertainty swirling around the pandemic. That uncertainty is still around, so the path to balancing Ontario’s books and reining in the record-breaking $38.5 billion deficit has been punted to next year’s budget.

Finance Minister Rod Phillips’ inaugural budget is entitled “Ontario’s Action Plan: Protect. Support. Recover.” The front cover of the 239-page fiscal tome also features the “Ontario Made” seal the PCs have been encouraging local businesses to stamp on their products.

PCs project receding deficit, but no indication on when Ontario will be back to black
The budget forecasts a $38.5 billion deficit for 2020-21, the same record-setting figure laid out in the finance minister’s first quarterly update in August.

While the budget doesn’t map out a path to balance, it does forecast that the deficit will recede by about $5 billion annually over the next two years — to $33.1 billion in 2021-22 and $28.2 billion in 2022-23.

With so much economic uncertainty, the budget also provides different scenarios for “Faster Growth” and “Slower Growth.” If the economy is slower to recover, next year’s deficit could come in at $35.6 billion; if the economy bounces back faster, the deficit would be $27.7 billion.

GDP to shrink by 6.5 per cent this year after terrible Q2
Provincial GDP was walloped in the second quarter of 2020 — plummeting by 12.3 per cent.

That’s thanks to a 14.4 per cent drop in household spending, a 20 per cent drop in exports and a 16.4 per cent decline in business investment.

Overall, the economy is expected to contract by 6.5 per cent in 2020.

When it comes to recovering from that, the budget’s growth scenarios present a wide spread: the economy could grow anywhere between 3.3 per cent and 7.5 per cent next year, per the finance ministry. In 2022, the range is expected to narrow to between 1.0 and 3.5 per cent.

Meanwhile, the provincial debt-to-GDP ratio has soared and is projected to hit 50 per cent within two years.

Record spending brings new credit to retrofit seniors’ homes, more child-care cash, ‘staycation’ support
At $187 billion, Ontario is spending more than ever before.

There is $15 billion in new Covid-related support, including $7.5 billion in new funding, which builds on the $30-billion package announced in the March mini-budget. Overall, the Covid-fighting plan clocks in at $45 billion over three years.

The government wants to help elderly folks stay at home and out of care for longer with a new Seniors’ Home Safety Tax Credit for renovations to make their homes accessible. Seniors and their families can get a 25 per cent credit on retrofits of up to $10,000, including wheelchair ramps and bathtub grab bars. While the cost will depend on uptake, the PCs have earmarked $30 million for the credit.

Parents will receive another round of payments to offset costs associated with child care and at-home student learning amid Covid: $200 per kid up to 12 and $250 per youth with special needs up to 21. The province is coughing up $380 million for it.

“The year of the Ontario staycation.” The budget commits to “exploring ways” to “support” up to 20 per cent of tourism expenses to encourage Ontarians to jaunt around the province in 2021. The budget sets aside $150 million for the initiative.

There was no breakdown for the cost of establishing an average of four hours of daily direct care per long-term care resident by 2024-25.

Phillips said that is because it is a “complicated” plan that was only taken up recently by the province. He and Premier Doug Ford reiterated their commitment to the pledge.

Contingency cash is getting a booster shot. Next year, the province will set aside $4 billion for the COVID-19 contingency fund and $1 billion for the “Support for People and Jobs” fund. As for this year’s funds, about $2.6 billion is still sitting on the table (as of mid-October). In addition, the usual reserve fund will hold steady at $2.5 billion this year.

Revenues down in all corners, income tax projections signal prolonged joblessness crisis
Provincial coffers will rake in $151.1 billion in 2020-21 — $5 billion less than last year.

The province is projecting a 35 per cent drop in corporate tax revenues, down from $15.4 billion last year to $9.9 billion this year. Revenues from business taxes are not expected to fully recover by the end of the budget’s three-year outlook.

Sales tax revenues will also take a dive. The province is expecting to collect about $3.7 billion less in sales tax than it did last year.

Ontario will collect $36.9 billion in personal income taxes this year, only about $800 million less than in 2020. However, in a sign that the unemployment crisis may not abate anytime soon, the government is expecting to collect an even lower amount of income tax in 2021-22: $36 billion.

The province usually receives around $25 billion annually from the federal government — that number will surge to $33.4 billion this year, representing about 22 per cent of total revenues.

One shining light on the balance sheet is the land transfer tax. Since August’s update, the Ministry of Finance readjusted its revenue projection for the tax up by $420 million. It is now expected to bring in $3.3 billion this year.

Business aid via electricity subsidies, payroll tax relief and property tax changes
Industrial and commercial employers could save an average 14 and 16 per cent, respectively, on electricity bills, at a cost of $1.3 billion to the province over three years. The government wants to reduce prices to an estimated 8.05 and 14.31 cents per kilowatt hour. Premier Ford called it a “trickle down” approach to supporting employees.

A pandemic-era tax break for employers is being made permanent. The province will provide $360 million in tax relief by holding the Employer Health Tax exemption for business payrolls up to $1 million.

The PCs are moving forward with changes to how property taxes for some small businesses and industrial facilities are assessed.

Starting in 2021, municipalities will have the option to reduce property taxes for certain small businesses via a new “property subclass” category. Cities and towns will be able to define eligibility based on local needs, and the province is considering matching any reductions.

Additionally, the government is weighing amendments to the Assessment Act to help out small businesses in hot real estate markets where speculative sales of nearby properties could push a business owner’s property tax burden through the roof. PC MPP Robin Martin tabled a private member’s bill on the matter earlier this year.

When it comes to tax assessments for large industrial facilities, the government says it has heard from stakeholders that the “complex methodologies” used by the Municipal Property Assessment Corporation (MPAC) are leading to “costly and protracted” assessment appeals.

Therefore, it plans to rejig the information sharing process between MPAC and large property owners “with the goal of enhancing the accuracy of assessments.”

Bits and bobs

  • So long to the legal requirement for mapping out a path to balance the books, for now. The Fiscal Sustainability, Transparency and Accountability Act will be amended so that the government doesn’t have to include the projected year in which the budget will be balanced.

  • Ontario is no longer losing money selling weed. The Ontario Cannabis Store posted $19 million in profits in 2019-20 (after losing $42 million the year before). That’s projected to grow to $80 million this year.

    • The province will also get a $145 million chunk of the federal government’s cannabis excise tax.

  • Say hello to “iGaming.” The province is making good on its 2019 budget pledge to allow private companies to enter the online gambling sphere.

    • The PCs will table a bill giving the Alcohol and Gaming Commission of Ontario regulatory authority and oversight over private iGaming operators.

    • Single-event sport betting isn’t on the docket yet, but further consultation with Ottawa over the potential legalization of it is.

  • Meanwhile, the bad news at the Ontario Lottery and Gaming Corporation continues. The province readjusted its forecast for the agency down by another $400 million since the August update. Thanks to casino closures, OLG is only expected to raise $200 million this year — down from $2.3 billion last year.

  • The province is tightening up the rules under the controversial Bill 124, Protecting a Sustainable Public Sector for Future Generations Act, which capped public sector wage increases at one per cent annually. The budget proposes adding “enforcement tools” to support compliance with the law and clarifies the application for employees who change bargaining status.

  • Requisite booze news: the province is freezing beer tax rates until March 1, 2022 and retroactively cancelling a wine tax increase that was slated to begin in June (but was temporarily paused during the state of emergency). These lower tax rates will cost the province $20 million next year.

    • Finance Minister Rod Phillips said the province is also moving to make take-out sales of alcohol from restaurants permanent.

  • In order to keep Ontario’s cultural media industry moving, the province is extending various deadlines and waving certain requirements so that film and television production companies can pick up where they left off before the March shutdown.

  • A fleet of amendments to existing legislation were also proposed, including:

    • Changes to the governance and oversight of conservation authorities;

    • New regulations that would give waste producers “control over the design and establishment” a new blue box system;

    • Authorization for forestry firms to operate on Crown land without being subject to the Endangered Species Act; and

    • Granting the minister of transportation authority to “issue binding directives” to the Ontario Northland Transportation Commission.