FUSS: Ontario’s budget lacks strong vision for provincial economy

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Many of the headlines for the Ontario budget released Thursday will likely focus on announcements for spending on health care, highways, schools and other big-ticket items.

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However, the crucial aspect of this year’s budget is what is missing in the document.

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Today’s budget indicates Ontario will run a small budget deficit of $1.3 billion in 2023, before returning to surplus positions in subsequent years. This is a positive development for the province, but the improved financial situation arrives mainly due to surging revenues.

When reading the 268-page budget document, it quickly becomes apparent the Ford government lacks a strong vision for the economy. Planned capital spending on infrastructure projects like highways can contribute positively to long-term economic growth. However, the budget plan excludes key measures to enhance Ontario’s competitiveness.

Weeks ago, Finance Minister Peter Bethlenfalvy stated the budget would signal that Ontario “wants to be the economic engine of Canada and frankly, North America.” In reality though, this budget, like the ones that came before it, talks a big game without delivering.

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Ontario’s high personal income taxes are one factor restricting economic growth. The combined federal/provincial top marginal tax rate equals 53.5% for Ontario, which is the third highest amount of any jurisdiction in Canada or the United States. This high tax rate makes it more difficult for the province to attract and retain entrepreneurs, business owners, investors and professionals.

Why? High taxes reduce the incentives for individuals to engage in productive, risk-taking economic activities.

Similarly, the Ford government ignored its promises to reduce taxes for Ontarian families more broadly.

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On the campaign trail in 2018, then-candidate Ford stated, “I am going to put money back in their pockets,” in reference to Ontarian taxpayers. But he has once again chosen not to reduce taxes for Ontarian families. Failing to take action here represents a departure from the opinions of most Ontarians, as a recent poll found 73% of those surveyed in the province think taxes are too high for the average family.

Additionally, the provincial budget avoided tax reductions for businesses. In 2018, Doug Ford promised to reduce the business tax rate by one percentage point to help attract investment to the province. Given ample opportunity to follow through, the Premier has yet to deliver.

High business taxes discourage corporations from investing in or locating their headquarters in the province. Ontario’s decision to maintain the status quo stands in stark contrast to other jurisdictions like Alberta and Michigan that have reduced their business taxes in recent years as part of pro-growth economic strategies.

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Fortunately, the government has committed to a tax review in the budget and intends to evaluate ways to improve competitiveness and long-term growth in the province. Whether the review will lead to concrete action is a question waiting for an answer.

By global standards, Ontario is a prosperous place. However, within its own economic region, Ontario continues to be an economic laggard. Among the eight American states in the Great Lakes region and its neighbouring province, Quebec, Ontario had the second lowest GDP per person in the region during 2020.

This should concern policymakers because weak economic growth impedes job creation and wage growth. Unfortunately, the economic plan in this budget leaves a lot to be desired and promises more of the same.

High taxes are harming economic growth in Ontario. The Ford government’s budget ignores past promises to reduce taxes for families and businesses while presenting limited measures aimed at improving the province’s economy.

— Jake Fuss is Associate Director of Fiscal Studies at the Fraser Institute


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