4 unanswered questions about the Ontario budget

Budget 2014 contains loads of spending announcements but few real details

Despite the sheer number and size of spending announcements in the Ontario budget, a lack of detail and the fact that the bulk of the budget was leaked last month leaves few surprises. Instead of leaving the budget lock-up feeling that I have learned something new, I am left with four unresolved questions.

1.       Income tax increases – how much revenue will they really raise?

The budget raises the rate of Ontario income tax on those earning between $150,000 and $220,000 from 11.16 to 12.16 percent, and from 11.16 to 13.16 percent for those earning between $220,000 and $514,090. The government estimates that the measure will increase government revenues by $635 million in 2014-15, $685 million in 2015-16 and $745 million in 2016-17. There is no indication in the budget how these numbers are estimated, so I spoke to government officials, who indicated that these are ‘straight-line’ estimates and do not take into account possible behavioural responses by these high income earners. Given the many options that these persons have to restructure activities to reduce their tax burden, the actual amount of revenue raised will be significantly lower.

2.       Green bonds – what’s the point?

I was disappointed to see no new information on issuing green bonds to finance projects, rather than simply using standard bonds. Green bonds come with higher compliance costs, to verify (or possibly certify) that the money raised is being spent on green projects. The benefit of green status to the bond issuer is lower interest rates, as these financial instruments attract those desiring green investments. As it has in the past, the government has indicated that they intend “to issue these bonds with the same yield as Ontario bonds of comparable term and size”. If that is the case then why bother with green bonds at all, given the higher compliance costs for the province?

3.       Ontario Retirement Pension Plan (ORPP) – is it truly compulsory?

This budget provides details on the government’s proposed ORPP plan. Both the workplace and the individual would each remit “up to” 1.9% of a worker’s first $90,000 of income to the plan. The contributions, expected to be in the ballpark of $3.5 billion per year, would go into a fund that would be managed at arm’s length from the government. The plan would not begin until 2017, perhaps to avoid concerns of placing additional payroll taxes on firms during a relatively weak labour market.

Although the plan is marketed as mandatory, a clause in the budget provides an escape by stating “those already participating in a comparable workplace pension plan would not be required to enrol in the ORPP.” It is unclear if the decision to opt out is placed on the worker or the firm. It is hard to imagine a worker choosing to opt out, given that they would receive all the benefits of the plan but their employer pays half of the cost.

4.       A $2.5 Billion Jobs and Prosperity Fund – what are the checks and balances?

As with green bonds, there were no new details in the budget on the $2.5 billion, ten-year fund designed to “attract significant business investments.” We are told that with this fund the Province will have the flexibility to offer strategic incentives where necessary to secure key anchor investments in Ontario’s interest, help support growth, and create well-paid jobs at home”. What we are not told is who will determine the funding decisions, the criteria of the fund, and what mechanisms will be put in place to ensure that corporations that accept government funds will live up to their obligations. There was a lack of transparency in both the Cisco and Open Text deals, so I am not optimistic that this fund will be run in a way such that taxpayers can determine if they are receiving value for money.




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4 unanswered questions about the Ontario budget

  1. 5. That horrible add where Catherine Wynne keeps walking towards me until I think she’s going to step right out of the screen and into my livingroom. What genius adviser came up with that one? She’s not photogenic at the best of times, but with her marching steadily towards me, angrily lecturing me like a school marm, stabbing her finger at me while she delivers her droning monologue, it creeps me right out.

    • Imagine it in 3D!

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