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The 2009 Ontario Budget: Big deficits, big spending

Single sales tax plan is the government’s only major showstopper


 

090325_daltonndwight1If imitation is truly the sincerest form of flattery, it’s safe to say Ontario’s got a crush on the federal government. Mirroring the federal Conservatives’ pre-emptive strikes in the weeks leading up to their January budget, the McGuinty government announced well before Thursday that the upcoming budget would usher in multibillion dollar deficits for the coming years—$3.9 billion for 2008-09 and $14.1 billion for 2009-10—and that it would substantially boost its short-term spending on infrastructure. On the eve of budget day, it “leaked” information about the only major showstopper—that the province would harmonize its sales tax with the GST.

The hope appears to be that spreading the bad news over days or weeks lessens the shock of just how dramatically the province’s fortunes have changed in the past year. Make no mistake: these are grim times for Ontario. Government revenues are down $2.9 billion since last fall, and by the end of this fiscal year are expected to fall $3.5 billion short of the figure projected in last year’s budget. Revenues will drop even further, falling $4.6 billion short of pre-recessionary projections. “Ontario is in the middle of a global financial storm not of its making,” the province’s finance minister, Dwight Duncan, told reporters on Thursday.

ALSO AT MACLEANS.CA: Answers to the most common questions about the government’s new ‘single sales tax’

The province appears to be just as anxious to share the responsibility for getting out of the economic crisis as it is to deflect blame for it. In a briefing session on Thursday, officials said they are counting on the stimulus packages in the U.S. and Ottawa to help breathe life into Ontario’s economy. In the meantime, the McGuinty government will follow their lead and try to spend its way out of the crisis.

Like in the U.S. and at the federal level, infrastructure is at the top of the shopping list. In all, Ontario has committed $34 billion over two years to stimulus spending, with more than 19 of every 20 of those dollars (or $32.5 billion) earmarked for infrastructure projects. For the most part, “infrastructure” translates into improvements to Ontario’s transportation grid and its health care facilities, with projects ranging from the expansion of northern Ontario highways to the construction of a new hospital wing in Toronto. A further $1.2 billion has also been set aside to top up the federal government’s investments in social housing. In all, the province boasts that its budget will “create or support” some 314,000 jobs over the next two years.

Though finance department officials pledged to get the stimulus money flowing quickly, the most contentious item in the budget won’t take effect for another 15 months. On July 1, 2010, the provincial government will merge its provincial sales tax with the GST to create a single 13 per cent tax collected by the federal government, with 8 per cent going to the province. The McGuinty government boasts the change will save businesses $500 million by simplifying the tax-filing process. But some products, on which consumers currently pay GST but not PST, will now be taxed 13 per cent. The cost of gasoline, haircuts, fast food, home heating fuel and a wealth of others, will increase by 8 per cent.

The McGuinty government is hoping a package of tax cuts and rebates will offset the sting of the increased cost on some consumer goods. Most notably, the agreement between Ontario and Ottawa reached earlier this month calls on the federal government to deliver $4.3 billion over two years to the province “to help offset the transition costs associated” with the new tax. The provincial Liberals have already committed to redistributing $4 billion of that money in a series of rebate cheques totalling $1,000 for families to earning less than $160,000.

Opposition parties have already seized on Duncan’s tax measures as a cash grab. “It’s appalling,” says interim provincial Conservative leader Bob Runciman, “to pile on more debt, more taxes on the backs of struggling families.” The Conservatives and the NDP have both said they will oppose the new tax and plan to make it an issue in the next election.

There’s little doubt this budget—and the harmonized sales tax in particular—will figure prominently when the parties hit the campaign trail in 2011. In fact, voters were reportedly voicing their concerns about the tax to their MPPs long before budget day. But the McGuinty Liberals appear to have planned for the backlash already. The last of those rebate cheques will be in Ontarians’ mailboxes two months before they go to the polls.


 

The 2009 Ontario Budget: Big deficits, big spending

  1. This is the most irritating budget I have ever seen in my life. This is not the right time to harmonize taxes. They should have waited until the economy stablizes. This will only stop people from spending. There may be more job but speding by people will be very conservative, hence slowing the growth. When you don’t have many people buying, what is the use of producing more? When sales decrease job market goes down? I don’t know McGuinty is expecting businesses to produce more jobs, when they will have no additional thing to sell. These are the dumbiest people I have ever seen. Federal budget gives tax break on home renovation and provincial budget increases the cost of renovation – how does this harmonize? Though I like Liberal over Conservative, I would deeply like to see McGuinty and Duncan sinking badly. We should go for NDP next time. I wish I can put him in my place and show him how it feels. I will give up $1,000 if this whole saga of “daytime robbery” is dumped. This $1,000 is a needle in hay in terms of what extra we will have to pay.

    • um, Rajendra, ppl have already stopped spending. we were already in a mess thanks to Flaherty who is now the federal treasurer who also messed up Canada’ economics nationally. the Provincial Conservatives and NDP are flip side of the same coin–too extreme.

  2. I agree with the need for infrastructure spending. Not sure how the harmonized sales tax will affect people like me who are already on the lowest rung of the economic ladder. I’m not thrilled that the Province is following the federal lead into massive debt.

  3. McGuinty Turned His Back on Ontario’s Primary Sources of Income

    Mr. McGuinty raised the corporate tax — to 14% from 12% –in his first budget.

    “The balance of [McGuinty’s] approach was not quite right,” said Jack Mintz, public policy professor at the University of Calgary and renowned tax expert. “The problem was trying to [reinvest in public services] while at the same time trying to maintain a vibrant industrial sector.”

  4. McGuinty and Flaherty/Harper seem to have co-operated and cut a deal for 4.3 billion bucks. I approve of the harmonization– I think it could even be a bit of a tourism boost with only one single retail tax to pay– but I wonder what this means for McGuinty’s behaviour during the next federal election. Does he stay neutral?

  5. I feel it is also annoying that this budged does not include a personal income tax cut, or property tax rebates for people earning between 36,848-73,698 K. My husband and I work very hard for our money, have just purchased a new home, to start our family. We feel like we are always disqualified for tax credits and other tax breaks because we earn to much money. But the kicker is we don’t earn too much money, we earn a modest income and live within our means. It would be nice to have the working middle class included in some of this relief that this Government is so proud of.

    • @Kimberley,
      .
      maybe you might be a bit happy and are to be congratulated that you get to buy a house within your means when your fellow Ontarians/Canadians (who also worked very hard) are losing theirs.
      .
      if the Federal min-conserv govt hadn’t bungled our surpluses and instead gave the tax break back to ppl such as yourself, our provincial finances wouldn’t be in such a mess. i think it was PM Stephen who thought it was a crime to have surpluses; what he didn’t tell us was that, when they got their hands on our money, the National conservs would redistribute the wealth to the wealthiest in our country instead of back to us who personally and collectively sacrificed to accomplish that surplus; remember it has been reported in 2008 that 16% of income was shifted from the working class (both poor and so-called “middle” classes) to the wealthiest in our society; talk about class warfare!

      Dion’s plan would have brought income tax relief to that income level you describe.

  6. The Wisdom of McGuinty

    Upon taking office in 2003, Mr. McGuinty moved to pour tens of billions of dollars into improving government services — health care, education and social programs targeting the downtrodden — while neglecting the changing economic landscape. To help finance this agenda, he raised corporate taxes and slapped a health-care levy on households. These moves, analysts say, helped cement Ontario as one of the least attractive places for companies to invest.

  7. Ontario got “crushed” by the min-conserv feds. we virtually became the last place to invest in Canada, putting the finishing nails in the coffin of vindictiveness that Flaherty helped push Ontario in when he left us nearly $6B in the hole. i am not thrilled by what we have to do but understand it.

  8. All of these comments only prove that the “culture of suckers” is alive and well around here. What good is debating anything now? It just gets completely ignored. We elect these turncoats and then they spit directly into our eyes and the best we can do is blog some blah blah blah…..”I think it’s disgraceful” ….”yea, me too”. “something needs to be done” They have got our number so completely that they care not about any backlash, at all. We’re powerless and they know it. Fifty percent of Toronto inhabitants are people who came from a place where bitching about the government won you a tire iron over the head or a nice long stay in a 5′ x5′ dirt floor cell. Don’t be expecting any rallying cries from them anytime soon. If you engage in anything other than “slash and grab” self interest now, you’re a fool. I’d try to fix the mess, but I can’t speak 140 languages. Last one out, please turn off the lights.

  9. I feel that adding more tax may add problems but it can also help to end the recession as the government needs to increase social services like the Ontario drug plan for example. Without money, the government cannot do this so we need to help if we need to end this crisis.”

  10. I dont get how a few people such as them can crush a whole entire province such as ours…its sad and they know it…but there they are laughing in there chairs, gettting rich off our money…they should be working for us…we've worked hard enough…give us a break!

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