Ontario Budget 2005 Highlights

On May 11, 2005, the McGuinty Government presented their second budget. The main theme of this years budget is "investing in people" with the major spending occurring in post-secondary education and public infrastructure without any tax increases. Indeed, the Ontario Government plans to spend $6.2 billion on post-secondary education by 2009 and $30 billion on infrastructure over the next five years. The fiscal situation with respect to the deficit has improved significantly—the forecast is a $ 3 billion deficit for 2005 and declining to zero by 2008-09.

The following summary features certain highlights of the 2005 Ontario Budget, with an emphasis on those areas that would be of greatest interest to clients of Borden Ladner Gervais LLP.

The creation of Ontario’s structural deficit began in 2000-01 when program spending growth began to outpace growth in taxation revenue. A slowing economy during this period, combined with the impact of tax cuts and the rapid escalation in program spending, culminated in a deficit of $5.5 billion. The government’s plan in its 2004 Budget was to eliminate this deficit without destabilizing health care, education and other key public services. The 2005 Budget reaffirms this plan but recognizes the need for sustained and substantial investments in public infrastructure. The key features of the

Province’s fiscal plan are:

• Achieve a health care system that delivers high quality, results focused and patient centred care within a sustainable funding envelope over the medium term
• Find the remaining $343 million in program review savings required to meet the $750 million target for 2007-08
• Ensure a sustainable revenue base to support key social programs
• Make tough decisions that hold the line on spending in most areas of government expenditure—flat line Ministry budgets and decrease at the rate of inflation
• Eliminate the deficit by 2008-09

The Government has announced that the spending in the health care sector will increase by $4.8 billion over 2007-08 due to new investments in expanding services to reduce wait times. A key development of this years Budget is the multi-year funding to hospitals. Hospital budgets are increasing from $11.4 billion in 2004 to $12 billion in 2005-06 and to $13 billion by 2007-08. The Government is also introducing new or upgraded medical equipment by the end of 2005-06 to further reduce wait times for patients. In addition, hospitals will provide 2,900 more cancer surgeries and other medical procedures to reduce wait times and provide increase service levels.

On the infrastructure side of hospital spending, the government is committing to providing funding for new hospital projects over five years that will reduce wait times and provide new or better services in high growth areas of the province.

This area of the provincial budget represents one of its key initiatives for 2005. A five year $30 billion infrastructure program is now in place for a wide range of infrastructure projects. The key sectors include: transportation, hospital expansion and renewal, schools and post-secondary institutions and public transit. The Ministry of Public Infrastructure Renewal is also exploring new financing models for these infrastructure investments. They include: Infrastructure Bonds, partnerships with large pension funds and funding capital assets over the life of a project rather than upfront funding as the project is built.

In general, the 2005 Budget is silent on new initiatives within the energy sector. The Budget does identify existing policy and legislative frameworks that are guiding the development of the electricity sector—from conservation and supply programs to smart meters and the need to replace Ontario Power Generation’s aging plant over the next 20 years. The Budget mentions also the reduction in financial exposure to the Non-Utility Generation liabilities, but again this is not a new initiative.

The issue of Ontario Hydro’s former debt or the "stranded debt" being managed by the Ontario Electricity Financial Corporation has projected excess revenue over expense of $713 million for 2005-06. This means that the Corporation is beginning to pay down the stranded debt at a faster rate. And this is largely due to changes in the price of power and the market power mitigation rebate ending for Ontario Power Generation earlier this year.

The 2005 Budget contains a number of important changes to Ontario’s corporate tax regime. The province is now working with the Federal Government to create a single system for collecting federal and Ontario taxes in an effort to improve services. Second, the government has reiterated its commitment to the phasing out of the capital tax, as a means of eliminating a key barrier to new investment. Third, the province is aligning its Capital

Cost Allowance (CCA) rates with those announced by the Federal government in its recent Budget. In this context, CCA rates would better match the useful life of an asset. The objective is to encourage more investment in renewable energy technology.

Ontario Book Publishing Tax Credit: This tax credit program is a 30 per cent refundable tax credit available to eligible Ontario book publishers for qualifying expenditures on literary works by new Canadian authors. The tax credit is being enhanced to apply to children’s books in expanded categories. The author is now eligible for three works in children’s fiction, non fiction, poetry and biography.

The 2005 Budget contains several important developments in these areas. First, the Ontario Government reaffirms its commitment to establishing a single national securities regulator. The Budget highlights the work of the expert panel assembled to provide recommendations on these issues. The Budget indicates that, over the longer term and in the context of moving on the recommendations the Standing Committee on Finance and Economic Affairs, legislation could be introduced to serve as the basis for a common set of securities’ laws to underpin a common securities regulator.

Second, the Minister of Consumer and Business Services will lead the implementation of a multi-year plan to update Ontario’s commercial law framework. In addition, the Province has indicated that an updated securities transfer legislation will be introduced to address legal uncertainty and improve the competitive position of Canada’s capital markets.

Third, changes will be introduced to the Pensions Benefit Act (PBA) to deal with conflicts between jointly sponsored pension plans and PBA requirements. A discussion paper will be released shortly followed by legislation in the fall of this year.

The Government Relations Group at Borden Ladner Gervais represents clients in their relations with governments in Canada at all levels - Municipal, Regional, Provincial and Federal and with Departments, Boards, Authorities and Agencies of each of those Governments.

BLG professionals bring extensive experience working within the public sector and maintaining excellent contact with key decision-makers. We provide insight with respect to new legislation, assessment of complex policies and identification of key contacts within the public service regardless of department and including appropriate elected officials.

Our services include:

• Monitoring political policy developments
• Analyzing the potential impact of emerging government policy and program changes on clients interests
• Preparing briefs, submissions and presentations to governments on behalf of clients
• Creating advocacy campaigns on behalf of clients, including communicating on behalf of clients with government decision-makers
• Developing strategic advice that incorporates political agendas of the day with the technical expertise needed to meet the challenge any public pronouncements

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.