On March 23, 2006, the McGuinty Government presented their third budget. The main theme of this year;s budget is "Building Opportunity" with the major spending occurring in the transportation and infrastructure sectors. The Ontario Government plans to spend $1.2 billion on new investment in roads, bridges and transit and other key infrastructure over the next year. The fiscal situation with respect to the deficit has improved significantly - the forecast is a $1.4 billion deficit for 2006 and declining to zero by 2008-2009.
As the Minister of Finance stated, "quick, reliable and safe transportation is vital to our economic success and quality of life. This Budget builds opportunity by paying down our infrastructure deficit and enhancing previous investments in health care and education, strengthening the economy and creating jobs and prosperity".
The following summary features certain highlights of the 2006 Ontario Budget, with an emphasis on those areas that would be of greatest interest to clients of Borden Ladner Gervais LLP.
Public Infrastructure, Transportation and Hospital Modernization
This area of the provincial budget represents the key initiative for 2006. In addition to the Renew Ontario program of $30 billion of investment over five years, this new initiative represents $1.2 billion of new monies in the following areas:
- $400 million for roads and bridges in municipalities - primarily outside the Greater Toronto Region with an emphasis on rural and northern communities;
- $670 million to allow Toronto and York Region to extend the subway to the Vaughan Corporate Centre at Highway 7;
- $95 million to allow Brampton to make express transit services available through the Brampton AcceleRide project; and
- $65 million to allow Mississauga to develop the Mississauga Transitway.- a separate bus service right-of-way with 14 stations.
In addition, the Budget states that the new Greater Toronto Transportation Authority will manage the planning and coordination of public transit. Legislation will be introduced later this year to enable the creation of this new agency.
Further investments of $623 million will also be made to enhance Ontario.s border crossing in key jurisdictions - Windsor, Niagara, and Sarnia.
Hospital modernization will include investments in hospital projects with 11 new Request for Proposals for new hospitals in 2006-2007 worth approximately $2 billion. Infrastructure Ontario, the government agency overseeing alternative financing projects, will manage this process.
Ontario’s Fiscal Plan
The creation of Ontario’s structural deficit began in 2000-2001 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 and 2005 Budgets was to eliminate this deficit without destabilizing health care, education and other key public services.
The key features of the Province’s fiscal plan for 2006 are:
- Continue to reduce the deficit prudently and eliminate it entirely in 2007-2008 if a reserve is not required;
- Hold the annual rate of spending growth down to an average of 3 per cent. This is contrasted with current economic growth forecasts of 4.7 per cent annually;
- Continue to make prudent investments in social and physical infrastructure such as hospitals, schools, water systems;
- Work cooperatively with the federal government to improve fiscal arrangements; and
- Maintain a prudent fiscal planning process.
The overall fiscal outlook shows government expenditures at $87.1 billion for 2006-2007 rising to $92.5 billion in 2008- 2009.
Financial Services and Securities Regulation
The 2006 Budget reaffirms the Ontario Government’s 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 of 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.
In terms of securities regulation, the Minister of Consumer and Business Services will propose additional legislative changes to harmonize securities regulation and streamline securities and corporate laws in 2006.
Labour Sponsored Investment Funds (LSIFs)
In August of 2005, the government announced its intention to end the LSIF tax credit and a timetable was established in consultation with the industry for its phase out. Investors who purchase LSIFs will have the opportunity to receive a tax credit until the end of the 2010 tax year.
As a result of a series of additional industry consultations, the government proposes to introduce amendments to the Community Small Business Investment Funds Act that would,
- Give LSIFs more flexibility in the management of their portfolios by expanding the types of investments they can hold;
- Parallel the federal governments investment rules and restrictions; and
- Create wind up rules.
In general, the 2006 Budget is silent on new initiatives within the energy sector. It identifies existing projects and procurement activities underway to replace the aging energy infrastructure and restates its earlier commitments to creating a conservation culture and the phase out of coal-based electricity production. It highlights the existing Ontario Power Authority’s initiative to establish a long-term integrated power system plan.
One new project is the provision of $4 million to establish a bio-energy research centre at Atikokan.
No significant new exemption or change was announced in the Budget with respect to the 33% transfer tax. The Budget elaborates on a Transfer Tax change first announced in the 2004 Budget regarding the relief of the .cascading effect. of the Transfer Tax. Further details of some of the tax issues affecting the energy sector contained in the Budget will be reviewed in Borden Ladner Gervais’ Energy Markets Bulletin (Spring).
The Budget proposes to accelerate the capital tax rate cut effective January 7, 2007. A 5 per cent reduction from the current rate will take effect at that time while the tax will be completely eliminated by 2010.
A key development of the 2005 Budget is the multi-year funding to hospitals. Hospital budgets are increasing from $11.4 billion in 2004 to $12 billion in 2005-2006 and to $13 billion by 2007-2008. In this year’s Budget, the government is increasing its overall investment by an additional $1.9 billion to $35.4 billion and increasing the operating grants to hospitals to $12.9 billion in 2006-2007, $13.4 billion in 2007-2008 and $14 billion in 2009.
A new investment is an additional $12 million in 2006-2007 growing to $30 million in 2008-2009 for funding insulin pumps for children with type 1 diabetes.
City of Toronto and Municipalities
The 2006 Budget contains new funding assistance for Toronto. Key investments include:
- $200 million one-time transit investment;
- $130.4 million in gas tax funds in 2006.- roughly $40 million more that in 2005; and
- $35 million through an enhancement to the Ontario Municipal Partnership Fund that addresses high municipal social program costs relative to household incomes.
Municipalities are also receiving additional support in the 2006 Budget. For example,
- Ontario Municipal Partnership Fund is now set at $763 million in 2006;
- $300 million over three years for land ambulance services; and
- Increasing the share of provincial public health funding to 65 per cent in 2006 and 75 per cent in 2007.
Research and Innovation
The Ministry of Research and Innovation is investing nearly $1.7 billion over five years through research, commercialization and outreach programs. Key new investments announced in the 2006 Budget include:
- $160 million to accelerate commercialization and the growth of innovative start up firms;
- $16.2 million to support the development of Phase II of the MaRS Discovery District; and
- $25 million to establish the Premier Summit Awards program to support excellence in medical research.
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