Canada: Ontario Budget 2007 Highlights

On March 22, 2007, the McGuinty Government presented their fourth and final budget prior to the general election in October. The theme of this year’s budget is "Investing in People & Expanding Opportunity." The Budget is referred to as the next phase of the McGuinty government’s plan to strengthen the province by strengthening its people. This will be achieved by investing in children, continuing to strengthen education, health care and infrastructure, and balancing the budget.

The 2007 Budget contains no tax increases and projects the government’s second balanced budget in a row. This means an elimination of the $5.5 billion deficit inherited in 2003-04. As the Minister of Finance stated, "In 2006-07, revenue growth and interest on debt expense saving outperformed government projections. We are entering an era of balanced budgets; in fact, we are on track to post five consecutive surpluses if the reserve is not required in 2007-08."

The following summary features certain highlights of the 2007 Ontario Budget, with an emphasis on those areas that would be of greatest interest to clients of Borden Ladner Gervais LLP.

The government is proposing initiatives to boost the competitiveness of Ontario’s tax system and strengthen its business environment. These include:

• Accelerating the elimination of the capital tax to July 1, 2010 from January 1, 2012;

• A reduction of the Business Education Tax (see Property Taxes below);

• Seeking the enactment of legislation introduced in the fall of last year that would harmonize the provincial corporate tax system with the federal corporate income tax base. This would provide businesses in Ontario with an annual Ontario corporate income tax cut of $90 million, and up to an additional $100 million in annual tax compliance savings; and

• Continue Ontario’s role as a leader in the move toward a common securities regulator.

The province is projecting surpluses of $0.4 billion in 2007-08, $1.3 billion in 200-09 and $1.6 billion in 2009-10, if the reserve is not required. The government expects to post five consecutive surpluses between 2005-06 and 2009-10. The Budget also states that Ontario was able to find over $800 million in savings.

The Budget states that Ontario is committed to achieving ongoing balanced budgets by implementing the following fiscal plan:

• Ensuring decisions are disciplined and holding the annual rate of total spending growth to less than the rate of growth in total revenue;

• Investing in Ontario’s infrastructure, health care, education and postsecondary education and training in order to promote a strong economy;

• Promoting principled and sustainable federal-provincial fiscal agreements;

• Maintaining a prudent debt-to-GDP ratio; and

• Maintaining a cautious and prudent fiscal plan (with annual reserves).

The government’s ReNew Ontario programme launched in 2005 is a five-year infrastructure plan to invest more than $30 billion by 2010. The 2007 Budget announces the following new initiatives:

• $1.7 billion for the provincial highway system;

• $200 million toward investment in the Toronto Transit Commission to modernize and expand; and

• An immediate additional $70 million for the Rural Infrastructure Investment Initiative.

The 2007 Budget does not announce new initiatives within the energy sector. It does reaffirm the government’s commitment to replacing coal-fired generation in Ontario and highlights the Ontario Power Authority’s (OPA) ongoing initiative to establish an Integrated Power System Plan (IPSP). The government has also directed the OPA to begin feasibility studies with respect to refurbishing existing nuclear units and to initiate a federal approvals process for new units to be located at existing sites.

The 2007 Budget contains nearly $125 million in immediate environmental initiatives including:

• Providing homeowners with rebates of up to $150 for home energy audits for a total of up to $24 million over four years; and
• Providing $2 million to the Trees Ontario Foundation which is enough to plant 100 million trees.

The Budget also provides for the building of "green communities." These initiatives include:

• New investments in transit across the province and the provision of $352 million to municipalities immediately based on transit ridership;
• A new commitment to York Region’s VIVA transit express bus service;
• $25 million to the Friends of the Greenbelt Foundation; and
• Investment of more than $30 million to help restore and sustain the Great Lakes.

The government is proposing a 4.5 per cent non-refundable tax-credit for Ontario-based scientific research and experimental development in order to ensure that Ontario stays competitive in research and development.

The 2007 Budget also contains a number of new investments to enhance Ontario’s ability to develop and market new environmental technologies, including $21 million to Queen’s University to establish a convergence centre for bioproducts and bio-materials, and $15 million to the Ontario Centres of Excellence, which promote linkages between academia and business for market energy innovation.

The 2007 Budget proposes $37.9 billion in health sector spending in 2007-08 with money going to fund major projects to build new hospitals, modernize older hospitals and to reduce wait times. The Budget also allocates $143 million in 2007-08 to improve access to emergency care and an additional $64 million to promote the government’s comprehensive e-Health strategy.

Property tax changes are a key initiative of the 2007 Budget. The Budget affirms the government’s commitment to an improved property tax system that is fair, predictable and sustainable.

The Budget proposes to cut Business Education Taxes (BET) by $450 million over seven years, lowering BET rates to a target maximum rate of 1.6 percent. To ensure planned education spending increases will not be impacted, the province’s direct transfers to school will be increased.

There are also proposed changes to the property assessment system including:

• A four-year reassessment cycle;
• A mandatory phase-in of assessment increases over four years; and
• Enhancements to the fairness and effectiveness of the assessment appeal system.

Finally, the government plans to phase out Greater Toronto Area (GTA) pooling, which should be fully eliminated by 2013 in order to lift a $200 million burden from the municipal tax bases of contributing municipalities.

The 2007 Budget announces a number of key initiatives aimed at supporting families and children. The most important is a new Ontario Child Benefit (OCB) that will provide an additional $2.1 billion in benefits cumulatively over its initial five years to assist approximately 1.3 million children living in low-income families. In addition, the Budget contains various other proposed investments to assist children and families including:

• Enhancing current child care programmes by $25 million in 2007-08;
• Investing $18.3 billion in Grants for Student Needs (GSN) to ensure student achievement and higher graduation rates;
• Increasing investment in Family Literacy and Parenting Centres, Children’s Treatment Centres and Children’s Mental Health Centres and Programmes; and
• Help for low-income families with children through the creation of a new $185 million housing allowance programme.

In addition, the Budget contained proposed investments aimed at assisting some of Ontario’s most vulnerable people. Key initiatives include:

• Providing $127 million to municipalities immediately for affordable housing projects;
• $200 million to enhance services and supports for people with developmental disabilities and their families;
• A new life income fund (LIF) that would increase income for pensioners and permit up to 25% of their locked-in funds to be accessed;
• Increasing minimum wage to $10.25 by 2010; ▪ Providing an additional $51 million in funding over three years to Legal Aid Ontario; and
• Announcing $48 million to improve social infrastructure (e.g. hospices, community citizenship projects, community recreation centres and developmental services for vulnerable people).

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