The Ontario government plans to eliminate its deficit in by fiscal 2007-08, mainly on the backs of consumers who will have to cough up about $2.5 billion a year in health care premiums, pay the full cost for electricity, and pay more for tobacco and alcohol. The government also plans to increase various user fees.

Ontario businesses will pay less capital tax until it is eliminated in 2012. Although, that is a small offset to the increase in the corporate income tax rate to 14% from 12.5%, and 12% from 11% for manufacturing and processing, announced when the Liberals were elected and taking effect Jan. 1, 2004.

Municipalities get a 1¢ per litre share of the gasoline tax for transit this year, rising to 2¢ per litre in 2006, on top of other monies.

The province’s Opportunity Bonds are being replaced by Infrastructure Renewal Bonds.

This is the first budget of the new Liberal government, which ran on a platform of bolstering services and raising taxes if necessary to pay for them.

The budget commits $2.4 billion in new spending on health care, financed in part by the re-introduction of health-care premiums.

The newly proposed medicare premiums will be collected through the income tax system beginning July 1, 2004. The graduated system would see taxpayers earning between $20,00 and $46,000 pay $300 for the 2005 tax year, while taxpayers earning more than $200,000 would pay $900.

The Ontario deficit for this year is flagged at $2.2 including a $1 billion contingency reserve, down from $6.2 last year. However, it is actually $5.1 if you exclude a one-time revenue gain of $3.9 billion resulting from the move to full cost-recovery on electricity and a one-time expenditure in the “Change Fund,” aimed at rationalizing or better integrating existing programs. Excluding non-recurring items and the contingency reserve, revenues are up 9% and program spending rises 5%.

The province will spend more money than it takes in for three years, with the flow of red ink continuing until Ontario’s books are finally balanced in the 2007-08 fiscal year.

The Liberals expect annual deficits of $2.2 billion in 2004-05; $2.1 billion in 2005-06; and $1.5 billion in 2006-07.

Program spending rises about 2.5% in each of 2007 and 2008, while revenues increase 3.3% and 4.2%, enough to pull the deficit down to $1.5 billion in 2007 and zero in 2008.

The government’s priorities are education, health and communities, including social services and infrastructure. Education gets the biggest spending increase this year at 9%, while health is up 5.5%.

Infrastructure is getting lots of attention. Besides a share of gasoline taxes, municipalities will get $900 million in federal/provincial monies over five years. That’s the province’s share of Ottawa’s $1 billion municipal infrastructure program, as well as funding for a number of new provincial initiatives. The province is also developing a 10-year strategic infrastructure investment plan.

On the financing end, the Ontario Strategic Infrastructure Financial Authority (OSIFA) will replace the Ontario Municipal Economic Infrastructure Financing Authority (OMEIFA), which was established by the Conservatives in 2003. OSIFA has a greater mandate to raise funds for the broader public sector, including schools, universities and hospitals, rather than just municipalities. It will loan money at cost for infrastructure projects.

OSIFA’s bonds, to be called Infrastructure Renewal Bonds, will be fully taxable and aimed at both retail and institutional investors. OMEIFA’ss Opportunity Bonds, of which a more-than-expected $323 million were sold, were exempt from Ontario corporate and personal income taxes and only appealed to retail investors. The first Infrastructure Renewal Bonds will be offered for sale later this year.

The government also raised taxes on cigarettes and alcohol.

The cost of a carton of 200 cigarettes will go up by $2.50 each, effective May 19.

Starting June 21, the price for a 750 ml bottle of wine goes up 15¢, while the cost of 24 bottles of beer will rise by 45¢.

The government’s strategy for electricity was addressed in the budget. Consumers will pay the full cost based on a blended price of three different pricing systems. Prices for Ontario Power Generation’s nuclear and base hydro production will be regulated, long term contracts will be honored and all other generation — about half of the total– will be subject to the same market-based pricing that was established with market opening in May 2002, where everyone who sells in a particular time period receives the price of the highest bidder accepted.