A delay of the planned corporate tax rate cut in Ontario was a near certainty, but the added caveat Tuesday of the freeze staying in place until the cash-strapped province balances its books proved a hard pill to swallow for some business groups.
The rate was scheduled to come down to 10% by July 2013 — a vow reaffirmed during last fall’s election campaign. But Ontario’s austerity budget, tabled Tuesday, signalled that the rate will stay at 11.5% for the next five years.
It’s a move Finance Minister Dwight Duncan called necessary, and one he said will put $1.5 billion in government coffers over three years.
The budget also promised to save $250 million by merging many business support programs into a Jobs and Prosperity Fund, as well as freeze scheduled decreases in business education taxes, again until the budget is balanced, for an additional $300 million in savings.
Duncan said he spoke with various business leaders and they “recognize that the business community has to make its contribution.”
“We have made Ontario a more attractive place for businesses to invest and create new jobs,” Duncan told the legislature while delivering his budget.
“So we are asking business to do its part to help Ontario balance its budget.”
The minority Liberals, grappling with a $15.3-billion shortfall this year, intend to erase the deficit by 2017-18.
The corporate income tax and business education tax freezes are “tough pills to swallow,” said Plamen Petkov, Ontario Director for the Canadian Federation of Independent Business.
“All these measures come with a hefty price, and businesses will pay their fair share.”
Ian Howcroft, vice-president of the Canadian Manufacturers and Exporters, said he didn’t support the delay.
“We do recognize that the manufacturing tax rate is already at 10%, so we’re pleased that we had that delivered for our members,” he said.
“But the importance is to have a general tax rate that’s down there as well to realize full benefits for all businesses.”
The government also plans to limit the 10% rebates on electricity bills to 3,000 kilowatt-hours a month, to save $470 million. The move will affect small businesses but not most homeowners, since the average energy use for a family of four is between 800 and 1,000 kilowatt-hours per month.
Certain business fees, including the environmental fee for hazardous waste disposal, will see an increase that will have to be paid by the larger generators of the waste.
The changes come as the minority Liberals walk a political and fiscal tightrope, charged with creating a budget that must appease credit agencies and the wider business community. The province pays about $10 billion a year to make interest payments on its $237.6-billion debt, which is expected to reach $260 billion next year. That will bring Ontario’s net debt-to-GDP ratio to 39.5%, second only to Quebec.
Ontario may wind up shelling out hundreds of millions more in interest if it gets hit with a credit downgrade or interest rates go up.
Progressive Conservative Leader Tim Hudak immediately said he wouldn’t support the budget, adding the government is wrong to backtrack on its tax-cut plan.
“Capital is mobile, it won’t go places that have high debt and it won’t go to places that have high taxes,” Hudak said.
“When you have a job crisis, the worse thing you can do is increase taxes on job creators.”
The corporate tax delay, along with an extension to a pay freeze on executive compensation across the public sector for another two years, are the two key measures that could garner the support needed from the New Democrats to prop up the budget.
NDP Leader Andrea Horwath wouldn’t say whether her party would defeat the government on its budget bill, noting that while the corporate tax rate freeze was a good start, the plan didn’t say enough about the revenue side.
The extended salary freeze would apply to the presidents and vice-presidents of hospitals, provosts and deans of universities and colleges, directors and superintendents of school boards and the top executives at the province’s Hydro companies, who regularly made the list of the highest-paid public sector CEOs in Ontario.
“We need to be clear, there’s no offer to freeze executive pay in this budget,” Horwath said, noting the freeze would only apply to base salaries, not bonuses. “There is no commitment.”
Regulations will also be brought in to deal with agencies like Ornge, the troubled ambulance service whose top managers were exempted from public salary disclosure this year, the government said.
The budget does promise to maintain the Northern Ontario Heritage Fund Corporation to help businesses in the north, as well as regional programs for eastern and southwestern Ontario.
When it comes to the Ring of Fire mining project, which provides the most promising job opportunities in the north, the Liberals are proposing legislation to ease the implementation of a land claim agreement by ensuring that certain lands held in trust for the Nipissing First Nation be deemed tax exempt.