Ontario unveils $27.5 billion infrastructure investment



In advance of the 2009 Ontario budget, set to be tabled on Thursday, the provincial government has announced $27.5 billion in infrastructure investments over the next two years.

In an announcement on Monday, Ontario Premier Dalton McGuinty said the investment — which marks the largest two-year investment ever in Ontario’s infrastructure — would go towards improving roads, schools and public transit in Ontario. It will create more than 300,000 jobs and will focus on long-term improvements to transportation, education and health care infrastructure.

“We’re making this investment in infrastructure because it creates jobs today and builds the foundation for tomorrow’s success,” said McGuinty. “That’s why it’s a key part of our plan for the economy.”

Combined with $5 billion in infrastructure spending by the federal government, the investment will total $32.5 billion over two years. Transportation projects will receive the most funding, at $9 billion.

Later this week, Finance Minister Dwight Duncan’s provincial budget is likely to include other stimulus measures to help the ailing province through the economic downturn.

“Our strategy will stimulate immediate economic activity and create jobs today,” said Duncan, speaking to a Toronto audience in early March.

The Conference Board of Canada projects that the Ontario economy will shrink by 1.2% this year — weaker performance than every other province except Newfoundland and Labrador.

Other economists expect an even sharper downturn in the province. In a recent report, Scotia Economics forecasted a contraction of nearly 3% in Ontario’s economy this year as the province suffers from weakness in manufacturing, mining and steel production, and rapid cooling activity in the service sector.

According to economists, short-term stimulus such as infrastructure spending will not be enough to inspire positive GDP growth this year, but will help the economy eventually recover.

“Fiscal stimulus — added to the large dose of monetary stimulus already in the system — should work to contain the recession in the province and contribute to setting the stage for a recovery in 2010,” says a recent report by RBC Economics.

Beyond short-term stimulus, Duncan said the budget would feature a strategy for long-term competitiveness and growth.

“Our strategy will be about getting Ontario ready for the future: where our economy continues to create jobs, captures the next generation of growth, and is a world leader in the new economy,” he said.

In particular, Duncan said areas of focus would include investments in skills and training and the green economy.

He also hinted that corporate tax reform could be included in the upcoming budget.

“Greater tax competitiveness makes it easier to do business, to grow and to employ people,” Duncan said. He noted that the province’s 2008 budget included tax relief in the form of the capital tax cut and retroactive elimination, as well as acceleration of capital cost allowances and Business Education Tax rate cuts.

“Now we are looking to do more,” he said.

This is an area where many stakeholders would welcome action. In an Ontario Chamber of Commerce survey of nearly 1,400 Ontario businesses late in 2008, corporate tax cuts were identified as the most effective government initiative that could help companies through the downturn. The Chamber of Commerce calls for the Ontario government to reduce the general and the manufacturing corporate income tax rates to 10% by 2012.

The Conference Board of Canada agrees that lower rates could benefit Ontario’s economy. “There is a strong case for Ontario to lower its corporate income tax rates to make them more competitive internationally,” said Glen Hodgson, senior vice-president and chief economist at the Conference Board of Canada.

Another tax change that could emerge from Thursday’s budget is harmonization of Ontario sales tax with the federal GST, a move that Premier Dalton McGuinty recently admitted that the government is considering.

Many industry associations, including the Ontario Chamber of Commerce, the C.D. Howe Institute and the Conference Board of Canada, support sales tax reform in Ontario.

“Harmonization of Ontario’s sales tax with the GST will lead to a stronger economy with higher real wages, a higher standard of living, higher productivity, lower business costs, and increased investment,” said Len Crispino, president and CEO of the Ontario Chamber of Commerce. “This is one of the most important policy directions we can put in place today to position us for a strong recovery at the end of our current economic difficulties.”

@page_break@Meanwhile, Advocis, The Financial Advisors Association of Canada, is urging the Ontario government to use the budget to address the regulatory burden facing financial advisors and planners in the province. In a pre-budget submission to the minister of finance, the association recommended increased oversight on the province’s regulators.

The generous stimulus spending in the budget is set to result in a combined deficit of roughly $18 billion over two years, Duncan said. He assured it would remain lower than deficits that Ontario experienced in the early 1990s.

The budget will include a plan and timeline to pull the province out of deficit, Duncan added. “We’ll spend smarter and continue to practice prudent financial management,” he said.

IE