Children are front and centre in Ontario’s Mar. 22 budget, as they are in the Mar. 19 federal budget. A proposed new Ontario Child Benefit will provide additional money to modest–income families and consolidate all financial support for children in one program.

For financial advisors, the most important measure for many clients in the Ontario budget is a new Life Income Fund, which will replace all existing LIFs and LRIFs, and which will provide more flexibility for seniors.

The new LIF will include an optional one-time unlocking of 25% of the funds, which can be done at any point after the early-retirement date under the pension plan from which the assets originated.

The payment schedule in LIFs will also be amended to age 90 from age 100, thereby increasing annual income and permitting withdrawal of all the funds at age 90.

For small business clients, an equally important measure is the move toward a standard business education tax rate of 1.6% in 2014 across the province, which will mean substantial declines for many businesses and, potentially, increased profits. This is somewhat offset by the increase in the minimum wage to $10.25 an hour by 2010 from the current $8.

When fully implemented, the cuts in education taxes paid by business will be substantial, at $540 million in 2014. Drops for industrial property owners in Ontario range from 10% in Hamilton and Peel region to 55% in Thunder Bay, with Toronto down 22%, Ottawa 26%, London 44% and Windsor down 45%.

Drops for commercial property owners range from 10% for Hamilton to 34% in London, 19% in Toronto, 12% in Ottawa and 11% in Windsor.

Ontario is following the federal budget in allowing pension income splitting. Legislation to increase the dividend tax credit by 2010 to match the new federal level was introduced in November 2006.

Finance Minister Greg Sorbara also plans to eliminate the capital tax on all corporations by July 1, 2010, 18 months ahead of schedule. But the scheduled drops in the rate haven’t changed, so this will not result in any new tax savings before 2010.

This can be seen as an election budget. Ontario voters go to the polls on Oct. 10 and the governing Liberals will have a fight on their hands, given the strength of the Conservatives under leader John Tory, who almost defeated David Miller in the Toronto mayoralty election in 2003.

The Liberals’ greatest achievement has been balancing the books, albeit with the help of higher-than-expected revenue and the increased federal transfers proposed in the federal budget, which were incorporated in this Ontario budget.

Revenue for the fiscal year ending Mar. 31, 2007, is estimated to be $3.4 billion higher than the 2006 budget estimate, resulting in an increase of 5.8%. This includes the $600 million gain from the sale of Teranet Inc., which manages Ontario’s electronic land registration system, in its initial public offering in mid-2006. It also includes $1.1 billion more in personal income tax revenue from fiscal 2006 that was received in fiscal 2007.

Ontario is not the only jurisdiction to underestimate personal income tax revenue. Ottawa and other provinces have done the same.

The increased federal transfers in the federal budget amounted to $1 billion for fiscal 2007, $1.2 billion in fiscal 2008 and at least $500 million in future years. The fiscal 2008 transfers are pushed up by a few temporary or one-time payments.

Most of the future $500-million annual increase in federal transfers for the province will come from the increased funding for the Canada Social Transfer. This includes the move to equal per-capita cash transfers. Previously Ontario and Alberta had been receiving a good deal less than were the other provinces.

Ontario had a deficit of $5.5 billion in fiscal 2003 when the Liberals came to power. For fiscal 2008, only a $400-million deficit is projected, and that follows a $310-million surplus in fiscal 2007. Surpluses of $300 million and $400 million are forecast for fiscal 2008 and 2009, respectively. These numbers include reserves of $800 million for 2007, $1 billion for 2008 and $1.3 billion for 2009 that, if not needed for unexpected expenditures or lower-than-anticipated revenue, will be available for additional spending, tax cuts or debt reduction.

The province also expects to find $806 million in cost savings in fiscal 2008, which helps keep the increase in program spending to just 2.5% in fiscal 2008. Projected increases in program spending are 2.6% in fiscal 2009 and 3.1% in fiscal 2010.

@page_break@Ontario is also going to phase out social service pooling in the Greater Toronto Area by 2013. Under this program, nearby municipalities contribute to social assistance costs in the city of Toronto. The provincial government committed to making sure municipalities that have been receiving financial support under pooling — $200 million that mainly goes to the city of Toronto — will have the funding they need. IE