Ontario budget 2016: Liberals narrow the deficit and bring in new taxes

By John Michael McGrath - Published on Feb 25, 2016
The 2016 Ontario budget tries to slash the deficit and fight climate change at the same time.

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Finance Minister Charles Sousa presented the 2016 Ontario budget at Queen's Park this afternoon, and he's got some reason to be pleased with himself. The deficit for the fiscal year is projected to be just $4.3 billion. That sets the Liberals up to balance the budget on schedule for the 2017-18 budget, but just barely. That's the good news. The bad news is that Ontarians are going to pay more in ways big and small to help the Liberals close the gap.

Here's a breakdown of some of the major changes announced in today's budget.

Get ready to pay more out of pocket for tobacco, booze, gasoline and natural gas

While a balanced budget is within sight for the government, it's not coming for free: Ontarians are going to pay more for all sorts of everyday items. The government's headline cap-and-trade program will help reduce the province's greenhouse gas emissions by raising the cost of natural gas and gasoline. By the 2017-18 fiscal year the cap-and-trade program is expected to raise $1.9 billion. The government insists that since all of this revenue is being earmarked for various spending measures, cap-and-trade isn't doing the hard work of closing the budget gap.

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It's not just energy that will cost more: starting just after midnight the tax on cigarettes will go up by about 1.5 cents per smoke. While the government projects this will raise $100 million this year, it expects that number to go down in the future as smokers quit or cut back. For drinkers, the minimum cost of wine as well as the LCBO's markup will both increase. All told, the tobacco and alcohol measures will raise $135 million for 2017-18.

More tuition help for lower-income students

The government is dismantling the complicated system of several different grant programs administered by OSAP and consolidating them into one Ontario Student Grant starting next school year. Students from a household with incomes of $50,000 or under will get grants large enough to get them all the way to graduation without taking on student debt. This amounts to about 30 per cent of all students. Students from wealthier families will receive smaller amounts of assistance but could still see grants equal to their tuition costs—which will just leave non-tuition costs such as textbooks for them to cover.

Hospital spending up, but seniors will pay more for drugs

The government is increasing funding for hospitals by $345 million, with another $85 million for primary care clinics and $130 million in increased cancer care spending. The government is also introducing free shingles vaccinations for people from 65 to 70. These increases are unlikely, however, to buy peace in the health care sector because health spending is growing at only 1.8 per cent, less than general program spending in the rest of the budget. (New Democrat Leader Andrea Horwath called the health spending “a pittance”.)

As hospital spending increases slightly, the government is also raising the cost of the Ontario Drug Benefit, which provides cheaper drugs for low-income seniors. The threshold income for seniors to access the benefit will rise from $16,018 to $19,300, and the annual deductibles for seniors at or above that line will increase from $100 to $170.

No new big commitments on transit

After two budgets in 2014 and 2015 where new transit commitments made headlines, the government is playing it cool this year, largely re-announcing previous commitments. While Niagara Region has committed $40 million to bring all-day GO Rail service to the peninsula, Sousa wouldn't commit to any expansion of GO service today. Other projects that have been mentioned in prior budgets, such as the waterfront LRT in Toronto, have been omitted from this year's budget.

The government has also slightly increased its total funding commitment to infrastructure spending, from an initial $130 billion over 10 years in the 2014 budget to $160 billion over 12 years.

Small towns get a big funding boost

The Ontario Community Infrastructure Fund, which funds projects in small rural and northern communities, will triple from $100 million to $300 million in 2018-19. The fund goes towards things like a bridge in Chatham-Kent, a sewer system in Temiskaming Shores, and road-building in Cobourg.

There are some other measures that will make small municipalities happy: a program to compensate towns for hydroelectric dams in their jurisdiction (that are exempt from property taxes) that had been slated to be cancelled two years ago will instead be kept and made permanent again. The government will fund improvements to ferry services in Georgian Bay and on the Moose River in the Far North.

No movement on the Ring of Fire

The government made no new commitments on the Ring of Fire, despite reports of a mining sector that's anxious about the slow pace of work there. The government repeated its commitment to spend $1 billion on infrastructure to the Ring of Fire, an isolated but potentially very valuable mineral deposit in northwest Ontario. The government has partnered with First Nations to ensure that locals are hired for the eventual jobs that materialize, but says the next steps are up to mining companies like Noront to move forward.

“We were up there in May,” said Progressive Conservative finance critic Vic Fedeli. “There is no progress being made on one of the biggest potential job creators in all of Ontario. It's very disappointing.”

Where's the mystery money coming from?

There are a few big question marks left on the budget – not least whether the government is fudging the books. Progressive Conservative Leader Patrick Brown raised the issue, saying the government's revenue projections are $4 billion higher than the best-case projections issued by the financial accountability officer last year. If the government's revenue projections turn out to be overly rosy, it could mean the goal of eliminating the deficit is slipping further away.

Any budget is vulnerable to lots of different assumptions—including things like the U.S. exchange rate, economic growth, or relations with Ottawa. But one item comes up a few times explaining in part why the province's revenues are higher than projected: the hot real estate market in the GTA. High real estate prices are credited with boosting both HST revenues and provincial land transfer taxes. Meanwhile, development charges on new homes dedicated to schools brought in $430 million. All told, the GTA's real estate market is cited as a major contributor in over $1.2 billion in new money.

But what can't go on forever, doesn't: the budget currently predicts only a mild decline in the GTA's real estate, but a collapse in prices could add up quickly: the government loses $20 million for each percentage point decrease in both the number and prices of housing resales across the province. So a 10 percentage point drop would cost Queen's Park $200 million—a drop in the bucket of a $137 billion budget, but with no margin for error it could mean the difference between finally slaying the deficit, or not.

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