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TORONTO—Ontario Finance Minister Greg Sorbara has a lot more flexibility in his upcoming budget than he’s letting on. That’s the conclusion of a new study released by the Ontario Alternative Budget project of the Canadian Centre for Policy Alternatives in conjunction with the pre-budget hearings of Ontario’s Standing Committee on Finance and Economic Affairs.
The study, written by OAB Co-Chair and CCPA Research Associate Hugh Mackenzie, analyzes the 2004-5 and 4-year projections in the Government’s November Economic Statement. Contrary to the government’s claims that it is struggling to meet its budget forecast for a $2.1 billion deficit in 2004-5, Ontario is actually headed for a very modest deficit this year, and could easily run a surplus. And contrary to a 4-year projection that the budget can only be balanced by forcing program spending down to near-record lows as a share of GDP, Sorbara’s plan actually implies a cushion of more than $4 billion a year by the 4th year.
Following the script perfected by former Federal Finance Minister Paul Martin, Sorbara is actively managing budget expectations downwards by:
- Underestimating 2004-5 revenue by approximately $1 billion;
- Overstating expenditures for 2004-5 by maintaining contingency and reserve funds at over $2 billion, when the total draw-down of those funds in the first six months of the year was only $24 million;
- Overestimating – substantially — the costs of servicing Ontario’s debt over the next four years;
- Increasing the budgetary reserve by $500 million for fiscal years after 2004-5; and
- Underestimating Federal Government Transfers in 2006-7 and 2007-8.
The study also points to additional sources of revenue available to the Government, without increasing tax rates, by eliminating exemptions from the Employer Health Tax ($1.1 billion), harmonizing Ontario’s corporate tax system with the Federal corporate income tax ($800 million), and tightening up on the administration of the Ontario tax system ($400 million).
The study identifies two areas in which the case can be made for modest increases in tax rates:
- Paralleling the Federal Personal Income Tax system’s creation of a new tax bracket at $100,000 at a rate 2% higher than the current maximum rate; and
- Taking Ontario out of the lead in the race to the bottom in corporate income tax rates by re-setting corporate tax rates at their 2000 levels.
These two measures would each add $1.2 billion to Ontario’s fiscal capacity.
“Far from the state of ‘genteel poverty’ that Minister Sorbara has been using to justify the Liberals go-slow approach to their election commitments to rebuild public services, the Government clearly has the fiscal capacity available to it, during this term of office, to meet and even move beyond its services renewal goals”, Mackenzie said.
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