Ontario delivers a 'hit and miss' budget

March 27, 2009

Ontario’s 2009-10 budget is a substantial, complex budget.

In some places the budget was bold, in some places it merely did what it had to do, and other key areas it fell flat on its face. The big picture task of this budget was to fill the void left by the federal government’s weak response to the recession: a limited stimulus package; an inadequate response to Canadians hard-hit by the recession; and a lack of focus that threatened to leave Ontario with little to show for the billions spent. Measured against that need, the verdict on the budget is mixed. The stimulus is better than what the federal government put on the table but it still doesn’t go far enough.

While Ontario came up with its matching share for the federal infrastructure funding program, it did nothing to address the problems that will be faced by municipalities and other transfer payment agencies in coming up with their matching shares. As a result, cash-strapped municipalities and other agencies are going to have to find $1.7 billion they don’t have.

Too much of the federal stimulus was delivered through broad-based tax cuts, with their weak immediate economic impact and their long-term costs to fiscal capacity. Ontario’s budget includes $3.5 billion in these kinds of broad-based tax cuts.

What about people hard hit by the recession?

On the positive side, the budget accelerates the increase in Ontario’s child benefit to $1,100 by two years. And there is additional funding for retraining programs aimed at workers who have lost their jobs in the recession although most of the funding comes from the federal government.

But on the critical issue of financial assistance for families devastated by job loss, Ontario took a political pass, with a single line of empty rhetoric about increasing pressure on the federal government to improve Employment Insurance (EI).

A 2% increase in social assistance merely keeps pace with inflation. And the government’s refusal suspend punitive asset rules means workers who don’t qualify for or run out of EI will have to exhaust their financial assets – including their RSPs – before they can get any assistance.

Does the budget add up to a plan for Ontario’s future?

Ontario’s budgetary packagebudget is certainly more coherent, and more focused than the federal budgetpackage. But But there is no information it is silent on the specifics for auto sector assistance: funding will apparently come from a $3.2 billion operating contingency fund. and And it includes no budget allocation to implement the upcoming for the recommendations of from the government’s early learning and child care advisor, leaving hanging questions about what happens to funding for 22,000 child care spaces when federal funding expires next year.

Then there is the big headline grabber in the budget: the announcement that Ontario will harmonize its sales tax with the GST. The move makes economic sense, streamlines administration costs, and will help make Ontario’s fiscal capacity more secure. Its negative impact on low-income families will be largely offset by increased tax credits.

The surprise from right field is a substantial cut in corporate income taxes. In the short term, it will benefit corporations that are still profitable in the recession – i.e. corporations that don’t need the help – and in the long term, it will reduce Ontario’s ability to fund public services by $2.3 billion, for no tangible benefit.

There is a stark contrast between the government’s approach to corporate taxation and its refusal to provide additional assistance to unemployed Ontarians who exhaust EI benefits.

Absent the corporate income tax cuts, Ontario could easily have afforded to make a substantial investment in more generous and more effective social assistance system.

On the whole, Ontario’s 2009-10 budget establishes the right direction for the next few years. It provides substantial economic stimulus. It is consistent with the new orthodoxy that relies heavily on governments to help rebuild damaged economies. It imposes some coherence on an incoherent federal plan. It increases support for low-income families and individuals. It modernizes Ontario’s consumption tax.

But it misses the opportunity to do more. Ontario could have filled holes in the employment insurance system by broadening access to social assistance. It could have brought in real social assistance reform. Instead, it wasted the fiscal capacity on corporate income tax cuts.

Ontario’s infrastructure plan relies heavily on cash-strapped local governments to find their share of required funding. And while its rhetoric is green and future oriented, its actual delivery is not.

For all the talk about the importance of education for Ontario’s future, the budget contains nothing to take us forward. For all of the talk about energy efficiency in a green economic future, there’s no new funding for public transit.

It’s a bold budget, right for the times, but one that simply misses too many opportunities.

Hugh Mackenzie is an economist and research associate with the Canadian Centre for Policy Alternatives.

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