Government of Ontario 2017 Budget

Today Finance Minister Charles Sousa delivered the Wynne Government’s 2017 budget for the 2017/2018 fiscal year, which began on April 1st and will conclude on March 31st.  We are pleased to offer you our report on the budget. It is entitled A Stronger, Healthier Ontario.

Background and Context

With many published public opinion polls showing the governing Liberals in third place, and the Premier’s approval ratings perilously close to dropping into single digits, this was expected to be a “something for everyone” budget. Many Liberals are hoping that this budget, together with a series of recent announcements (more on those below), will begin to right the ship as the government seeks to be re-elected in June of 2018. This will be the second last budget before voters decide next year.

In our view, the budget is the latest indication that Premier Wynne and her government have shifted from a predominantly social justice agenda to a more pragmatic albeit left of centre approach to pocketbook issues in order to quell the populist sentiment that has emerged in Ontario during her term in office. As we don’t wish to have this document become a political science thesis, we’ll rely on the source of all information in the digital era, Wikipedia, to provide a working definition of what populism is:

Populism is a political doctrine that proposes that the common people are exploited by a privileged elite, and which seeks to resolve this. The underlying ideology of populists can be left, right, or center. Its goal is uniting the uncorrupt and the unsophisticated "little man" against the corrupt dominant elites (usually established politicians) and their camp of followers (usually the rich and influential). It is guided by the belief that political and social goals are best achieved by the direct actions of the masses. Although it chiefly comes into being where mainstream political institutions are perceived to have failed to deliver, there is no identifiable economic or social set of conditions that give rise to it, and it is not confined to any particular social class.  

For those who may question the electoral potency of populism among voters, or that a populist approach to politics is the exclusive purview of right wing politicians named Trump or Ford, consider Bernie Sanders. To ignore this populist dynamic invites the fate that befell Hillary Clinton.

Many initiatives along these lines have already been announced by the government. A 25% reduction in hydro bills. Enhanced rent controls. Guaranteed annual incomes. Housing affordability initiatives. More money for daycare when there are not enough spaces and the cost, if someone could access one, was too high. In the lead up period to the budget, cabinet ministers made stand alone announcements in each of these policy areas, ensuring they received the desired amount of attention through the media.  

As expected, and was promised in the 2014 election, the budget was balanced.  We recall that the 2009 provincial budget, the first after the financial crisis of late 2008 and at a time that the North American auto market was at risk, featured a deficit of just under $25 billion.  Yes, it has taken this long to return to balance.  A return to balance could have certainly happened more quickly; however, the government was elected on a platform that included historic investments in infrastructure.  As well, with interest rates at historically low levels, Ontario has locked in much of the province’s cumulative debt into long term instruments, mitigating the cost of borrowing.

Top Line Numbers

Operating/Capital Expenses: $129.5 billion

Interest Payments/Debt Service: $11.6 billion

Total Expenditures: $141.1 billion

Contingency Fund: $600 million

Total Revenue: $141.7 billion

Deficit/Surplus: 0

Net Debt: $312 billion

GDP: $832.6 billion

Projected Growth in GDP: 2.4%

Net Debt to GDP Ratio: 37.5%

Budget Highlights

Health Care

Anyone who recalls the Drummond Report will remember the recommendation that MOHLTC spending increases should be capped at no more than 2% annually.  Being the biggest spender in government ($52 billion last year), health was an easy number to target, but decisions on how to achieve that have been difficult.  Much to the chagrin of many providers, the Liberal government has taken Drummond’s advice since the report came out.  Some areas have seen significant reductions.

Some of those health care providers will breathe a sigh of relief today as there is finally some meaningful new health care spending.  Highlights include:

• A $7-billion “booster shot” to health care spending (above 2016 spending) and lays out plans to increase health care investments by $11.5-billion over the next three years.
• The Health and Long Term Care budget for 2017 is $53.8 billion, representing 38 per cent of the total provincial budget.
• The signature program is the launch of the OHIP+ Children and Youth Pharmacare, a new drug benefit that fully covers the cost of prescription medications for everyone 24 years of age and under. There are no fees, no co-pays, and will provide coverage regardless of family income. Beginning January 1, 2018, it’s estimated to cost $465 million per year to provide the benefit to 4.4 million people. It will include all 4,400 medications covered through the existing Ontario Drug Benefit.
• $518 million to provide a three-per-cent increase operating funding for all public hospitals.
• An additional $9 billion over 10 years to support the construction of new major hospital projects across Ontario.
• $1.3 billion to further reduce wait times:
• $890 million for key surgical and other priority procedures (including more than 28,000 additional MRIs, 2100 more cataract surgeries, 2800 more hip or knee replacements)
• $245 million to improve specialist access, including new digital solutions to streamline consults and e-Referrals
• $85 million in new home and community care services
• $74 million to provide more timely mental health services.
• $15-million investment to enhance Ontarians’ access to primary care to create new or expand existing interprofessional care teams, and investing an additional $145 million over the next three years to recruit and retain nurses, nurse practitioners, dietitians, social workers, pharmacists, reception staff and other care providers.
• A 10‐point action plan for Digital Health in Ontario will be released in 2017, which will invest $15 million to open up new ways for patients and families to access health information and services digitally.
• $20 million in respite care as well as the creation of a new Ontario Caregiver Tax Credit.
• $26 million over four years to expand support for children, youth and families affected by Fetal Alcohol Spectrum Disorder (FASD).
• A continued investment of $250 million in 2017–18 for community and personal support services.
• In 2017, $10 million in new funding will go towards expanding programs like Inter‐Professional Spine Assessment and Education Clinics (ISAECs).

Business Growth Initiative

As announced in the 2016 Budget, the Business Growth Initiative (BGI) is the government’s plan to support Ontario’s transition to the new economy. Ontario already has a strong foundation for innovation and entrepreneurship, with internationally recognized research institutions, and more than 574,000 Ontarians employed in science and engineering occupations in 2016. The BGI will create opportunities to make Ontario’s economy more innovative, help scale up small businesses into medium‐sized and large enterprises, and reduce the regulatory burden on businesses.

The government will continue supporting the transition to the new economy by expanding the BGI to more than $650 million over five years. These investments intend to ensure that Ontario is at the leading edge of research and development (R&D) of transformative technologies that will create the jobs of tomorrow.

Highlights are below:

• The government is investing $50 million to establish the Vector Institute for artificial intelligence.
• The Province will invest $130 million over five years in two projects — $67 million in ENCQOR (Evolution of Networked Services through a Corridor in Québec and Ontario for Research and Innovation) and $63 million in CENGN (Centre of Excellence in Next Generation Networks)
• To help facilitate application-based research and commercialization, the Province will partner with Waterloo’s Quantum Valley to create the Quantum Valley Ideas Lab. A Provincial investment of $20 million over five years will help develop the cutting-edge research, train highly qualified personnel, and support academics in the field of quantum science.
• The Province will invest $75 million over the next five years in an Advanced Research Computing and Big Data Strategy.
• The Province is investing $80 million over five years to create the Autonomous Vehicle (AV) Innovation Network, in partnership with Ontario Centres of Excellence.

Environment

Climate Change

In Budget 2017, the government reaffirms its strong commitment to the fight against climate change.  Under the banner of “Investing in Jobs for Today and Tomorrow” the Budget details activities they have already introduced and continue to implement in an effort to transition Ontario into a low-carbon economy. The primary mechanisms being used in the fight and to facilitate the shift to a low-carbon economy are Ontario’s Five Year Climate Change Action Plan (2016-2020), and the cap and trade program which came into effect in July 2016.  All revenue generated from cap and trade auctions are required by law to be invested in programs that lower greenhouse gas (GHG) emissions and assist Ontarians in reducing their own carbon footprint.  

In addition to initiatives supported by the Green Investment Fund, in 2017-2018 Ontario will be investing:

• $377 million through the Green Ontario Fund to assist households and businesses adopt low-carbon technologies.
• $200 million for schools to improve energy efficiency and install renewable energy technologies.
• $85 million to support building retrofits in social housing apartments across the province.
• $50 million in commuter cycling infrastructure.
• $22 million in electric vehicle charging infrastructure across the province.

To assist in advancing clean technology, the province is investing in a Cleantech Equity Fund and partnering with the Ontario Centres of Excellence to facilitate industry collaboration, research, technology commercialization and adoption.

To further reduce GHG emissions, the province is proposing changes to allow biodiesel to be more widely availabile as part of Ontario’s tax-exempt coloured fuel program. Biodiesel is a renewable alternative to fossil fuel. The Province will be proposing legislative changes to the Fuel Tax Act to create a new category of registered dyers “who will be permitted to dye biodiesel that has not been blended, mixed or combined with any other type or grade of fuel.” The new category would be exempt from the fuel transportation requirements currently imposed on registered dyers thereby enabling more companies to offer coloured biodiesel products and assisting the transition to a low-carbon economy.  

Finally, a consumer-focused measure to assist in removing barriers to lowering emissions is the Province has eliminated the Drive Clean Emission Test fee.  Effective April 1, 2017 the $30 fee to drivers to have an emissions test on their vehicles was removed.  

Waste

The Province will introduce a Supermarket Recovery Program to reduce food waste and redistribute to Ontarians in need.  The pilot program will receive a one-time investment of $600,000 in 2017-18.  

Energy

On March 2, 2017 the government announced that a series of measures would be implemented that would, including the ongoing rebate of the Provincial portion of the harmonized sales tax (HST), would reduce electricity bills by 25 per cent on average for residential, small business and farm customers.

The Ontario Fair Hydro Plan (OFHP) is premised on government’s recognition that existing electricity infrastructure is expected to provide utility to Ontario longer than anticipated, thereby allowing the Province to refinance the cost of those capital investments to ensure that system costs are more equitably distributed over time.

Likewise, that a number of important electricity support programs would transition to be funded by the Province rather than by ratepayers, reducing electricity costs for all consumers. The measures outlined in the OFHP are expected to cost up to $2.5 billion over the next three years.

Other new measures include adapting the Infrastructure Ontario (IO) Loan Program to support distribution sector amalgamations. The Province will bring forward amendments to the Ontario Infrastructure and Lands Corporation Act, 2011 to enable IO to continue existing loan agreements with Local Distribution Companies (LDCs) that remain at least 90 per cent municipally owned following an amalgamation with other LDCs.

The Budget also pledges to bring forth amendments to the Electricity Act, 1998 regarding the application of payments in lieu of federal and provincial tax against a taxpayer’s transfer tax liability.  These amendments are expected to be detailed in the Budget Bill.

As announced at the recent Rural Ontario Municipal Association (ROMA) annual conference, Ontario is investing $100 million in a new Natural Gas Grant Program. The program will support the building of infrastructure to expand access to natural gas to areas currently underserved, including rural, northern Ontario and First Nation communities.

The Grant program will provide funding under two separate application streams:

Expansion stream:

• Projects that will help convert primarily residential connections to natural gas. For example, projects that will mainly connect new households.

Economic Development stream:

• Projects that will help convert primarily business connections to natural gas and benefit agri-businesses, rural Ontario, First Nations communities or unincorporated areas. For example, projects that will help connect farms, greenhouses, manufacturing facilities, mining operations, etc.

More information on eligibility criteria and program rules are available at: http://www.infrastructureontario.ca/NGGP/

Infrastructure

Those of you who have followed this file over the years may recall the 5 year, $30 billion plan that grew into 10 years and $100 billion, to 12 years and $160 billion.  Well, as of today we are talking about a 14 year, $190 billion infrastructure plan.  

The province will spend $56 billion in public transit over ten years (Rapid transit projects will be built in Waterloo, Hamilton, Mississauga and Brampton, Ottawa and Toronto. The GO rail system will be transformed through the GO Regional Express Rail initiative, which will quadruple the number of weekly trips from about 1,500 to nearly 6,000 by 2024–25); $26 billion on highways over the same time period (About 5,000 kilometres of highways and more than 750 bridges will be built or rehabilitated across the province by 2021–22. About 2,400 kilometres of these highways and 200 of these bridges will be in northern Ontario); $20 billion in capital grants for hospitals; and $16 billion in capital for schools.  

This is great news for infrastructure builders and the people they employ; the job creation impact here measures in the tens of thousands.   

Housing

Government will introduce a non-resident speculation tax of 15 per cent on the price of homes in the Greater Golden Horseshoe purchased by non-Canadian citizens, non-permanent residents and non-Canadian corporations buying properties that contain at least one and not more than six single-family residences.

As well, Ontario will expand rent control to all private rental units — including those built after 1991 — and to empower Toronto and potentially other municipalities to introduce a tax on vacant homes to encourage owners to sell or rent them.

Ontario will invest up to $500 million through the Climate Change Action Plan to retrofit social housing apartments across the province with energy efficiency improvements, including up to $85 million in 2017-18. 


As part of the Fair Housing Plan, the Province will commit $70-100 million in land to develop up to 2,000 new housing units, including a mix of market and affordable housing. Potential sites under consideration for a pilot program include a portion of the West Don Lands, 27 Grosvenor/26 Grenville streets in Toronto, and other sites in the province. 


Finally, Ontario has introduced an inclusionary zoning framework for municipalities that will enable affordable housing units as part of residential developments. 


Commentary

Overall, this budget should help to stop, if not begin to reverse, the decline in Ontario Liberal political fortunes.  There had been a feeling among many, including some Liberal MPPs, that the government had been too preoccupied with righting societal wrongs, and had become tone deaf to people’s economic concerns.  This is evidenced by the fact that while the province’s economy has been humming along and unemployment is low, very little credit for that has been attributed to the provincial government.  We are told that this has been a source of frustration for members of the cabinet, including the Premier herself.

The good news is that the strong economy has provided sufficient revenues for the government to make new investments, address pocketbook concerns, and balance the budget without significant tax increases.  While most Liberals believe that the path to re-election rests in taking away left of centre, or progressive voters, from the NDP, there are those for whom things like balanced budgets matter.  As well keeping the 2014 campaign commitment, Premier Wynne can now put a balanced budget in the window as an example of her managerial competence.

We can expect that next year’s budget will also be balanced and full of initiatives that will be appealing to voters.  As well, expect that it likely will not be passed in legislation before the June 2018 election, thereby becoming both the Liberal platform and the ballot question.

The challenge for Liberals, who prefer to position the Party as agents of positive change, will be to overcome voters’ desire for change next year, which is today accompanied by a degree of anxiety.  For the opposition Progressive Conservatives and NDP, the task is simpler: it’s time to change governments.  For Liberals, that obviously is not an option.  But what if the changes that are coming at people daily (technology, jobs being eliminated or being moved around the globe, a White House occupant who is at the very least “unpredictable”) are in fact the cause of much of that anxiety?  

We suspect that if the polling and focus group testing that all parties do reveal that to be the case, then the task for Kathleen Wynne and her team becomes significantly easier; that is, their messages will be change now is risky, look at all the progress we have made, why take a chance with these unknown people?

Budgets like this one will help their cause too, by alleviating pocketbook anxieties.   Unless something very unusual happens, the PCs and the NDP will vote against the budget in its entirety.  This will enable the Liberals to accuse the others of voting against pharmacare for kids, etc.      

It is our pleasure to provide this summary to you.  As always, please feel free to contact your consultant with any questions.  Thank you for your ongoing confidence in Sussex.