Ontario budget proposes grants and tax credits, but no corporate tax cut to keep up with Trump

Ontario’s Liberal government tabled an election-year budget on Wednesday that offered more than $900 million in financial support for businesses and job training, a move that comes as Canada’s most populous province grapples with economic uncertainty at home and abroad.

Premier Kathleen Wynne’s government used their latest, and possibly last, fiscal blueprint to call for $20.3 billion in new spending over three years, including a new “Good Jobs and Growth Plan” that comes with $935 million in new investments that aim to support businesses, bolster worker training and attract jobs.

The budget comes as export-heavy Ontario awaits the outcome of the North American Free Trade Agreement negotiations and grapples with the economic effects of tax reform in the United States.

It also comes just months before Ontarians go to the polls on June 7.

“Despite Ontario’s solid economic underpinnings, there are a number of risks and challenges that could adversely affect the province’s competitiveness and economic growth, including recent tax reform in the United States, trade negotiations and other protectionist measures; high household debt; and the housing market,” the budget said.

After estimated GDP growth of 2.7 per cent in 2017, the Liberal government’s budget projected 2.2 per cent growth in 2018, 1.8 per cent in 2019 and 1.9 per cent for 2020.

The budget also projected that the province’s job creation would slow from 121,000 positions in 2018 to 77,000 in 2019 and 62,000 in 2020. That is expected to drive the unemployment rate down to 5.4 per cent by 2021, compared to a
 17‐year low of 5.5 per cent in February 2018

While the budget said U.S. tax reform “may lessen Ontario’s competitiveness and weaken business investment,” there was no cut to the province’s corporate rate.

Wynne’s government previously lowered the province’s small business rate in January by 22 per cent in the face of minimum wage hikes. The combined federal-Ontario general corporate tax rate is still 26.5 per cent, the budget noted, making it the lowest in Canada after the previous Liberal regime cut Ontario’s general corporate rate.

“In the United States, they tried to basically catch up to what we’re doing in Ontario,” said Ontario Finance Minister Charles Sousa, who also touted the budget’s support for business.

Sousa said that the uncertainty around the NAFTA talks had given them pause, noting Ontario’s economy is closely linked to the U.S. But Sousa also said the Liberal government’s spending on health and education were an “attraction” for foreign investors, and the Wynne government passed legislation in March that allows for measures to retaliate against “Buy American” policies.

As part of the “Good Jobs” plan, the government proposed to “renew, enhance and extend” a fund used for supporting business investment with $900 million in potential support for businesses over the next decade. The so-called Jobs and Prosperity fund has previously been used to earmark tens of millions of dollars in grants and loans for automakers and other companies looking to invest in Ontario.

Region-specific funding was included. According to the budget, the Southwestern Ontario Development Fund and the Eastern Ontario Development Fund would receive an additional
 $100 million over the next 
10 years, a new Greater Toronto and Hamilton Area fund would be created with $100 million over the next decade, and another $5 million would go to a fund that will help communities left struggling after the loss of a major employer.

The Liberal government telegraphed the move in a Throne Speech earlier this month, after the provincial parliament was prorogued by the Grits.

“Recognizing that some parts of the province have particular struggles and challenges with achieving economic growth in this period of transition, the Budget will support regional investments and job funds,” said the speech.

On the skills front, one of the things the Liberals said they would do is invest $63 million to create the Ontario Training Bank, “a one-stop shop for employers, job seekers and workers to access the skills training that meets their needs.” The government is also pumping $170 million over three years into a new apprenticeship strategy.

In addition, the Liberal government said it is studying a strategy for intellectual property that will “ensure that firms leverage their IP to commercialize and grow their businesses here in Ontario and globally while remaining competitive.” The budget noted that some countries have tax incentives connected to intellectual property, which the government said they are reviewing to “develop an incentive that works best for Ontario.”

The budget proposed to expand two research and development tax credits for businesses, with the government saying corporate spending on R&D in the province has fallen in recent years and still lags competitors. The tax credit changes are estimated to cost the province a combined $235 million over three years.

As promised, the Ontario Liberals followed through on their previously announced plan to run a deficit in the budget, projecting a $6.7-billion shortfall for 2018-19 after an estimated $642-million surplus for 2017-18. Under the Liberals’ plan, there would not be a return to a balanced budget until 2024-25, and net debt for 2018-19 is anticipated to climb to $325 billion.

Financial Post

Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne