Ontario Economic Outlook

On November 14, 2016, Ontario Finance Minister Charles Sousa presented the Ontario government’s 2016 Ontario Economic Outlook, also known as the Fall Economic Statement (FES). The FES, known to many as a ‘mini budget’ for its combination of broader, more visionary strokes coupled with a handful of detailed policy announcements, serves as another opportunity for the Ontario Liberals to refocus voter’s minds on what they see as their progressive plan to create economic growth through targeted investments in infrastructure, climate change and skills development.

Like the September 12th Throne Speech, a charged political environment looms large over this FES. While the Throne Speech was delivered after the prorogation of the Legislature following a by-election in Scarborough Rouge-River (which the Liberals lost after decades of success in that riding), Minister Sousa delivered this FES with two by-elections coming this Thursday, November 17. The stakes are high for the governing Liberals – while Ottawa-Vanier has been another reliable Liberal riding for years, a tough electoral challenger, former Ontario Ombudsperson Andre Marin, is running for the Progressive Conservatives.

With the June 2018 election getting ever closer, the pressure is on the government to combine fiscal prudence with measures aimed squarely at consumers to reduce costs (one Canadian Press article published today cited internal government polling that found 94 per cent of Ontarians were concerned about the price of hydro.) Measures like the eight per cent hydro tax cut and other actions to reduce costs for Ontarians and businesses will give the government proof points when discussing its broader narrative around focusing on pocketbook issues and how best to support economic growth and create good jobs.

It is also worth noting that following last Tuesday’s presidential election of Donald Trump, the government will likely use every opportunity to emphasize the shared values Ontarians hold for universal healthcare, jobs, and a good quality of life, regardless of political stripe, race, gender, religion, or heritage. Minister Sousa made a point of acknowledging this at the conclusion of the FES, with last week’s US election likely in mind. This is also consistent with messages the Premier delivered to various media outlets last Wednesday that focused on building a society that works for everyone – as she said to host Stephen LeDrew: “the key lesson is that we need to continue to build a fair society – that if we don’t listen to the voices of people who are saying you left me behind we will not thrive as an economy.”

Continued commitment to a balanced budget

 While not surprising, one of the most significant ‘re-commitments’ from Minister Sousa was the continued promise that the Liberals will balance the books in 2017-18. There has been some tension between the government and the Auditor General’s office over how two government-sponsored public pension funds should be considered, with the AG arguing they should no longer be considered as assets. This change removes the equivalent of $1.5 billion from next year’s budget. However, Minister Sousa reiterated that the government will balance the budget in 2017-18 and remain balanced in 2018-19 as scheduled, despite the fact that “it’s not going to be easy.”

This government pledge was disputed by Progressive Conservative Finance Vic Fedeli, who said there is a “multi-billion dollar hole in their budget forecast,” and who argued that the Liberals are using one-time asset sales to return to budget before again falling into deficit following the election.

Assistance for First-Time Homebuyers

 The majority of pre-FES coverage and speculation related to which tactic the government might take to further assist first time homebuyers. Notably, Premier Wynne and Minister Sousa both downplayed any reports of major changes by repeatedly emphasizing that any moves would be small and targeted to first time buyers.

Minister Sousa announced that the government is doubling the tax break for eligible purchases from $2,000 to $4,000. The change will take effect on January 1, 2017 and result in no land transfer tax on the first $368,000 on the cost of a home. The government estimates that the change will mean that more than half of all first-time home buyers will not have to pay any provincial land transfer tax. The example given in the economic update is that a $600,000 home would require someone to pay $6,475 in land transfer tax (with the current $2,000 rebate), which would be cut to $4,475 with the additional refund. The land transfer tax rate for all other properties that cost over $400,000 would be increased as well, to 2 per cent from 1.5 per cent. This covers all commercial, industrial, multi-residential and agricultural properties.

To fund the breaks, the government will increase land transfer rates on houses that cost more than $2 million.

The government is also freezing the property tax on apartment buildings to assist renters.

Creation of a new “Financial Services Regulatory Authority”

 The Ontario government had for some time been reviewing the mandates of three key financial regulatory organizations: The Financial Services Commission of Ontario (FSCO), the Financial Services Tribunal (FST), and the Deposit Insurance Corporation of Ontario (DICO). As part of its review, the Ministry of Finance appointed a three-member Expert Advisory Panel to consult relevant industry representatives, licensed market participants, and consumers and their advocates, and to make recommendations to the government, which were tabled in a final report in March 2016.

Today the government announced the creation of the Financial Services Regulatory Authority, a “new independent and flexible regulator of financial services and pensions that, once established, would be more consumer-focused and improve protections for consumers, investors and pension plan beneficiaries.”

Scale-Up Voucher

 A consistent challenge facing governments is how best to support the commercialization of innovative start-ups. Ontario took another step to try and address this by announcing another new program, this time a four-year, $32.4 million scale-up voucher initiative to “help high-impact companies overcome barriers to their next stage of growth by funding activities such as developing and recruiting specialized talent, accessing new markets and protecting intellectual property.”

Other Key Items

In addition to the initiatives highlighted above, the government announced or reiterated a number of other key items:

  • The Small Business Innovation Challenge pilot program, with an investment of $28.8 million over five years to help Ontario-based small and medium-sized enterprises.
  • Investing an additional $140 million across all hospitals in the Province to support better care for patients and reduced wait times.
  • Introducing a new dementia strategy that will build on current investments of $85 million to enhance services for older Ontarians and their families. The Province is also consulting this fall to help improve access to quality care for almost 230,000 people newly diagnosed or living with dementia and to support their caregivers.

Overall the changes were fairly minor, as is often the case with a FES. The government echoed some of its priority areas around education (the Ontario Student Grant), improved affordability for hydro (eight per cent tax cut), and economic growth, and the move around the land transfer tax rebate will generate the majority of headlines.

Next up: pre-budget consultations.