Ontario 2014 Budget – Election Fever Edition

Now that Ontario’s 2014 budget has been introduced, everyone is asking the same set of questions: will the NDP support the budget or topple the government?  Will Premier Kathleen Wynne attempt to negotiate with the NDP, or pull the plug herself?  The only question no one is asking is what the Conservatives will do, as PC Leader Tim Hudak has made it clear that he believes it’s time for a change in government.one is asking the same set of questions: will the NDP support the budget or topple the government?  Will Premier Kathleen Wynne attempt to negotiate with the NDP, or pull the plug herself?  The only question no one is asking is what the Conservatives will do, as PC Leader Tim Hudak has made it clear that he believes it’s time for a change in government.

Unlike last year, Wynne made it clear that this budget was not going to be subject to negotiations with NDP Leader Andrea Horwath, and similarly the NDP have avoided making specific advance demands of the Wynne government. While the Liberals have proposed several items that should appeal to the NDP, such as not increasing the HST, the gas tax or income taxes on low and middle income earners, it’s not clear whether these are enough for the NDP to support the budget, a confidence motion, especially given the recent news of the OPP criminal investigation of the cancelled gas plants.

What Happens Now?

For over a year, Hudak and the PCs have been clear in their desire for an election, and today voted against the budget during a recorded vote on First Reading.  The NDP abstained in today’s vote, leading to a 46-36 result in favour of the Liberals.

While Horwath said that she would consult with Ontarians before making a final decision on whether or not to support the budget, she broke with the tradition of responding to the budget on Budget Day, and has instead said that she’ll reserve judgement until Friday, May 2^nd.  Wynne has responded by setting a deadline of Thursday, May 8^th for a definitive response from Horwath.

The NDP reaction could result in an election as early as June 12^th, as late as June 26^th (assuming no party wants or will force an Election Day in July), or it could mean no election this spring.  We will provide an update following the NDP announcement tomorrow. Regardless of the NDP’s reaction, Wynne has it within her power to visit the Lieutenant Governor and request dissolution of Parliament, thereby causing a general election.

While any budget is an important document in the life of a government, today’s budget may well be best read as a Liberal Party platform designed for a spring election, an attempt to co-opt current and potential NDP support on the left, and contrast directly with the PCs on the right.

The Public Policy Debate

This Budget provides a clear look into how the public policy debate of a 2014 election could shape up.  At the core of the debate will be the differentiation between the PCs and Liberals on one hand and the challenge for the NDP to differentiate themselves from the Liberals on the other.

It has been some time since the public policy line between the PCs and the Liberals has been so clear.  Several priority items in the 2014 Budget serve to illustrate this point.  On job creation the Liberals have put forward a $2.5 billion 10 year fund designed as a way of attracting business to the province and competing against grants from other jurisdictions. The PCs decry this as corporate welfare, and the unfair picking of winners and losers by government. They will argue that the best way to encourage long term growth and job creation is to get the fundamentals right: lower taxes, lower energy costs and smaller less intrusive government.  A second example is the Liberal proposal for an Ontario Retirement Pension Plan which would supplement the CPP.  The Liberals believe such a pension plan is necessary to provide a base level of retirement savings for the middle class.  The PCs oppose such a plan as fundamentally wrong for the economy and that it can only be paid for by increasing taxes on workers through higher payroll deductions and taxes paid by employers on each job.  A third clear differentiation is the proposal to increase taxes, particularly personal income tax. PCs will argue that what is needed to grow the economy is tax cuts while the Liberals will argue that targeted tax increases are needed to pay for public services.

Since Wynne took over as Premier, the Liberals have been shifting further to the left.  During the same time, Horwath has been attempting to move her party more to the centre.  The NDP have pursued priorities designed to gain populist support by focusing on pocketbook issues, such as reduced auto insurance rates.  This budget brings into focus the Liberal attempt to occupy the centre-left, examples include the Ontario Retirement Pension Plan, taxes on high income earners, and increased wages for low-income earners (eg. Increase to the minimum wage, personal support workers).  In the short term, the NDP’s challenge is to defeat a government and a budget that reflects many of their priorities or support a government they have vilified.  Over the course of an election, the NDP’s public policy challenge will be to convince centre-left voters that their party best reflects their values, while also reassuring the general electorate that they are responsible stewards of the economy.

In the last election voters were faced with many shades of the same colour, with all political parties afraid to stake out courageous positions. If we go to the polls this spring nothing could be farther from that situation and Ontario voters will have a clear choice of what path the Province should take in the coming years.

Budget Highlights

Pensions

• Creating an Ontario Retirement Pension Plan which will start to be implemented in 2017 with the staged enrollment beginning with large employers
• Publicly administered at arm’s length from government
• Mandatory except for those participating in a comparable workplace pension
• Equal contributions from employers and employees not exceeding 1.9% each on earnings up to a maximum of $90,000

Transportation/Transit

• Providing $29 billion over 10 years for roads, bridges and transit
• 2 dedicated funds: A $15B fund for the GTHA focused on transit and a $14B rest of Ontario fund with investment priorities determined with communities
• Funding will be derived from 7.5 cents of existing gas tax, the existing HST collected on gasoline and road diesel, restricting large corporations from claiming the small business deduction, restricting fuel tax exemption for road-building machines, a new four cent per litre tax on aviation fuel, gains from asset sales, revenues from high-occupancy toll lanes when they are available, provincial borrowing and federal funding

New Taxes

• The key change is to the Personal Income Tax Rate. The taxable income threshold for the top rate of 13.16% has been lowered from $534,090 to $220,000 and the rate for those making $150,000 to $220,000 has increased from 11.6% to 12.6%
• Other measures include increasing the taxes on aviation fuel and raising the threshold at which the small business deduction tax can be applied
• All in, these tax measures will increase revenue by $900 million

Social Services

• Indexing future increases of the Ontario Child Benefit (OCB) to the Consumer Price Index, starting in July 2015
• Providing $810 million to help fund services for developmentally-disabled Ontarians
• Increasing wages for child care workers by $1 per hour in 2015 and 2016
• Increasing wages for personal support workers by $1.50 this year and the following two years
• Increasing social assistance rates by 1%

Education and Health Care Infrastructure

• $4.2B over 10 years for school repairs, $750M over 4 years for new capital build and $500M over 10 years for post-secondary maintenance and repairs
• $11.4B over 10 years for major hospital expansion and redevelopment and $700M over 10 years for deferred maintenance

Removing Debt Retirement Fund from Residential Electricity Bills

• To be implemented December 31, 2015 saving the typical residential user about $70 per year

Industrial Electricity Incentive Program

• Lowering the eligibility threshold for companies to qualify from 5MW to 3MW, saving participants 15-20% on their electricity bill

Jobs Fund

• Providing $2.5 billion over 10 years to offer strategic incentives to secure key anchor investments

 

Ontario’s Deficit Situation

Interim 2013-14	Plan 2014-15	Outlook 2015-16                    2016-17
Total Revenue	115.7	118.9	124.5	129.4
Expense
Programs	116.4	119.4	120.1	120.2
Interest on Debt	10.6	11.0	12.0	13.3
Total Expense	127.0	130.4	132.1	133.5
Surplus/(Deficit)  Before Reserve	(11.3)	(11.5)	(7.7)	(4.1)
Reserve	–	1.0	1.2	1.2
Surplus/(Deficit)	(11.3)	(12.5)	(8.9)	(5.3)

 

Latest Public Polls Show Liberals, Tories Neck and Neck

Recent polling shows significant variance in support for all three parties.  While each party will have their own internal polls (with detailed regional and riding breakdowns) these public polls suggest that the election campaign and the performance of each leader would be critical to the final outcome.  Certainly the three middle polls, if reflective of NDP internal numbers, will be of significant concern to Horwath.

Pollster (Date)	Liberal	PC	NDP	Green
Ipsos Reid (April 17)	32	37	27	5
Innovative  Research (April 14)	39	30	23	7
Nanos Research (April 11)	36	36	22	6
Forum Research (April 7)	31	38	23	7
Ekos (April 3)	32	27	29	8

 

Fate of Bills Currently in the Legislature

There are almost 200 pieces of existing legislation currently before Ontario’s Legislature.  If a general election occurs, prominent bills that would die on the Order Paper include: the Waste Reduction Act; the Keeping Ontario’s Roads Safe Act (stiffer fines for distracted driving); the Great Lakes Protection Act; and the Anti-SLAPP legislation (Protection of Public Participation Act).  Others, such as the Fighting Fraud and Reducing Automobile Insurance Rates Act, and the MPP Salary Freeze Act – both of which are scheduled for clause-by-clause consideration this coming Monday – could still pass should an election not be called for several weeks.