Ontario Unveils Fiscal Update; COVID-19 Worsens

Ontario’s Action Plan 2020: Responding to COVID-19

During an emergency session of the legislature, Ontario Finance Minister Rod Phillips announced sweeping investments in response to the COVID-19 pandemic as part of his March 2020 Economic and Fiscal Update. Much of it is aimed at getting money into people’s pockets.

Titled Ontario’s 2020 Action Plan: Responding to COVID-19, this relief package includes $7 billion in new investments and $10 billion in deferred tax obligations to help business and families, for a cumulative total of $17 billion in available resources.

The Ford government’s Economic and Fiscal Update has two goals:

1. Increase capacity in the province’s health care system; and,
2. Provide immediate supports that will protect the health of Ontario’s people, businesses, and the economy.

Once these immediate pressures are addressed, the government will begin to focus on the next set of challenges in an ever-evolving situation.

Government Focused on Quick Action

The key concern behind this fiscal update is speed. The government can design new programs, but those come with time delays that are not acceptable in a rapidly evolving crisis. As a result, the government chose a two-pronged method of deferring collection on existing provincially controlled taxes and injecting cash into existing transfer programs such as the Guaranteed Annual Income System payment program for seniors.

By putting cash into the hands of seniors, parents, and small business owners the government is ensuring that those groups do not have to find the cash elsewhere – likely from selling assets they never intended to sell or drawing down further on existing lines of credit. In addition, cash injections encourage these groups to continue to spend at a time when the natural reaction may be to hoard cash, causing a run on bank liquidity.

Reflecting the need for flexibility in a rapidly changing situation, the province also maintained the largest reserve in the province’s history at $2.5 billion, on top of a well-stocked $1.3 billion contingency fund, and $1 billion dedicated COVID-19 contingency fund. Given all this new spending, the provincial treasury has taken a substantial hit. The deficit is projected to increase from $9.2 billion in 2019-20 to $20.5 billion in 2020-21.

Minister Phillips underscored this need by stating clearly that “every dollar spent to save a job or save a life is a dollar well invested.”  This echoes Premier Doug Ford’s recent comments that “nothing is off the table” and no expense will be spared to protect the health of Ontario families and the economy.

The update is being marketed as a “first and immediate step” by the Ford government as the COVID-19 situation in the province continues to rapidly evolve.

What You Need to Know

Additional Health Measures:

In total, the government is spending an additional $3.3 billion for healthcare compared to Budget 2019, including:

• $341 million to increase hospital capacity and to increase assessments and treatment
• $243 million for long-term care emergency capacity and new virus containment measures
• $100 million more for public health
• $170 million for community capacity, homecare, and Telehealth Ontario
• $1 billion COVID-19 health care contingency fund to ensure that if more money is needed it can be accessed quickly
• $75 million for new personal protective equipment and critical medical supplies
• $1.2 billion more for improving services in the health and long-term care sector

Business Supports:

On the same day that non-essential workplaces have been ordered to close their doors, the Ford government announced several supports for businesses dealing with the challenges created by COVID-19, including:

• Cutting the Employer Health Tax (EHT) by $355 million for 57,000 employers by increasing the exemption from $490,000 worth of payroll to $1 million. This change is retroactive to the start of 2020 – (The StrategyCorp Institute of Public Policy and Economy suggested EHT reform last week, which you can read about here)
• Introducing a new corporate income tax credit, called the Regional Opportunities Investment Tax Credit that is targeted to regions of the province that were economically depressed before COVID-19 like rural and Northern Ontario. Companies will receive a benefit of up to $45,000 within the year if they invest in these economically struggling areas
• Deferred 10 provincially controlled taxes (Employer Health Tax, fuel tax, mining tax, tobacco tax, etc.) from April 1 to August 31, 2020. The government will not charge interest or penalties during this time period and expects to help roughly 100,000 businesses at a cost of $6 billion.
• Deferred $1.9 billion of WSIB premiums by 6 months starting on March 25

People and Jobs:

The government announced $3.7 billion for supports focused on vulnerable groups who require immediate help, including:

• $75 million to double the Guaranteed Annual Income System maximum payment for low-income seniors to $166 a month for individuals and $332 a month for couples, for six months starting in April 2020
• For parents there will be a one-time $200 payment per child for kids 0-12 and a $250 payment per child for kids with special needs that will be paid out using a similar mechanism as the government used for payments during the Ontario teachers’ strike
• Students will get a 6-month grace period on payment of student loans and interest accrual relief under the Ontario Student Assistance Program
• $162 million to convert on-peak and mid-peak hydro rates into the cheaper off-peak rate for the next 45 days

For Communities and Municipalities:

The government continued to emphasize ongoing cooperation with municipalities to address the current crisis. Supports include:

• Allowing municipalities to defer Education Property Tax collection by 90 days if they choose to do so, which could defer up to $1.8 billion from being charged to businesses and families
• Ontario will also delay its planned property tax reassessment to next year
• Ontario will provide $26 million to Indigenous peoples and communities to address emergency planning needs for Indigenous peoples in self-isolation
• Enhancing funding for charitable and non-profit social services organizations by giving $148 million to Consolidated Municipal Service Managers and District Social Service
• Administration Boards to redistribute resources to local institutions as they see fit

Fiscal Considerations

COVID-19 has caused a rapidly changing economic situation. Markets are fluctuating daily, and fiscal projections are incredibly difficult to make with any accuracy. Nonetheless, the Ford government has made some initial projections that they have committed to update quarterly:

• Ontario’s Real GDP growth projection was restated in January 2020, before COVID-19 was declared a global pandemic. At that time, Real GDP growth for 2020 was projected at 7%. That has been restated to a 0% flat growth number for 2020, with growth in the following year
• In the 2019 Fall Economic Statement, the government projected employment growth to rise by 2% in 2020. This number has been restated to 0.5%
• The net-debt-to-GDP ratio was restated in January 2020 to 9% for 19-20. It was expected to grow to 40.1% in 2020-21. That number has been restated to 41.7%.
• The unemployment rate is projected to increase by a full percentage point in 2020 from 5.6% to 6.6%
• The deficit for 2019-20 was last projected at $9.0 billion but has been adjusted to $9.2 billion. The deficit for 2020-21 was last projected at $6.7 billion but has been restated to $20.5 billion.
• The province is projecting little change in its revenue year over year. Though this number appears to hold flat year over year, it is a decrease of $5.3 billion in yearly revenue compared to projections in the 2019 budget

[Get additional background on this economic statement from StrategyCorp’s Institute of Public Policy and Economy’s preview of the Ontario fiscal update which compares today’s situation to the financial impact of the 2008 recession.]

What It Means for People and Businesses

Opportunities exist for organizations seeking government assistance or support as part of the province’s response to COVID-19.

The Ford government has worked steadily to address this unprecedented challenge and continues to emphasize that “nothing is off the table” when it comes to protecting the health of Ontarians and the economy.  The government continues to underscore that today’s update is a “first and immediate step” in terms of measures to be taken. The province fully understands that the situation continues to evolve and has ensured there are resources put aside to enable maximum flexibility in addition to the immediate measures announced today. They’ve also continued to encourage solutions from businesses and organizations across the province.

Today’s update did not include regulatory measures and the government has signaled they are open to ideas to cutting red tape to support the province’s health care system, businesses, and workers in responding to COVID-19. Shown by their willingness to change regulations already, they have clearly signaled that they are open to further and wide sweeping regulatory actions. This is reflected through several orders and ministerial directives in recent days, such as measures to properly re-deploy frontline personnel in hospitals and long-term care homes, further showing its commitment to think outside the box in a time of need.

As the COVID-19 pandemic evolves, the government will continue to rely on stakeholders to flag immediate and looming challenges, identify red tape, and propose potential solutions. With an open-minded government actively seeking to provide relief, if an idea can support the economy continue or further enhance the province’s frontline response to COVID-19, the chances of success are high.

What’s Next?

Like the government’s job protection legislation last week, debate on the Economic and Fiscal Update was passed with all-party support within an hour.  Ontario’s legislature will now adjourn until 1:00pm on April 14^th, although the government and opposition parties continue to conduct business while respecting the current social distancing requirements.

As today’s update replaced Budget 2020-21 and only contained a one-year economic outlook, Minister Phillips has committed to tabling a complete budget by November 2020. Financial projections will be re-stated quarterly, and the government has acknowledged that additional investments will be required when the economy begins its post-COVID-19 recovery. For now, the Premier has stated that the Ontario government will spare no expense in helping with immediate term costs and pressures facing families and businesses and emphasized ongoing cooperation with the federal government to ensure Ontario can weather the storm.

StrategyCorp’s Podcast: Intended Consequences 

Subscribe to the StrategyCorp Institute of Public Policy and Economy’s podcast, Intended Consequences, which will have more analysis on the Federal and Provincial responses to COVID-19 in the coming weeks. Find us on Spotify, Apple Podcasts, Google Podcasts, Stitcher, YouTube and through our standard web player.