Ontario 2013 Budget Review

The politics of a minority government are playing themselves out once again in Ontario.  Although this time a new Premier isin place, demands from the NDP and an outright rejection of the budget from the Progressive Conservatives are creating a sense of déjà vu at Queens Park. The lead-up to the 2013 Budget has been dominated by anew Premier attempting to carve out her own agenda while being burdened by theproblems, including strife in the education sector and the cancellation of gasplants in the GTA, left behind by the former administration.   Premier Wynne, as evidenced by the recent positivepolling results, has had some success in differentiating herself from DaltonMcGuinty.  She has achieved this mainlyby taking a much more conciliatory approach to governing in the minoritycontext.   However, she and Finance Minister CharlesSousa face the same challenge McGuinty and Dwight Duncan faced in 2012.  Now, as then, the government`s leadershipmust craft a budget that is seen to be responsive to the demands of the NDP butcan also serve as an election platform if circumstances require. It can be argued that Wynne, in fact, faces an even moredifficult challenge than the one in 2012.  Not only has her administrationfaced daily questions about the costs of the previous government`s decision toscrap the Mississauga and Oakville gas plants, but she must overcome a coupleof preconceived notions of who she and her party are.   She must rebuildsupport in Southwestern and Northern Ontario for the Liberals to aim for amajority government and she must demonstrate her financial bona fides toovercome any perception that she is a “tax and spend” Liberal.  

ARE WE HEADING TO AN ELECTION?

Progressive Conservative Reaction to the 2013 Budget

Following the introduction of the Wynne government’s budget, PC Leader Tim Hudak announced that his caucus would oppose it. This announcement came as no surprise, as Hudak had stated well in advance that his caucus intended to vote against this year’s budget.  Throughout the province, Hudak’s refrain has been: “I don’t believe the [Liberal] team that got us into this mess can get us out of this [fiscal] hole.”  Moreover,once Wynne was elected Liberal Party leader, Hudak has provided the Premier-designate with copies of his party’s wide-ranging policy papers, saying“I need to see incoming premier Wynne bring something to the table.” It is no secret that the Tories have wanted, and have been preparing for, a spring election for some time.  Indeed, the largely-symbolic non-confidence measure that the PCs introduced in the Legislature this week was designed to put pressure on the New Democrats before the budget’s first vote – an automatic confidence measure that will be a critical moment for both the NDP caucus and the Liberal minority government.

NDP Reaction to the 2013 Budget

Today, NDP Leader Andrea Horwath announced that her caucus would review the budget and take it to Ontarians before determining whether or not the New Democrats would support it.  Her announcement leaves the Wynne government, and the province as a whole, in a high-stakes waiting game that at least initially appears similar to the one experienced last year.  On the face of it, the Liberals met Horwath’s pre-budget in their budget.  Whether Horwath triggers a general election over the next few weeks will therefore move out of the policy realm, and into the realm of politics. While Horwath effectively holds the balance of power inthe Ontario Legislature, the NDP Leader is under significant pressure from thevarious factions of her caucus, her broader party, as well as its majorstakeholders.  Although northern New Democrats may be more inclined towardtriggering a general election now, that sentiment is likely weaker among Torontomembers of her caucus.  In addition, when she won the NDP leadership in2009, Horwath was considered the preferred candidate of her party’s importantlabour union constituency.  Given that the PCs are currently ahead in thepolls, and that Hudak has floated policy ideas regarded with great hostility bylabour unions, this key constituency may be reluctant to advocate for anelection at this time. Therefore, Horwath will have to consider her ownsituation carefully.  One faction of the NDP see an election before summeras an opportunity to halt the loss of support that the party has suffered – andmay continue to suffer – since Wynne became premier.  This factionbelieves that, the longer the NDP wait to force an election, the more supportit will lose to Wynne.  An opposing faction advocates for Horwath to waituntil Wynne’s “honeymoon” period has come to end.  They argue that the NDPwill be stronger once Wynne has accumulated through the passage of timepolitical baggage of her own. As for the NDP’s labour union constituency, they may seethe current minority government situation as a good case scenario.  Thearchitects of the much-despised Bill 115 are now out of government, and thecurrent Premier is unwilling to revisit this path.  In addition, the NDPexert greater influence over the current provincial government than theyotherwise could – with the exception, of course, of a Horwath minority ormajority government (an unlikely scenario, according to current polls). Moreover, the unions are protected for the time being from their worst casescenario: a Hudak majority (or even minority) government.  One thereforewonders whether labour unions see a general election now as a risk worthtaking. Finally, in addition to the other political parties, themedia will be placing immense pressure on Horwath to make her intentions knownsooner rather than later.  

NDP Demands and The Government’sResponse

The NDP presented the Liberal government with five demandsfor its support of the 2013 Budget. 1 Reduction of Auto Insurance Costs by 15%.  The government announced it will introduce legislation that will reduce average annual premiums by $225.  The legislation will:

• Require a premium reduction of 15 per cent on average.
• Require insurers to offer lower premiums to consumers with safe driving records.
• Provide the Superintendent of Financial Services with the authority to require insurers to file new rates.
• Expand and modernize the Superintendent’s investigation and enforcement authority,focusing on fraud prevention.
• Give the Financial Services Commission of Ontario the authority to license and oversee health clinics and practitioners who invoice auto insurers.
• Make the Superintendent’s Guidelines, incorporated by reference in the Statutory Accident Benefits Schedule, binding.
• 2 A FiveDay Wait Time Guarantee for Home Care

• $260M in 2013-14 to reduce wait times.
• All clients requiring nursing services will betargeted to receive services within 5 days of CCAC assessment
• 3 million more hours of personal support-workercare for seniors

3 AddressingYouth Unemployment

• A 2 year, $295M youth employment strategy tocreate 30,000 jobs
• $195M Ontario Youth Employment Fund
• $100M for young entrepreneurs (mentorship and start-up capital), youth innovation fund (youth leadership in industrial research, development and commercialization) and funding to bring business, labour, educators and youth together to better prepare young people to develop needed skills.

4 ClosingCorporate Tax Loopholes

• Establishing a technical panel to identify savings in business support programs and consolidate remaining funding into a single Jobs and Prosperity Fund. Panel has been tasked with finding 25% savings in administration and is to report back in 6 months.
• The government will also evaluate the sustainability and effectiveness of refundable tax credits.
• The Employer Health Tax exemption for small business will be increased from $400,000 to $450,000 of payroll beginning in 2014. The government will also eliminate the exemption for companies with payroll of over $5M.

5  ReducingBarriers to Employment for those on Disability and Welfare

• People on Ontario Works and Ontario disability support payments will be able to retain the first $200 of earnings each month before their benefits are reduced.
• Will make it easier for high school students in families receiving social assistance will be able to keep their earnings from part-time employment.
• Will remove barriers for self-employed people beginning in September by treating their income as the same as employment earnings.

THE FISCAL PICTURE

Kathleen Wynne’s first budget is also the first time since the stimulus budget of 2009-10 that the government will not be able to show improvements in its deficit position. While still beating its own previous predictions on the size of the program spending deficit, it is expected to grow by approximately $2 billion over last year’s $9.8 billion to $11.7 billion in2013-14. Thereafter, the government plans to resume its “absolute” commitment to eliminate the deficit by 2017-18. The government will argue that last year’s numbers were a result of unexpectedly high revenues and one-time cost saving initiatives such as the ending of “banking” sick days in the education sector. The Tory opposition will argue that the government has hit the structural deficit brick wall and has little idea of how it plans to balance the books. It remains to be seen how rating agencies and the public will perceive this increase in the annual program deficit, the first in four years.

THE LEGISLATIVE PROCESS

Now that the Liberal government has delivered the 2013 Budget and the opposition leaders have provided their initial responses the question is “will it pass?” Legislatively there are two opportunities for theConservatives and the NDP to officially express their support, or lack thereof,for the Budget.  Each of theseopportunities will be confidence matters where a no vote means the dissolutionof the government and an election. The first opportunity is the Budget Motion.  The Budget Motion was moved and secondedprior to the Finance Minister making his budget speech.  This motion, which can be amended twice, willbe debated for 8 hours and then put to a vote. In 2012 the Budget Motion was supported by the Liberals, opposed by thePCs with the NDP abstaining.  This votecould happen as early as next week, however last year it took almost a month tohappen. The second opportunity is the Budget Bill itself, whichhas yet to be introduced by the Minister of Finance.  As with other bills it will be put forward forfirst and second reading, sent to committee and then brought back to thelegislature for a final vote.  Secondreading will likely be lengthy, but can be truncated by any number of motions,including time allocation, a motion governing proceedings as was done in 2012after 9 days of debate), or ended when all members have had an opportunity tospeak. At committee the bill can be subject to significantamendments by the opposition parties.  In2012 the NDP and the PC Party voted to delete substantial portions of theBudget Bill, and it only emerged from committee for final reading on June 20,2012. It passed with Liberal support, PC opposition and NDP abstention. While the Ontario Legislature is currently scheduled tosit until June 6, it is very possible that date will be extended until later inthe month to accommodate a final vote on the Budget Bill.

CONCLUSION

While all government budgets are heavy on politics, the2013 Ontario budget has more politics than most.   The Wynnegovernment faced a situation where it became clear very early on that theironly chance of survival, given the position taken by the Conservatives, was tofind a way for the NDP to support the budget.  It’s hard to imagine how theNDP could credibly trigger an election, given the contents of thisdocument. Unfortunately, on the economic front, the budget, whilelong on comforting language about balancing the books, is short on details asto how that might happen.   While the Minister was able to announcethe good news that the budget deficit for 2012-2013 was less than 10 billiondollars, the current year forecast is for it to climb above 11 billion. Liberals will argue that the Premier has had little time to put together a long term,  comprehensive plan as to how to hitthe targets the Government has set for achieving balance.  What is clearis that as time goes on, expectations will increase as to the specifics of whatthe Government intends to do to balance its books, maintain competitive taxrates, and deliver quality public services.  What is also undeniable isthat the longer the process is dominated by jockeying for political position,the harder it will be for any government to do what is necessary. It is also likelythat the budget will give Tim Hudak and the Conservatives more ammunition fortheir argument that the Government does not have a credible plan to balance by2017. It may well be that the public is wary of an election for understandable reasons.  It’s not apparent that any government,notwithstanding the best of intentions, can begin to do what is required until after an election.   We anticipate a decision on that front in the coming weeks, and will keep you apprised of these developments at Queens Park.