Ontario government once again refuses to reduce taxes for workers and businesses
Many of the headlines for the Ford government’s budget released Thursday will likely focus on spending for health care, highways, schools and other big-ticket items. However, the crucial aspect of this year’s budget is what’s missing in the document.
According to the budget, Ontario will run a budget deficit of $1.3 billion in 2023, before returning to surplus positions in subsequent years. This is a positive development for the province, but the improved financial situation arrives mainly due to surging revenues.
When reading the 268-page budget document, it quickly becomes apparent that the Ford government lacks a strong vision for the economy. Planned capital spending on infrastructure projects such as highways can contribute positively to long-term economic growth. However, the budget plan excludes key measures to enhance Ontario’s competitiveness.
Weeks ago, Finance Minister Peter Bethlenfalvy said the budget would signal that Ontario “wants to be the economic engine of Canada and frankly, North America.” In reality, this budget, like the ones that came before it, talks a big game without delivering.
Ontario’s high personal income taxes are one factor restricting economic growth. Ontario’s combined federal/provincial top marginal tax rate is 53.5 per cent, third highest of any jurisdiction in Canada or the United States. This high tax rate makes it more difficult for the province to attract and retain entrepreneurs, businessowners, investors and professionals because high taxes reduce the incentives for individuals to engage in productive risk-taking economic activity.
Similarly, the Ford government once gain failed to reduce taxes for Ontarian families more broadly, despite past promises—on the campaign trail in 2018, then-candidate Ford said “I am going to put money back in their pockets.” By failing to reduce taxes, the government ignores the opinions of most Ontarians, as a recent poll found 73 per cent of those surveyed in the province think taxes are too high for the average family.
Additionally, the budget failed to reduce taxes for businesses. Yet in 2018, Ford promised to reduce the business tax rate by one percentage point to help attract investment to the province. Given ample opportunity to follow through, the premier has yet to deliver. High business taxes discourage corporations from investing in or locating their headquarters in the province. The government’s decision to maintain the status quo stands in stark contrast to other jurisdictions such as Alberta and Michigan who’ve reduced their business taxes in recent years as part of pro-growth economic strategies.
Fortunately, the government has committed to a tax review in the budget and intends to evaluate ways to improve competitiveness and long-term growth in the province. Whether the review will lead to concrete action is a question waiting for an answer.
Finally, by global standards, Ontario is a prosperous place. However, within its own economic region, Ontario is an economic laggard. Among the eight U.S. states in the Great Lakes region and Quebec, Ontario had the second-lowest GDP per person in the region in 2020. Weak economic growth impedes job creation and wage growth. Unfortunately, the economic plan in this budget leaves a lot to be desired and promises more of the same.
High taxes are hurting economic growth in Ontario. The Ford government’s new budget ignores past promises to reduce taxes for families and businesses, while doing little to help improve the province’s economy.
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