Fraser Forum

In Ontario, the cost of doing business is high

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Jon Dwyer, the managing director of an Ontario-based bio-tech company, recently took to the CBC to express his concern that doing business in Ontario was becoming increasingly difficult. In his column, Dwyer states that rising energy costs, uncompetitive tax rates and other obstacles to prosperity are forcing business owners like him to seriously consider leaving the province—a fate the government should urgently try to avoid.

Dwyer isn’t alone in his concerns. In fact, much of the Ontario business community seems to share his anxieties. The Ontario Chamber of Commerce’s 2017 Ontario Economic Report showed widespread concern about the state of the provincial economy among business owners. Its survey revealed that only 24 per cent of OCC members were confident in Ontario’s economic outlook. Business owners across the province shared Dwyer’s concern over the rising costs of electricity, with more than half citing it as one of their top three policy concerns.

And given some of the policy decisions of the current government, concern within the business community seems reasonable. When it comes to rising electricity prices, the province’s response may bring some temporary relief but will impose significant costs on future generations.

The Fair Hydro Plan will reduce hydro bills by an average of 25 per cent in the near future, but only by adding billions to the province’s already daunting debt load, and transferring some costs from Ontario ratepayers today to ratepayers and taxpayers in the future. Simply put, the cost of this decision will be borne by future generations of Ontarians.

The province’s high electricity prices and tax rates are increasing the cost of doing business in Ontario. What’s more, the province’s large public debt burden discourages new investment in Ontario by generating policy uncertainty about the future, as it raises the spectre of future tax increases (or still more borrowing from the future) to service that debt.

Making matters worse, the government’s passive, slow and risky plan to very gradually reduce Ontario’s debt-to-GDP ratio inspires little confidence that policymakers are taking this problem seriously. The government’s plan doesn’t call for a return to pre-recession debt levels until 2029/30, and even that distant target would be put at risk if the province experiences an unexpected fiscal shock or another economic downturn.

Attracting and retaining businesses is a major part of ensuring economic prosperity. Business investment helps drive sustained economic growth by generating new jobs, productivity gains and wage growth. Unfortunately, as Dwyer’s column suggests—and the recent Chamber of Commerce report confirms—many businesses in the province perceive major barriers to investment.

The consequences of policies that undermine competitiveness and make it more expensive to do business generally arrive gradually and over time. Some investors and firms have deep roots in the province, and so the result of each new policy choice that undermines competitiveness may not be evident to someone looking for a sudden, dramatic exodus from the province. Indeed, in the end, Dwyer elected to keep his firm in Ontario—partly for sentimental reasons and love of the place. Instead, the effects are felt gradually over time, as businesses become more likely to expand elsewhere, new investment becomes harder to attract and existing firms find it harder to compete and grow.

In order to attract new business investment and make it easier for existing firms to survive and thrive in Ontario, the provincial government should enact policy reforms that lower the cost of doing business and make Ontario a more attractive destination for investment.


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