Ontario’s throne speech ignores growth and competitiveness
On Monday, Premier Wynne’s government delivered its throne speech to layout its vision for the rest of its mandate and the future.
Much will be said and written about what the speech discussed at length (various new government initiatives and new spending, for the most part), but it’s also important to note what the government did not emphasize—how to make Ontario’s economy more competitive and encourage economic growth.
The speech did not entirely ignore the issue of economic growth; the topic came up towards the end, and was primarily discussed as a means to the end, of supplying the government with the money it needs to operate. In how it will help encourage this growth, the government had little to say except for spending more money on infrastructure and supporting “regional investments and job funds” (i.e. even more government) in struggling regions of the province.
However, the speech included no serious discussion on enhancing the dynamism of Ontario’s economy, promoting entrepreneurship, and eliminating disincentives for success and achievement.
And yet, in reality, there remains a clear and obvious need for policy reform to help encourage sustainable economic growth led by the private sector.
For example, a recent Fraser Institute study showed that between 2007 and 2016, Ontario’s private sector created fewer jobs, on average, each year than all but two provinces (New Brunswick and Nova Scotia, provinces with well-documented long-term growth problems and no population growth). The same study looked at three other indicators of economic progress in Ontario with similar results—Ontario was beneath the national average and near the bottom of the pack each and every time.
Of course, government policy is not the only thing that influences economic growth. But Ontario’s poor economic performance over a decade should prompt some reflection from Queen’s Park about whether more could be done to spur growth. And the economic research suggests the answer to this question is a resounding yes.
The best place to start would be reforming Ontario’s severely anti-growth personal income tax system, which features a top marginal combined federal/provincial rate of 53.5 per cent. The negative incentive effects of such high tax rates on people during high-earning phases of their careers should be obvious. And remember, in addition to income tax, Ontarians must also pay other taxes including a 13 per cent combined HST on many of the things they buy with their after-tax dollars. Common sense (supported by a mountain of economic research) tells us that these incentives have negative effects and discourage productivity and overall growth.
Ontario’s current positioning is better on business taxes, but we face competitiveness challenges there as well. The United States has recently enacted sweeping federal corporate tax reform that has made American jurisdictions more competitive in corporate taxation, an area which had previously been a major American weakness. At the same time, some states with whom Ontario directly competes for investment in many areas, including Michigan, have further bolstered competitiveness by reforming their state-level corporate tax system. The Wynne government’s throne speech ignored these competitiveness challenges, and did not include any serious plan to address them by easing the tax burden on Ontario businesses.
Given the weak performance of Ontario’s economy over the past decade-and-a-half, our government should make dynamism, growth and entrepreneurship in the private sector a top priority. Unfortunately, this week’s throne speech—a precursor to the upcoming provincial budget—suggests these objectives are barely on the radar.