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Budget outlook: $5 billion in annual tax cuts weaken Ontario’s case for federal dollars

If the provincial government needs more money—and it certainly does—then why has it been giving so much away?

January 13, 2022

3-minute read

Public consultations around the 2022 Ontario budget began this week. As Finance Minister Peter Bethlenfalvy makes his plans, finding ways to raise revenues to pay for public services should be his top priority.

That’s not just my opinion. The Ford government has insisted repeatedly that it needs more money.

When it comes to health care, the province is demanding a cool $10 billion each year in new money from the federal government, no strings attached. On the child care front, every other province is accepting funding from Ottawa to reduce fees and create new spaces; Queen’s Park says it’s not enough.

But if the provincial government needs more money—and it certainly does—then why has it been giving so much away?

Since 2018, the Ford government has tabled three budgets and four fiscal statements. Each document contains a convenient table summarizing changes to provincial tax rates and tax credits. Taken together, these cuts and credits are draining more than $5 billion each year from the provincial treasury. That’s $5 billion we’re not spending on health care. Or schools. Or to tackle climate change.

It’s a large amount, equal to more than 3% of provincial revenues in a typical year.

Some of the government’s 27 tax cuts and credits don’t amount to much in terms of cost, but others do. According to the latest estimate from Ontario’s Financial Accountability Office (FAO), cancelling the previous government’s cap-and-trade climate plan is costing $1.9 billion in 2021-22. Corporate tax cuts through the “Ontario Job Creation Investment Incentive” will cost $595 million this year. A trio of tax cuts for small businesses is costing $540 million. The Low-Income Individuals and Families (LIFT) income tax credit, announced in 2018, will cost around $430 million this year.

In the months ahead, we can expect Premier Ford to ramp up his calls for more federal funding, especially for health care. He is not strengthening his case by giving away $5 billion each year.

To be clear, there is nothing wrong with tax credits if they serve a public policy purpose and if they do it better than other options. Tax credits play a big role in Ontario’s thriving film and television industry, for example.

But not all tax credits pass that test. The LIFT credit, for example, puts money in the pockets of low-income Ontarians, which is what we want, but it was brought in instead of a $1-an-hour increase to the minimum wage the previous government had committed to doing on Jan. 1, 2019. The FAO estimated in 2019 that the LIFT credit would provide one million Ontarians with an average income boost of $409 each year. On the other hand, the minimum wage increase would have given 1.3 million people $810 each year more, on average. In terms of helping low-income workers, in other words, the LIFT credit was only half as effective as the other obvious policy option. Not a great choice, especially since boosting the minimum wage would have cost the province next to nothing.

The province’s Care and Relief from Expenses (CARE) credit is another payout of public dollars that misses the mark. Child care advocates have called tax credits “band-aid solutions” and have repeatedly asked governments to invest child care dollars directly into creating more spaces, reducing fees, and improving the pay of child-care workers. Hopefully, this is what will happen if and when Ontario accepts federal child care funding.

But regardless of whether tax breaks for corporations or tax credits for Muskoka cottage rentals achieve their stated policy goals,whatever those might be, one thing is clear: they cost money. Money that is no longer available for public services. And Queen’s Park has done nothing—nothing—to raise revenues to replace those lost dollars.

In the months ahead, we can expect Premier Ford to ramp up his calls for more federal funding, especially for health care. He is not strengthening his case by giving away $5 billion each year.

In 2018, the party that ultimately formed government campaigned on a promise to bring in cuts to personal and corporate income taxes at an estimated cost to the treasury of $3.8 billion. Such cuts, if they ever came to pass, would further constrict Ontario’s ability to fund not only health care but all the public services Ontarians depend on, from child protection to justice to highways.

A better approach would be to chart a course to restore provincial revenues through an ambitious program of progressive taxation that recognizes the incredible wealth of Ontario and meets the needs of its people. That program should start with the upcoming budget.

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