On March 26, 2009, the McGuinty Government presented its budget. Unlike the previous three, this budget estimates a $3.9 billion deficit in the fiscal year 2008 – 2009 and a $14.1 deficit in the 2009 – 2010 fiscal year. In recognition of the scale and scope of the global recession, the theme of this year’s budget is “creating jobs for families today and building the economy for tomorrow” through large public infrastructure spending, skills training and targeted tax reform.
The significant item of the budget is the tax reform package that includes moving to a single, value-added sales tax at a combined rate of 13% on July 1, 2010. Other key priorities of the 2009 Budget include:
- $32.5 billion over two years in new public infrastructure money
- $700 million in skills training and worker transition programs
- Targeted industrial sector support programs
- $4.5 billion in tax reductions for business over three years
The following summary highlights key features of the 2009 Ontario Budget on those issues of greatest interest to clients of Borden Ladner Gervais LLP.
Electricity Industry and the Green Economy
- $390 million to match Ontario’s estimated share of the federal Green Infrastructure Fund to develop initiatives that assist in the implementation of the proposed Green Energy Act and the Green Economy Act
- $58 million to extend by one year the Northern Pulp and Paper Mill Electricity Transition Program that provides rebates of 1.8 cents per kilowatt hour
- $250 million over five years for the new Energy Technology Fund that will include investments in green technology
- $50 million over five years for research, capital and demonstration projects necessary to develop a smart electrical grid for Ontario
- Continue with the $250 million loan program to enable First Nations to participate in renewable energy projects
- The additional $32.5 billion infrastructure funding over the next two years will build on the government’s existing $30 billion ReNew Ontario infrastructure investment plan in key sectors including health care, highway construction, and recreational facilities. For example, $648 million will be spent in 2009-2010 for highway projects in Northern Ontario.
Business Tax Reform
- The general Corporate Income Tax (“CIT”) rate will be reduced from 14% to 12% and then by 2013 reduced to 10%
- The CIT rate for small business will be reduced from 5.5% to 4.5%
- The CIT rate for manufacturing and processing will be reduced from 12% to 10%
- The CIT small business deduction surtax will be eliminated
- More small and medium sized businesses will be exempted from the Corporate Minimum Tax (“CMT”), and the CMT rate will be reduced from 4% to 2.7%
- The government will move forward with the federal and other provincial and territorial governments to create a single securities regulator.
- Amendments to the Securities Act and the Commodity Futures Act will be proposed that would give the Ontario Securities Commission additional authority to respond to extraordinary circumstances involving a major disturbance in the capital markets.
- The government will work with the Toronto Financial Services Alliance by funding a strategic options paper to position Toronto as a global financial destination.
- New legislation will be introduced to expand the mandate of Teachers Pension Plan to provide pension administration and investment services to other pensions and institutional investors in the public sector.
- $110 million in additional tax reductions for manufacturers in 2011-2012 by paralleling the federal extension of the temporary accelerated 50% straight-line Capital Cost Allowance rate for machinery and processing equipment investments made in 2010 or 2011
Research and Innovation
The budget proposes roughly $110 million in additional tax reductions targeted to this sector as well as $715 million in investments to support industry partnerships. This includes:
- $300 million in capital funds over six years for research infrastructure
- $100 million over four years in additional operating funds for research performed in the biomedical field
- $50 million over four years to enhance the Innovation Demonstration Fund
- $10 million over three years to the Colleges Ontario Network for Industry Innovation to assist small and medium sized business with applied research and commercialization
Fiscal Recovery Plan:
The government plans to balance the budget no later than 2015-2016 by:
- Holding the average annual rate of growth in program spending to less than the average annual rate of growth in total revenue of the medium term and throughout the recovery period;
- Adopting efficiency practices and managing overall expenditures including a $1 billion efficiency target in 2011-2012;
- Maintaining a prudent debt to GDP ratio; and
- Maintaining a cautious fiscal plan that includes contingency funds and reserves of $1.2 billion each year between 2009-2010 and 201-2012 and $1.5 billion between 2012-2013 and 2015-2016.