ontario new democrat fiscal framework

8/4/2019 Ontario New Democrat Fiscal Framework

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PUTTING PEOPLE FIRST

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THE ONTARIO NEW DEMOCRAT FISCAL FRAMEWORK DOCUMENT 2011

Authorized by the CFO for the Ontario NDP


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September 24, 2011

Dear Ms. Horwath:

I have reviewed the cosng of your plaorm, A Plan for Aordable Change, including the policy

announcements that you are making over the course of the elecon campaign. It is my professional opinion

that your scal plan is reasonable and will return Ontario to a balanced budget by 2017-18, given your

assumpons about the economic path.

I note that your plan is relavely cauous in that it is built on the scal framework set out in the 2011provincial budget. By comparison, the Liberal and Conservave plaorms assume addional revenue arising

from economic growth in excess of Budget 2011 forecasts.

Your most scally signicant policy proposal is to restore a 14% general corporate income tax rate. This

change would collect substanal revenue while keeping Ontarios corporate tax rate on the low end of major

advanced and emerging economies. Across-the-board corporate tax cuts are a relavely ineecve policy to

promote investment, parcularly in a demand-constrained economy. The redirecon of this scal room to

job-creang acvies and environmental outlays is an excellent example of a policy twist that helps achieve

the goals of improved labour markets and an enhanced environment.

Yours truly,

Mike McCracken

Mike McCracken, Informetrica Limited

176 Bronson Avenue, Oawa, ON, K1R 6H4


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IntroduconThe New Democrat scal plan is responsible, cauous, and focuses

on priories that put people rst.

It lays out a series of commitments that make life more aordable,

reward companies that create jobs, and ensure reliable healthcare.


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Economic context

Families are struggling to pay the bills and nd good jobs. Nearly 550,000 Ontarians are looking for work1. Aer adjusng

for inaon, the average worker paid by the hour hasnt received a raise in 20 years2. Consumer condence dipped again

in August3. A September report found that household debt rose to 150% of personal disposable income4, higher than therao in the United States.

Meanwhile, corporaons are accumulang cash instead of making investments that create jobs. Excluding banks,

corporate Canada holds a record $477 billion in cash, eight mes as much as twenty years ago5. Despite a connued

reducon in the combined corporate tax rate, the rao of investment in machinery and equipment to GDP has reached

its lowest level since at least 1981, when the Ontario Economic Accounts data begins.

1. Stascs Canada Labour Force Survey, Sep. 2011

2. Stascs Canada, Survey of Empl oyment, Payrolls, and Hours, 1991-20103. Conference Board of Canada, Index of Consumer Condence, Aug. 24, 2011

4. Stascs Canada, Naonal Balance Sheet Accounts, Sept. 13, 2011

5. Stascs Canada, Naonal Balance Sheet Accounts, Sept. 13, 2011

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Although Liberals have asked the corporate sector to invest, they have connued no-strings-aached corporate tax

reducons. Similarly, the Hudak PCs rely on the ideological claim that corporate tax cuts create jobs.

Furthermore, both the Liberal and Conservave plans would undermine the provinces scal capacity by phasing out

input tax credit restricons, giving large corporaons provincial HST rebates on meals and entertainment expenses.This phase-out will reduce annual revenues by $215 million when it begins in 2015-16 and by $1.3 billion when it is

completed in 2018-19.

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New Democrat priories

The NDP plan is focused on household budgets and family needs. It removes the HST from basic essenals, freezes

transit fares and tuion fees, and relieves pressure on property taxpayers with new investments in municipal

infrastructure. It supports a targeted approach to job creaon: businesses that invest in physical capital, hire newemployees and provide on-the-job training will receive refundable tax credits. It makes key investments in healthcare,

educaon, environment and government services.

To fund these priories, the New Democrat plan cancels the scheduled general corporate tax cuts,

restoring a 14% rate.

...we will roll back the rst phase of the PCs corporate income tax cutsThis will mean an increase in

the general corporate tax rate from 12.5% to 14%, as was in eect as of September 30, 2001. This rate

will be maintained going forward. We have very dierent priories than the current government...

- Dalton McGuinty, leer to Chief Electoral Ocer, Sep. 20, 2003


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Baseline economic assumpon

The NDP plan is based on the scal framework set out in Budget 2011. By contrast, the Liberals and Conservaves

assume addional revenue arising from faster economic growth than forecast in Budget 2011.

If these higher GDP predicons do not materialize, the province would be le with a larger decit. Rather than take

that risk, the New Democrat plan adopts a cauous approach. If the Liberal and Conservave predicons come true,

addional revenue would be available for an NDP government to accelerate decit reducon or allocate to

other priories.

Real GDP forecasts (%) 2013 2014Budget 2011 2.7 2.6

PC 2.8 2.7

Liberal 2.8 2.7

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Sources of funding

Annual interest payments on provincial debt are $175 million lower than forecast in Budget 2011 because the

government has actually borrowed somewhat less than projected and Ontario bond rates are lower than projected. New

Democrats would collect an addional $175 million annually through enhanced contraband enforcement.

The PC plan proposes unspecied cuts of $3.9 billion annually by 2015-16 from non-health and non-educaon ministries

like Transportaon, Community Safety and Correconal Services, and Children and Youth Services. Cuts of this

magnitude would severely aect the delivery of important public services.

The Liberals claim $785 million annually in ongoing savings from the 2011 Public Accounts (released since the budget).

Some of these savings may not be realized. For example, the Liberals assume connued lower-than-expected demand

for labour market training programs due to an improving economy1.

The NDP plan accounts for $695 million of these savings, including the $325 million in expenditure-review savings alreadyidened in the June 2011 cosng. A further $245 million can be saved in 2015-16 by halving the number of consultants,

capping execuve compensaon in the public sector, and reducing administrave costs for home care.

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Comparing commitments

Corporate tax cuts are the single largest scal commitment by the PCs and Liberals. Neither partys plaorm accounts

for these cuts because they were included in the Budget 2011 framework. In the fourth year, they are spending $1,850

million on corporate tax cuts and $215 million on phasing out input tax credit restricons. Since corporate giveaways areat issue in this elecon, they should be considered in comparing party plaorms.

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Balancing the budget by 2017-18

The New Democrat plan will balance the budget by 2017-18. In each year, the planned decit is lower than, or equal to,

the decits projected in Budget 2011.

Overview of NDP Fiscal Framework ($ billions)

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Revenue 112.2 117.6 123.5 129.7 136.1 143.3

Program Expenses 114.7 117.2 119.4 121.8 123.7 125.9

Interest on Debt 11.2 12.4 13.5 14.6 15.5 16.1Reserve 1.0 1.0 1.0 1.0 1.0 1.0

Surplus/Decit -14.7 -13.0 -10.4 -7.8 -4.2 0.3


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Prudence and cauon

The New Democrat plan builds in substanal scal prudence. More than $1 billion over four years is le unallocated,

which provides scal exibility. That is on top of the $700 million annual conngency fund (included in program

expenses) and the $1 billion annual reserve fund already provided by Budget 2011. The NDP plan prepares Ontario toabsorb the potenal impact of lower economic growth.

Federal corporate tax cuts create scal space for Ontario

In 2010, the federal-Ontario combined corporate tax rate was 30%. With a three-percentage-point reducon in the

federal rate by 2012, restoring the provincial general rate to 14% brings the combined rate to 29%.

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Maintaining internaonally compeve corporate tax rates

This new rate would keep Ontario on the low end of the worlds corporate tax rates in major advanced and

emerging economies.

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ontario new democrat fiscal framework

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