the ontario alternative b u d g e t 2004 · 2015-02-24 · dalton mcguinty declaring that he ... a...

The Ontario

ALTERNATIVEB u d g e t

B U D G E T D O C U M E N T

2004

Canadian Centre for Policy Alternatives

Ontario Alternative Budget 2004

Real change; real choices:Investing in the services Ontario needs — and paying for them

Ontario Alternative Budget 2004Budget Document

Canadian Centre for Policy AlternativesISBN 0-88627-398-6

May 2004

CAW 567

2 Canadian Centre for Policy Alternatives


Acknowledgements

The Ontario Alternative Budget Working Group is a coalition of labour, social action, com-munity and church groups which have come together to develop budget alternatives for On-tario. The participants in this year’s budget project are listed below.

Participants in this year’s Ontario Alternative Budget Working Group were:

Kira Heineck, Co-Chair Ontario Coalition for Better Child CareHugh Mackenzie, Co-Chair Canadian Centre for Policy AlternativesPatricia McAdie, Coordinator Elementary Teachers’ Federation of OntarioPedro Barata Campaign 2000Cassie Bell Toronto Parent NetworkSara Blackstock Income Security Advocacy CentreSheila Block United Steelworkers of AmericaJeffrey Brown Interfaith Social Assistance Reform CoalitionCharles Campbell OCUFACathy Dandy Toronto Parent NetworkAmy Dickieson-Kaufman OCUFARick Egan St. Christopher HouseNick Falvo CARMHAKim Fry Ontario Coalition for Social JusticeChris Glover Campaign for Public EducationShelly Gordon Canadian Union of Public EmployeesJoe Hirschegger Ontario Secondary School Teachers’ FederationKim Jarvi Registered Nurses Association of OntarioTim Little Ontario Public Service Employees UnionGeorge Martel Campaign for Public EducationMichael Oliphant Daily Bread Food BankMark Rosenfeld OCUFAChris Schenk Ontario Federation of LabourMichael Shapcott Centre for Urban and Community Studies,

University of TorontoRick Telfer Canadian Federation of StudentsKen Traynor Canadian Environmental Law AssociationCorey Vermey Canadian Auto WorkersArmine Yalnizyan Canadian Centre for Policy Alternatives

The Ontario Alternative Budget is a project of the CCPA-Ontario. www.policyalternatives.ca

The 2004 Budget was printed by the Ontario Federation of Labour OPEIU local 343.

Real change; real choices: Investing in the services Ontario needs — and paying for them 3

Budget Document

Section I:Choosing Change

The most fundamental question we ask andanswer as a society is how much we do in com-mon — as a community — versus how muchwe expect people to do as individuals. To askthe question is to accept that there are limitson the individual autonomy on which ourideas of politics, economics and social rela-tionships are based. To answer the question isto make difficult choices about the dividingline between what is public and what is pri-vate.

As a province, we too often ask the ques-tion without answering it. For example, weaccept as legitimate concerns about publicservices — about underinvestment in publicinfrastructure, or about the quality and ac-cessibility of our health care system, or aboutthe viability of our public education system;or about our willingness to provide assistanceto those less fortunate than ourselves — buthave been unprepared to deal with the conse-quences of having accepted those concerns aslegitimate. We call for reinvestment in urbanpublic infrastructure, but then support moretax cuts. We raise concerns aboutunderfunding of health care but turn aroundand support an end to universality rather thanpay more taxes. We lament the state of ourpublic education system, but respond by send-ing our kids to private schools and campaign-ing for more tax cuts.

We answer the question without ever hav-ing asked it. We support tax cuts, and opposetax increases, without ever thinking about the

implications for those things we believe weshould do in common. We incorporate loadedphrases like “tax burden” into our everydaylanguage despite the illogical disconnect thatthey imply between the taxes we pay and thepublic services we enjoy as a result. We acceptuncritically nostrums like “we’re always bet-ter off if we spend our money than if the gov-ernment spends it” without a moment’sthought for the absurdity of the statement ina society that could not function withoutpublic services.

We avoid the question entirely, acceptingthe most absurd political propositions at facevalue. Mike Harris implying that cutting so-cial assistance benefits would produce jobs forwelfare recipients. The Common Sense Revo-lution asserting that public spending couldbe cut by 20% without having an impact onservices. Ernie Eves claiming that tax cutswould result in an increase in governmentrevenue. Mike Harris suggesting that the pri-vate market would solve the homelessnessproblem.

Dalton McGuinty promising to rebuildpublic services, freeze taxes and balance thebudget all at the same time. Dalton McGuintysuggesting that after eight years of cuts in serv-ices, service improvements in “priority” areascan be paid for through cuts in “non-priorityareas”. Dalton McGuinty declaring that hewill not rebuild the damage caused by MikeHarris and Ernie Eves policies on the backs



of Ontario taxpayers, as if there’s some otherway to do it.

We have run out of ways to avoid answer-ing the question. And the consequences of ourwillingness to suspend our disbelief for thepast eight years are all too apparent.

The public services we built over genera-tions are at a point of real danger.

We face billions of dollars in capital spend-ing needs, just to keep what we already havein a state of good repair. The basics we usedto take for granted – clean water, abundantenergy – have been found wanting. And mostof the so-called solutions, including privati-zation and public private partnerships, presentonly an illusion of lower costs – an illusionpurchased at great expense, in annual costsand in public control.

Our elementary and secondary educationsystem is struggling and students are beingsacrificed as collateral damage.

Under the Harris and Eves governments,post-secondary education tuition costs soaredbeyond the reach of many working families.At a time when the consensus is that educa-tion is the key to our country’s economic fu-ture, a freeze at an unaffordable level is notgood enough.

We are in a state of panic about our healthcare system that is not supported by the facts.We accept uncritically claims that our systemis unaffordable, ignoring findings to the con-trary by both the Romanow Commission andthe Federal Department of Finance.1 But wesay we can’t afford to pay. That the “solution”is to pay for less, and “make room” for privateresources. But what does that actually mean?Not paying for services publicly won’t reducethe need, or drive down the costs. None ofthe suggestions for change being advanced by

the right in Canada reduces needs or costs.They will simply make the poor sicker.

We are failing our cities. For years, we hada worldwide reputation for making our citieswork. But we have taken that reputation forgranted to the point where every major ur-ban area in Ontario is in financial crisis. It isnot a problem of “local government”. It is abig city problem. And until it is recognized assuch, it will persist.

We are failing our most vulnerable citizens.We pay social assistance benefits that are farbelow what is needed for basic survival. Weexpress our collective concern about the grow-ing gap between rich and poor in our society,while at the same time supporting the tax andother public policies that have made the prob-lem worse. We wring our collective handsabout the “intractable” problem of homeless-ness, ignoring the obvious fact that not a sin-gle unit of new affordable housing has beenbuilt in Ontario in nearly ten years. We ig-nore the fact that the only affordable housingthat has been built in Ontario in the last 30years has been built in the not-for-profit sec-tor, supporting private sector reliance evenafter the private sector solutions are exposedas failures.

We have lost the ability to protect the pub-lic interest, whether it is regulating air andwater quality, protecting public health, or en-forcing workers’ rights.

Perhaps most important, we have lost theability to think big, and to act effectively.Challenges that in earlier times would havebeen met with bold initiatives and strongpublic leadership are now parked on the backburner and managed by political spin-doctors.Climate change; persistent poverty; urbansprawl; rural water quality; energy shortages;homelessness. They all cry out for big picture


Budget Document

vision; they are all infected with a culture ofimpossibility.

We want to change this direction. We knowwe must change. More than anything else, theOntario Alternative Budget for 2004-5 isabout recapturing public initiative; about pro-viding the resources we need as a society toface issues head on and begin to resolve them.

We have a long way to go, because we havefallen very far behind.

With an ageing population, growing in-come inequality, rapidly growing urban areas,an increasing demand for a better trained andeducated workforce, widespread environmen-tal problems, a critical shortage of affordablehousing and a corporate sector which globali-zation has made more difficult to regulate, weshould expect to see an increasing share of theincome we generate as a society devoted topublic services.

Instead, we see the exact opposite.

In the 20 years from 1975 to 1995, pro-vincial spending on programs and capital in-vestment averaged 14.9% of Ontario’s grossdomestic product. Since the recession year of1993 the share of provincial public servicesin our economy has declined from 17.1% toa low of 11.9% in 2002-3. Exclusive of ex-traordinary items like SARS and the cost ofthe hydro rate freeze, the share in 2003-4reached 12.5% of GDP.2

In today’s dollars, the decline from the peakin 1993 to 2003 represents a missing $22.5billion in annual spending on public services.The difference between the current share andthe long-run average, pre-Harris, represents amissing $12 billion in annual public servicesspending.

The full picture is illustrated in Figure 1.In relative terms, Ontario’s share of GDP

devoted to public services is the lowest inCanada – lower even than Alberta’s. Provin-

Program & capital share of GDP

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

1976-1977

1978-1979

1980-1981

1982-1983

1984-1985

1986-1987

1988-1989

1990-1991

1992-1993

1994-1995

1996-1997

1998-1999

2000-2001

2002-2003

2004-2005

Program Share of GDP no OAB Average pre-1996

Figure 1: Program and capital share of GDP



cial public services spending per capita inOntario is also the lowest in the country.

Small wonder, then, that we see the im-pact of underinvestment in public services eve-rywhere we look in this province.

It is important to note, as well, that this isnot a change that has been driven by a lack ofrevenue-raising capacity.

Since 1996, according to estimates by theFederal Department of Finance, tax cuts inOntario had cut into annual revenue raisingcapacity by more than $13 billion by 2002-3. Over that period, total revenue foregone asa result of tax cuts amounts to a total of $48.1billion. That’s $48.1 billion over an eight-yearperiod that could have been invested in main-taining and improving public services.3

Even the original plans of the McGuintyGovernment, as set out in their election plat-form, fall far short of the mark. Based on cur-rent growth forecasts, full implementation ofthe Liberals’ original financial plan would re-sult in provincial program and capital spend-ing reaching 13.1% of GDP by the last yearof its planning period, 2006-7.

And if the government were indeed to fol-low through on its currently stated goal offunding its new program initiatives throughother savings, the 2006-7 share will havedropped to an historic low of 12.1%.

That is not good enough. We cannot af-ford to extend further more than a decade ofdecline in Ontario ‘s public economy. As thedetailed plans set out in the 2004-5 OntarioAlternative Budget demonstrate, substantiallymore investment is required to meet our pri-ority objectives:

1. Renew the promise of equitable access topublic education, from early childhood to

elementary and secondary to post-second-ary;

2. Take immediate action to alleviate the fi-nancial crisis faced by Ontario’s most vul-nerable citizens and lay the groundworkfor a “from the bottom to the top” rework-ing of our social assistance system;

3. Put health care on a solid foundation fromwhich future expansion and reform can bebuilt;

4. Move aggressively to address substantialunmet needs for affordable housing;

5. Assume a leadership role in developing andimplementing new financial arrangementsfor Ontario’s big cities;

6. Implement a five-year plan to pay downOntario’s public infrastructure deficit, in-cluding renewed funding for sewer andwater treatment facilities, public transit,roads and bridges, and affordable housing;

7. Restore Ontario’s ability to protect andpromote the public interest in communityhealth, environmental quality consumerprotection and employment standards; and

8. Reinvest in the social infrastructure ofOntario’s communities.

It will not be possible in a single budgetcycle to address all of the public services is-sues facing Ontario. It has taken more than adecade of cutbacks and neglect to create theproblems we now face. We have a decade ofemerging needs that have not been addressedat all.

At the same time, simply stabilizing the sys-tem as it currently stands is not nearly goodenough.

In addition to what is required to stabilizecurrent services, on an inflation-adjusted percapita basis, our proposed program calls for


Budget Document

investment of $14.7 billion over the next fouryears.

A renewal of Ontario’s public services re-quires a corresponding renewal of the prov-ince’s fiscal capacity. To fund our program,we are proposing a balanced package of rev-enue measures including: restoration of thecorporate tax rate regime that prevailed in2000; a targeted partial roll-back of the per-sonal income tax cuts implemented since1996, based on ability to pay; harmonizationof the provincial corporate income tax sys-tem with the federal corporate tax system,eliminating approximately $1 billion in ex-pensive Ontario-only loopholes; reform of theemployer health tax to eliminate costly exemp-tions and loopholes and to tie tax rates tohealth care costs.

Together, these measures will be sufficientover a four-year period to fund our expendi-ture program.

The urgent need for reinvestment in pub-lic services, combined with the fiscal mess leftbehind after eight years of Conservative gov-ernment, makes bringing Ontario’s budgetinto balance immediately impossible. Fiscalbalance can be achieved only gradually, asdeficits in services and shortfalls in fiscal ca-pacity are addressed.

Our fiscal plan is designed to achieve a bal-anced budget within five years, at currentlyforecast economic growth rates, more quicklyif growth rates exceed those forecasts.

Many Ontarians who identified with thegoals set out by the Liberal Government inits election platform have been dismayed by

the apparent determination of the McGuintycabinet to back away from those goals. State-ments to the effect that the Ontario publicsector is big enough, or declarations thatOntarians will not be asked to bear the bur-den of recovery from the Harris years missthe point. In 2004, we have a much smallerpublic economy than we need to meet theneeds of our citizens and to thrive in the neweconomy. And if Ontarians are not asked toshare in the burden of recovery from theHarris years, no recovery will take place.

The government that asked Ontarians to“choose change” faces a significant choice ofits own. If it follows the direction that it setin its election campaign, it will at least be tak-ing a step towards the renewal that Ontario’spublic economy now requires. If it follows theadvice it has been giving itself recently, it willmerely consolidate the weakened publiceconomy it inherited from Mike Harris andErnie Eves, squandering the trust of Ontariansin the process.

In its January 2004 Technical Paper, theOntario Alternative Budget set out a revenue-raising framework that would enable the Gov-ernment to deliver on the most reinvestmentproposed in its election platform and still meeta target of balancing the budget during itsterm of office.

In what follows, we set out a budgetaryframework that goes beyond the modest goalsof the Liberal election campaign to make realand substantial headway in renewing publicservices in Ontario to meet the challenges weface today.



Section II:Program Spending

but to provide enough additional funding torestore the system to its financial state as ofwhen Rozanski was appointed. The OntarioAlternative Budget’s analysis of the Eves gov-ernment’s three-year funding commitmentshowed that, at the end of the three years,funding would be as far behind the startingpoint for the funding formula as it was whenRozanski was appointed.

In other words, elementary and secondaryeducation in Ontario is still substantially un-derfunded. That fact was recognized in theplatforms of the two opposition parties in the2003 election campaign, both of which com-mitted to substantial amounts of additionalfunding.

The Liberal platform called for regular an-nual increases in funding to reflect changesin costs and enrolment as well as $1.6 billionin new investments.

There is clearly a consensus that morefunding is needed.

In our view, however, it would be a seriousmistake simply to pump additional funds intothe current funding formula categories.

The principal objective of the governmentin designing the funding formula was finan-cial — to reduce the provincial government’stotal financial commitment. The formula’ssuccess in doing just that provided much ofthe fuel for the funding debate. But the fund-ing formula is more than a mechanism forrationalizing funding cuts. In its detailed pro-

Renewing our elementary andsecondary schools

Ontario’s elementary and secondary educationsystem is just emerging from a period of un-precedented turmoil, brought about by themassive cuts imposed by the Harris and EvesGovernments. The turn-around began withthe publication in December 2002 of theRozanski Task Force report on educationfunding.

The Rozanski report vindicated critics ofthe Harris and Eves governments, who arguedthat the funding formula introduced in 1998imposed substantial cuts in funding for el-ementary and secondary education when en-rolment and costs are taken into account.

Rozanski found that funding benchmarkshad fallen far behind changes in costs in thesystem, and that in key areas — school main-tenance, special education and English as asecond language funding — the benchmarkswere inadequate to begin with. It recom-mended updating those benchmarks. Equallyimportant, it recommended that, in the fu-ture, benchmarks be adjusted annually to re-flect cost changes. It also recommended newinvestments to address the most pressing is-sues of inadequate funding in the underlyingformula.

The Eves government’s claims notwith-standing, the government’s response was notto implement Rozanski’s recommendations


Budget Document

visions and restrictions, it reflects a well-de-fined ideological perspective.

First and foremost, the formula is builtaround a narrow definition of “education” andof the role of schools in our communities. Itmakes no provision for community use ofschools. It makes no provision for studentnutrition and health — programs that haveproven positive impacts on learning. It makesno provision for programs to support the roleof parents in their children’s learning. In itsfailure to provide funding for the use of schoolspace for child care, the formula embeds theprevious government’s hostility towards pub-licly funded and regulated child care. It pro-vides totally inadequate funding for adult edu-cation.

Second, the formula is clearly designed toproduce equality in funding, rather than eq-uity. Funding benchmarks are based on prov-ince-wide standards, which are completely in-sensitive to local differences in needs and costs.Even where formula elements were suppos-edly introduced to generate additional fund-ing for boards with extraordinarily high needs,funding levels were adjusted so that, overall,the outcomes were remarkably similar fromboard to board. For example, the learning op-portunities grant, which was supposed to pro-vide additional support based on the socio-economic characteristics of communities, hasbeen both under-funded and distorted by theintroducing factors unrelated to communitycharacteristics.

Third, the distinctions between classroomand non-classroom spending and between“administrative” and “non-administrative”spending around which the formula is sup-posedly based are unrelated to any coherentperspective on how students learn. No justi-fication has ever been offered, for example,

for classifying teacher preparation time, schoolprincipals and vice principals and school op-erations and maintenance as “non-classroom”expenditure. These restrictions have drivensome controversial adverse decisions, for ex-ample the closure of Toronto’s outdoor edu-cation centres, expenditures considered by theMinistry to be administrative in nature. Thesedistinctions may work as populist campaignrhetoric; they have no legitimate place in therunning of a school system.

Fourth, the formula was clearly intendedto reflect the Harris Government’s hostilitytowards teachers, by putting downward pres-sure on teachers’ salaries. How else can oneexplain why the formula does not providesufficient funding to enable school boards toemploy the teachers they are legally obligatedto employ to meet class size requirements atthe salaries they are contractually obligatedto pay?

Fifth, the benchmark for school operationsand maintenance was set at a level so far be-low the actual costs incurred by large urbanschool boards that it can only have been in-tended to drive boards to contract out theseservices and drive the Canadian Union ofPublic Employees out of the education sec-tor. The Harris Government in effect tried touse its funding formula to make a change inschool board operations that it could not le-gally have implemented directly. The inad-equate level of funding for school operationsand maintenance and the insensitivity of theformula to local variations in costs remains amajor flaw in the design of the formula and amajor contributor to deteriorating mainte-nance standards in schools.

Sixth, the formula set out to punish largeurban public school boards for what the HarrisGovernment deemed to be excessive spend-



ing and their defiance of the government’searlier attempts to cut funding for education.By underfunding those elements that wereintended to address largely urban cost driv-ers, the Harris era formula in practice has beenalmost completely insensitive to the cost ofproviding education in urban centres.

Finally, the highly touted requirement thatspecial education funding be spent on specialeducation turns out, on closer analysis, to bea smokescreen for the fact that the formulaactually provided for substantially less specialeducation programming than school boardswere actually delivering before the formula wasintroduced.

We believe the government should re-thinkthe whole approach taken to the developmentof the current funding formula. Specifically,the formula should be re-cast so that it is builtfrom the funding needed to achieve educa-tional goals, from the teacher-student relation-ship as a base, rather than the current ap-proach, which drives funding decisions fromthe top down.

As an interim step, the process of rebuild-ing from the damage caused by the currentformula must continue.

Base funding in the 2004-5 AlternativeBudget provides sufficient funding to main-tain the real value of current spending on edu-cation. In addition, it provides for additionalinvestments targeted towards addressing fun-damental flaws in the design of the currentfunding formula.

Class size in the early gradesEducators have welcomed the commit-

ment in the Liberal election platform to im-proving education in the early years. We be-lieve it is critical to begin immediately to im-

plement a reduction in class sizes in the pri-mary grades.

The research on the benefits of small classsizes in the early grades (kindergarten to gradethree) continues to mount. Students in smallclasses (fewer than 20 students) in the earlygrades, who then return to regular class sizes(about 25)• do better on measures of achievement;• are in school more;• are less likely to display problem behaviors;• are less likely to repeat a grade or a course;• are less likely to drop out of school; and• are more likely to take advanced level

courses.

No other single education reform can pro-duce these results. Students learn best in smallclasses. We would phase in a reduction in classsizes in the early grades. Without capital ex-penses, ensuring an average class size of 20for grade one would cost about $80 million.An average class size of 20 for kindergarten tograde three would cost about $350 million.We would work towards a maximum class sizeof 20 in the early grades. Allowing smaller,community schools to remain open wouldalleviate some of the pressure.

Funding the actual cost of employingteachers

The current provisions for teacher salariesfall approximately $600 million below theactual costs of employing the teachers neededto satisfy class size requirements. This underfunding has forced school boards to pull fund-ing out of other areas, contributing signifi-cantly to cuts in other programs.

The Alternative Budget restores that fund-ing.


Budget Document

Funding adequate standards for schooloperations and maintenance.

As it was originally conceived, the provin-cial formula short-changed school operations,in four respects. First, school operations andmaintenance were funded at a level substan-tially below provincial average costs in 1997.Second, even with the changes introduced inresponse to the Rozanski report, that inad-equate level was allowed to fall far behindchanges in costs. Third, the space for whichfunding was provided was based on a uniformprovincial standard per student that took noaccount of the physical characteristics of thebuildings actually operated by boards. Fourth,funding allocations took no account of geo-graphic differences such as local labour mar-ket conditions, climate and age and condi-tion of existing school buildings.

In practice, this formula has driven unnec-essary or shortsighted school closures andforced boards to both siphon funds out ofother program areas and allow maintenancestandards to deteriorate.

The 2004-5 Alternative Budget would in-crease funding to $6.50 per square foot, ad-justed for 2003-4 cost increases. This wouldgenerate funding at the same inflation ad-justed value as the $5.50 per square foot for1997 recommended by the Harris Govern-ment’s own expert panel, and represents anincrease of $1.06 per square foot comparedwith the current funding level of $5.44.

This increase would not be provided across-the-board. Instead, it would be implementedas part of a reconfiguring of the operationsformula to reflect actual operating costs in-curred by boards to achieve adequate mainte-nance standards.

The cost of this change would be approxi-mately $240 million.

Learning opportunities grant and English /French as a Second Language

The learning opportunities grant and theESL / FSL grant were intended to accountfor the increased costs of education in disad-vantaged communities and in communitieswith a significant immigrant population.

However, both grants were substantiallyunderfunded, relative to need. The expertpanel on the learning opportunities grant rec-ommended $400 million in funding, in 1997dollars. In 2003-4, the demographic compo-nent of the grant (the portion comparablewith the expert panel’s recommendation) is$250 million, compared with a 2003-4 dol-lar equivalent $468 million for the originalrecommendation — a difference of $218 mil-lion.

Although ESL / FSL funding has been in-creased in recent years, it still falls far belowneed. For example, the current formula as-sumes that no additional support is requiredafter a student has been in Canada for threeyears. In addition, it does not adequately ad-dress the needs of ESL students who are notimmigrants. To address this funding problem,the Alternative Budget would double ESL /FSL funding from its current level, at a costof $200 million.

The combined cost of these adjustmentsis $418 million, of which $112 million hasalready been committed by the McGuintygovernment, for a net increase of $306 mil-lion.

Adult educationFunding for adult education, on a full-time

equivalent per student basis, is just over halfof the funding provided for regular second-ary school students. The Alternative Budgetwould fund adult students at the same rate as



regular secondary school students. Fundingper student would increase from $2,429 to$4,681 plus an adjustment for inflation.

Funding would be increased by $150 mil-lion.

Other benchmark adjustmentsrecommended by Rozanski

The recommendations above for teacherssalaries and school operations cover approxi-mately $550 million of the $1.08 billion in“catch-up” adjustments to funding bench-marks recommended by Rozanski. This fund-ing must be restored, because it represents realreductions in funding basic needs for elemen-tary and secondary education such as books,computers, pupil transportation and schoolrenewal.

These benchmark adjustments will add$520 million to funding.

New investments recommended byRozanski

Of the $689 million in new investmentsin public education recommended byRozanski, the Eves government in its 2003-4funding implemented $205 million. Addi-tional funding for rural schools implemented

prior to the government’s defeat took care ofa further $55 million. And changes introducedby the current government, combined withadditional funding recommended for thelearning opportunities and language grantsdetailed above account for a further $115million.

This leaves $64 million for special educa-tion in elementary and secondary schools and$250 million to deal with deferred mainte-nance and renovation expenses still to be pro-vided, for a total of $314 million.

Ontario’s inadequate funding for specialeducation was specifically addressed in theRozanski funding formula review. Implemen-tation of the remainder of the new investmentsrecommended by Rozanski, will provide ad-ditional relief for underfunding of special edu-cation, pending a more comprehensive reviewof needs.

Reinvesting savings from the phase-out ofthe 5th year of high school

We would use any savings from the elimi-nation of the 5th year of high school for fur-ther enhancements to elementary and second-ary education.

What elementary and secondary schools need

Funding for actual costs of employing teachers $600 millionFunding for actual costs of school operations $240 millionIncreased funding for LOG and ESL/FSL $306 millionAdult and continuing education at regular rate $150 millionRozanski catch-up not covered above $520 millionRozanski new investments not covered above $314 millionClass size reduction phase-in $85 million / year 4 yearsCommunity access funding $75 millionLESS:Savings from eliminating standardized testing $50 million annual


Budget Document

Improve access by reducing user feesWe estimate that user fees paid by families

for services that were previously provided aspart of the school program amount to $125million. That represents the increase, in realterms, of the increase since 1995 in board’sreliance on fees. This would include both feespaid by parents and fees and rentals paid byusers of school facilities.

The increased funding provided by the Al-ternative Budget would provide enough ad-ditional resources to make fees charged to stu-dents and their families unnecessary. To openup community access to schools, the Alterna-tive Budget would increase school operationsfunding by 5% to make schools accessible totheir communities, after hours, at a cost of$75 million.

TestingOur plan would cancel the standardized

testing for students. There is mounting re-search to show that this is the wrong way toassess students. There is also strong evidenceto show that such an approach does moreharm than good. This would save about $50million a year.

Total additional funding — $2,495 million.

Postsecondary education:Ensuring opportunity for Ontario’sstudents

Ontario’s postsecondary education system isgrounded on the premise that every able andmotivated Ontario student should be assuredaccess to a high quality college or universityeducation. A corollary of this principle was,of course, an obligation on the government

to provide the requisite resources to maintainboth the highest quality of education and ac-cess to the system. Policy decisions by recentgovernments have resulted in underfunding,which has undermined those goals.

Despite evidence which shows that class-rooms bear the brunt of funding cuts topostsecondary education, the former Con-servative government in Ontario implementedcuts they said could be absorbed through so-called efficiency measures. In the wake of theConservative government, the corrosive im-pact of the spending reductions is being feltby the entire postsecondary education com-munity, but most immediately by students,both through deteriorating conditions oflearning, and through the skyrocketing costsof paying for their education.

Ontario, the richest province in the coun-try, lags dramatically behind all other Cana-dian provinces in per capita provincial fund-ing to universities. Many studies, and mostrecently, a report from the Ontario Task Forceon Competitiveness, Prosperity and EconomicProgress, report that Ontario’s failure to in-vest enough in higher education is a key fac-tor in its lagging prosperity relative to peerjurisdictions. Just to catch up to the nationalaverage in higher education funding, Ontariouniversities would have had to receive an ad-ditional $860 million based on 2001-02 sta-tistics. In the past, the current Liberal gov-ernment has articulated an appreciation ofhow universities suffer from underfunding.During the 1999 provincial election, thenLeader of the Opposition, Dalton McGuinty,signed a pledge to raise postsecondary educa-tion funding to the national average duringhis first term in government.

Operating grants for colleges have also beenseverely reduced during this period. We esti-



mate a cost of $298 million to sustain qualityin the system and move toward the nationalaverage in operating funding. Deferred main-tenance costs of university and college build-ings and general infrastructure are conserva-tively estimated at $1.3 billion, posing a healthand safety hazard for students, faculty, staffand the general public. The AlternativeBudget provides money to bring higher edu-cation funding from the province up to thenational average, which is needed to protectthe quality of higher education in this prov-ince.

Tuition and feesThe most dramatic downloading of costs

during the Conservative era occurred with re-spect to tuition fees. The Conservative gov-ernment permitted unlimited tuition fee in-creases for all graduate programs and certainprofessional and post-diploma programs, re-sulting in tuition fee increases from 300% to700% for programs such as Computer Ani-mation, Dental Hygiene, Law, Medicine andDentistry.

Ever increasing tuition fees have resultedin limiting access to higher education and in-creased debt loads for graduates. Over the past10 years, average university undergraduate tui-tion fees in Ontario increased by 137% incurrent dollars, from $2,076 in 1993-94 to$4,923 in 2003-04. The reality is that stu-dents are now funding more than 40% ofuniversity operating costs through tuition fees.Tuition fees as a proportion of university op-erating revenue exceeded even the Conserva-tives’ target share during their tenure. Thusfar, the Liberals under Dalton McGuinty havekept their campaign promise to freeze tuitionfees, and have provided $48.1 million to com-

pensate universities and colleges for lost rev-enue.

The punitive effects of Ontario’s studentassistance programs have compounded the im-pact of the dramatic rise in tuition. With theaverage debt load of a graduating undergradu-ate university student rising to more than$22,000, the previous government focussedon reducing loan default rates, rather thanfunding higher education so that studentsdon’t need to amass that debt in the first place.Despite the policy decision to set aside 30%of all fee increases to provide additional stu-dent assistance, the data show that, in fact,provincial student assistance in Ontario is indecline.

Inadequate student assistance will not solvethe problem of access, and neither will per-mitting private universities to operate in theprovince. In their campaign literature, theLiberals promised to enhance student assist-ance by expanding OSAP eligibility, as wellas providing tuition waivers to the most needy10% of students, which they estimate will help16,000 students pursue higher education.

In addition to these measures, the OntarioAlternative Budget urges the government tokeep universities accessible by making signifi-cant changes to student assistance in Ontario.The government should build upon its com-mitment to freeze tuition fees and improvestudent assistance in Ontario by reducing tui-tion fees by 10%; providing targeted assist-ance for students with dependents or specialneeds; expand work/study opportunities forstudents to earn while they study; expand in-terest relief for students with oppressive debtloads; aid in debt reduction for borrowers whohave significant difficulties in meeting debtobligations; and create a deferred tax statusfor interest paid on student loans. Punitive


Budget Document

student assistance policies affect not only stu-dents, but also the faculty and academic staffwho teach them. These measures, and a newattitude of cooperation with higher educationstakeholders in Ontario would go a long wayto improving both access, and the quality ofthe higher education experience.

Enhancing accessibility by introducing upfront, needs-based grants and other studentfinancial assistance reforms will require aninvestment of an additional $135 million.

Enrolment growthEnrolment at Ontario universities topped

280,000 students in September of 2003,growth of more than 60,000 over 2000 en-rolment, based on headcounts of students eli-gible for government funding, which reflectsthe increase of the double cohort. While uni-versities and colleges struggle to accommo-date the demands of this group of students,the province should be providing adequatefunding to institutions to prepare for the dra-matic enrolment increases expected until2015.

The double cohort is not a one-time phe-nomenon. As a result of demographic changes,an increase in participation rates and govern-ment-mandated secondary school changes,Ontario’s universities and colleges are stretch-ing to accommodate at least 115,000 addi-tional students between 2000 and 2010. Thesurge in enrolment began in 2002-03. ThatSeptember approximately 10,000 more stu-dents registered in first year university pro-grams than the Ministry of Training, Collegesand Universities had projected.

In the face of the most dramatic increasein enrolment since the 1960s, there is a short-age of faculty and non-academic staff at ourcolleges and universities. Not only are addi-

tional hires needed to accommodate the en-rolment surge, but also one-third of facultywill retire by the end of the decade and needto be replaced. Additional faculty are also re-quired to reduce Ontario’s student/facultyratio, which is the highest in the country. Theratio of students to faculty is a key indicatorof quality in higher education; students ben-efit enormously from direct access to thosewho teach them.

InfrastructureThe former Conservative government

chose to increase corporate influence onhigher education campuses with theSuperBuild program, which encouraged pub-lic-private partnerships (P3s) for the financ-ing, building and management of public in-frastructure. The record of P3s in Ontario andelsewhere has been highly blemished at bestand the postsecondary education sector is aprime example of P3s gone wrong.

Public infrastructure financing in whichprivate sector participation has been mandatedby government has resulted in inefficienciesand distortions through corporate influencethat have not served the public interest. Un-der the auspices of SuperBuild, and in the faceof pressing need for additional classroomspace, universities and colleges were requiredto provide matching funds for their capitalprojects, which disadvantaged some institu-tions. Inequities resulted from the private sec-tor determining the building priorities in thehigher education sector, and institutions arestruggling as some of the funding agreementscollapse. Universities and colleges have beenforced to redirect operating funding to financebuilding projects underway. The Ontario Al-ternative Budget would address higher edu-



cation infrastructure needs through publicfunding and control.

Restore funding to the national averageAfter a decade of systemic under funding

and dramatic enrolment increases, Ontario’suniversities and colleges are struggling tomaintain quality. The Ontario AlternativeBudget has focussed on providing higher edu-cation funding, which would bring universi-ties and colleges to the national average orabove. In a competitive knowledge basedeconomy, Canada’s richest province must in-vest in postsecondary education. With appro-priate funding, universities and colleges couldfocus on ensuring access; providing adequatestudent assistance provisions; hiring enoughprofessors to teach the rising numbers of stu-dents; and ensure that quality is not compro-mised.

Substantial new investment is essential toensuring that Ontario’s students have an op-portunity for a high quality, affordable andaccessible postsecondary education. To reversethe damage brought on by years of neglectand to provide for growth in student demand,the Ontario Alternative Budget will invest

$2.2 billion in new funding over and abovethe amount needed to maintain the real valueof funding.

Making the right choice: Buildingan early learning and child caresystem in Ontario

High quality early learning and child care isthe foundation for lifelong learning for allchildren, a fundamental element in reducingpoverty, ensuring women’s equality, provid-ing equity for children with special needs andfostering social inclusion. While the benefitsof early learning and child care (ELC) arewidely recognized, Ontario continues to facea severe child care crisis.

There no coherent system. The supply ofchild care spaces needed to meet the needs offamilies with young children has been stag-nant since 1995. Child care programs reportfinancial crises, difficulty recruiting and re-taining staff, escalating fees and deterioratingphysical environments. As a result, many regu-lated child care programs struggle to deliver“developmental” environments.

What post-secondary education needs

UniversitiesEnrolment increases $202 millionInfrastructure improvement $450 millionMove towards national average funding $860 million10% tuition cut $200 millionCAATSMove towards national average funding $298 millionEnrolment increases $85 millionInfrastructure improvement $55 million10% tuition cut $120 millionSTUDENT GRANTS PROGRAM $135 millionAnnual updates in funding to reflect enrolment growth and costs


Budget Document

The available stock of regulated child care- including regulated centre and family-basedchild care, nursery school, and after-schoolspaces - fails to meet the need of more than90% of children in Ontario. Among the 70%of families where mothers are in the paid la-bour force, available spaces would only meetthe needs of 12% of their children. Even whenquality services are available, most familiescannot afford them.

Child care, like other public services, suf-fered severe losses over the past eight years.Ontario’s spending on regulated child care hasbeen cut by more than $160 million since1995 (in constant 2001 dollars). The cutsmean that parents must shoulder an increas-ing portion of the costs of care. Ontario hasthe highest monthly fees for full-time, cen-tre-based care in Canada.

To further compound the financial crisisin the child care sector, provincialdownloading to municipalities in 1997 passedmany of the costs of wage grants, resourcecentres, and special needs programs to over-burdened municipalities. In some regions,municipalities have been forced to cut subsi-dized spaces for low-income families. Munici-pal waiting lists for subsidies exclude manyeligible parents and a variety of provincialpolicy changes have made it much more dif-ficult for low and moderate income parentsto gain access to child care.

Kindergarten is the only universal ELCprogram offered to Ontario children underage six and it too has taken a beating over thelast eight years. In 1995, the previous Con-servative government announced cuts of $100million to junior kindergarten (a 50% reduc-tion) and cancelled capital projects. Almostall school boards have been able to keep pro-viding some form of junior kindergarten but

they have to find the funds in their alreadystretched discretionary budgets to supportthem.

The first half of 2004 has seen the devel-opment of a new dimension in the child carecrisis, increasing the urgency for provincialsupport of regulated child care. Nine years ofprovincial under funding has caught up andlocal governments cannot sustain their childcare systems alone. In 2004, at least 8 mu-nicipal child care centres are threatened withclosure due to the inability of municipalitiesto fund their share of program costs. This isbecause the province, due largely to caps im-posed by the previous Tory government, is nolonger funding its full share of costs. It is sup-posed to cover 80%, and the municipality20%. However, across most of Ontario, theprovincial share has dropped to anywherefrom 65% to 75%, leaving municipalities tocover the difference out of their alreadystretched local resources.

The Ontario Alternative Budget’s proposalThe Ontario Alternative Budget’s plan pro-

poses the following measures to ensureaffordability and expand access to regulatedchild care:• fund all existing regulated, non-profit

spaces to make it possible to introduce amaximum $5 a day parental contribution;

• add a total of 20,000 new child care spaces;• provide an additional subsidy envelope to

ensure the participation of those familieswhere the $5 contribution remains a bar-rier to access; and

• fund pay equity measures to contribute tocontinuing child care quality standards andto ensure the adequate remuneration ofearly childhood educators.



A quality child care program at $5 a dayMeasures are needed to address the cur-

rent exorbitant child care fees. In Ontario, par-ents using centre-based child care typically payannual fees of $10,000 for an infant ($38 perday), $6,600 for a preschooler ($25 per day),and $4,000 for a school-age child ($13 perday for school days, $20 for in-service andsummer days). Fees for regulated family childcare are only slightly lower.

There are a number of possible approachesto the development of universal, affordablesystems of early learning and child care. A slid-ing scale model which ties parental fees to afamily’s ability to pay; integrating early learn-ing and child care with public education sys-tems; and introducing a modest flat fee pro-gram with subsidies for low and modest in-come families.

In Canada, the introduction of the Que-bec child care plan in the late 1990s capturedpublic imagination as a bold and visionaryinitiative. The plan won widespread publicsupport by funding care spaces so that theservice is available to all parents for $5 perday. Recently, the Charest government hascited fiscal pressures as a justification for hik-ing daily fees to $7 a day. This backwards movefor child care in Quebec has been met withsustained and widespread public opposition.

The $5 a day fee target for Ontario is abold benchmark that reinforces Early Child-hood Education as a universal program andtakes concrete first steps to put it in place.Our three-year proposal backs the develop-ment of universality within the program whileensuring that full time child care fees remainaffordable to modest and middle-incomefamilies.

It costs, on average, $30 a day to run aregulated child care space in Ontario. The On-

tario Alternative Budget would fund eachnon-profit, regulated space at $25 per day.This public investment would make it possi-ble to offer parents regulated child care at amaximum of $5 a day.

Our proposal will introduce an additionalsubsidy envelope to support the contributionof families with low and modest incomes, aswell as families with more than one child incare for whom costs are unaffordable. To be-gin with, we will provide sufficient fundingto fully cover the child care costs of one infour users and will adjust this amount as amore precise picture of the program emerges.

Expanding access to child careFamilies who need child care in Ontario

currently face a scarcity of spaces and longwaiting lists. Our program calls for 20,000new regulated, non-profit spaces to begin toaddress the needs of parents throughout theprovince.

To ensure equitable expansion, the distri-bution of new child care spaces will be pro-portionate to the population in each age co-hort (0-2, 3-5, 6-12). The experience in Que-bec shows us that the introduction of an af-fordable child care program results in an enor-mous rise in parental demand for services.Clearly, even after our proposal is imple-mented Ontario will still fall far short of thedemand for child care. It is difficult to esti-mate the exact number of spaces that will berequired.

We know that 1.3 million children undertwelve years have mothers in the paid labourforce. Many who are not in paid labour re-quire child care to support their training andeducational efforts. We also know that manyare not in the paid labour force for a variety


Budget Document

of reasons that include the unavailability ofaffordable child care.

The need for a more aggressive expansionis great and the main stumbling block has beenthe lack of sufficient political will on the partof both levels of senior government. Expand-ing Ontario’s child care system to the pointwhere it can respond to the needs of all fami-lies will require the training of new staff, anew institutional framework, building of newfacilities, and garnering of financial support.

Seizing opportunities for action on childcare

It has not been for a lack of resources oropportunities that early learning and care hasdeteriorated in Ontario. While the federal/provincial/territorial Early Childhood Devel-opment Agenda (ECDA) in September 2000promised action on common priorities forchildren, the previous Conservative govern-ment refused to spend any federal dollars onquality child care. Even as Ontario’s child caresystem crumbled, the province diverted a to-tal of $460 million in federal transfers awayfrom quality child care programs.

The Ontario government must make newprovincial dollars available to bolster federalefforts and work constructively towards build-ing a quality child care system that meets theneeds of children and families. Over the nexttwo years, the federal Early Childhood De-velopment Agreement will transfer approxi-mately $380 million per year to the province.In addition, the 2003 and 2004 federal budg-ets dedicated new dollars through the Multi-lateral Framework on Early Learning andChild Care (MFA) to those provinces withan interest of investing in regulated child care.Ontario’s share of these funds will be $58million in 2004-05, the first year, and $87

million in 2005-06. Although the new fed-eral transfer is less than what is needed, reach-ing federal, provincial and territorial agree-ment on the expansion of regulated child careis a promising step for families and should bea catalyst for action in Ontario.

With additional provincial dollars, themonies available from federal transfers wouldallow for immediate implementation of phaseone of the Alternative Budget’s proposal. Itwould also go a long way towards addressingthe urgent crisis in child care facing munici-pal governments.

Moving forward on the early yearsThe OAB is committed to the stabilization

and measured expansion of Ontario’s earlylearning and care system. Ontario can nolonger afford to neglect the developmentalneeds of our youngest children and to denysupport to parents enrolled in training or inthe workforce. Our plan will create a $5/daysystem of child care and increase the numberof licensed spaces by 20,000. This will bringour annual investment in the ECEC programto $1.195 billion. Of this amount, $800 mil-lion will replace the cost of the current exor-bitant child care fee system with a $5 a dayfee structure. A second amount of $230 mil-lion, including capital and operating costs, willresult in 20,000 new child care spaces.

Nearly half of all of the spaces of Ontario’sECEC system will be further subsidized toaccommodate the needs of low and modestincome families, as well as those families withmore than one child in care.

As well, the OAB will invest an additional$170 million in proxy pay equity measures tocontribute to continuing child care qualitystandards and to ensure the adequate remu-neration of early childhood educators.



The Ontario Alternative Budget proposesa prudent course for child care that lays a foun-dation for expansion of an affordable programand continues to allocate resources that willallow it to grow over time. The ultimate goalof a quality ELC system is to ensure that allfamilies, regardless of income, job status orgeography, have access to seamless, coordi-nated, and inclusive care services. Such abenchmark will require that ELC be viewedas a public priority with concomitant substan-tial multi-year investments. These investmentscoupled with planned systematic reforms andstrong partnerships with the education sys-tem are essential to the ongoing expansion ofearly learning and care and towards the goalof universal access to care.

Promoting social inclusion andfighting poverty

The OAB is committed to promoting socialinclusion and fighting poverty through a newmodel for income security and a system ofservices and supports to meet the diverse needsof Ontarians and their communities. Tack-ling deepening and persistent poverty andensuring the well-being of all Ontarians re-quires a three-pronged strategy that focuseson the following interrelated factors:

• a healthy labour market, where individu-als and families have access to jobs withgood wages and decent working condi-tions;

• quality social and community services thatinclude affordable housing and commu-nity programs such as child care; and

• strong income security programs.

Building a system that promotes the con-clusion of all Ontarians should be based onthe principles of universality, accessibility,comprehensiveness, accountability and de-mocratization, preventive care and qualitypublic services provided by unionized publicsector workers.

Income securityThe 2003 Ontario Alternative Budget

Technical Paper on social assistance started outwith the heading “Ontario’s welfare system isbroken.” One year later that assessment con-tinues to hold true.

Let’s look at the facts. The social assistancesystem in Ontario is almost 50 years old. Thesystem we have now is ostensibly the same asthe one we had in the mid-1960s, with onlysome minor differences. It is a system basedon fundamentally different labour marketdynamics of that time, when a job was a clearroute out of poverty and when the distinc-

Early childhood education and care program ($million)

3-year totalIntroduce $5 per day child care for current spaces 1,125Create 20,000 new spaces 130Capital costs for new spaces 100Additional subsidy envelope 63Pay equity 170Total cost 1,588Minus current provincial expenditure 452TOTAL 1,136


Budget Document

tion between those who worked and thosewho did not was much clearer. It was neverintended to handle part-time and temporarywork and wages that are far below the basiccosts of living: the situation now facing mostpeople at the bottom of the income ladderwhose labour market attachment is precari-ous.

It is a system that the public does not sup-port. While it is true that the erosion of pub-lic support for social assistance has been drivenby the belief — fostered by stereotyping —poor people are to blame for their own pov-erty, the fact remains that the design of thesystem tends to reinforce those perceptions.Welfare benefit structures were not designedto support the transition to employment, leastof all in an economy where that employmentis often very tenuous. And a lack of publicsupport is a major obstacle to building a moreeffective social assistance system and a moreinclusive society.

It is a system that social assistance recipi-ents do not support. Surveys conducted byfood banks and other community organiza-tions routinely hear that recipients are dissat-isfied with their welfare program. They pointto the endless maze of bureaucracy, the exces-sive and demeaning policing that regulates theday-to-day activities of their lives, and theoften ineffectual training and employmentsupports that do not take into account indi-vidual needs.

And it is a system that is wholly inadequatein meeting the basic needs of recipients. It hasnow been over eleven years since either wel-fare or disability rates in Ontario were raised(over the same period, the federally fundedOld Age Security system and the GuaranteedIncome Supplement (OAS/GIS) for low-in-come seniors was adjusted 44 times to keep

pace with inflation). Prior to 1993, the long-est period of time without an increase in so-cial assistance in Ontario was just 3 years, with23 increases in the 26 years since 1967. In-cluding inflation and the 21.6% cut imple-mented in 1995, welfare rates have declinedby about 38% since 1993. Disability rateshave been frozen since 1993. Rates are nowconsiderably below any measure of povertyor cost of basic needs currently available, in-cluding the Market Basket Measure, the LowIncome Cut-Off and the Sarlo-Fraser Insti-tute Poverty Line.

In search of a new anti-poverty strategy inOntario

The 1995 election campaign was a water-shed in the politics of social assistance inOntario. The Harris Conservatives used wel-fare as a “wedge issue”, exploiting public dis-satisfaction with the system and playing cyni-cally on the hopes of welfare recipients formeaningful employment.

Immediately after its election, the HarrisGovernment launched an unprecedented at-tack on the economic well-being of the mostdisadvantaged residents of the province. Basedon the claim that a less ‘generous’ systemwould force welfare recipients to get jobs, thegovernment reformed the system with a stick:• harsh cuts of 21.6% to social assistance

rates with the opportunity to “earn back”the lost income by taking jobs;

• forced participation in “workfare” pro-grams;

• the re-orientation of job training from find-ing good jobs to the “shortest route” to anyjob;

• a freeze in disability benefits; and• a regimen of poor bashing that blamed the

poor for their situation and their work ethic



while ignoring the structural realities thatimpeded their ability to move into self-suf-ficiency.

It was claimed that lowering the incomefloor would move people who, for reasons ofpersonal deficit refused to work like ordinarycitizens, into employment. Unfortunately,Ontario became a national leader in attack-ing the living standards of the poor. The stickapproach gained currency almost universallythroughout Canada, and most especially byconservative governments.

This view has proven itself to be a failure.A decade since the approach was introduced,poverty rates have shown no appreciable signsof decline. Homelessness is at an all-time high.Food bank use in many cities and across On-tario is at an all-time high, despite a growingeconomy. Even by the sine qua non standardof conservative policy — workforce partici-pation — the approach has not worked.

Last year Ontario’s current social assistancepopulation, both Ontario Works and OntarioDisability Support Plan, was remarkably nor-mal 4.7% compared to the post-war averageof 5%. The stick approach didn’t fix the sys-tem; it punished the poor. It is on the wayout.

Even a relatively conservative governmentin Quebec could not bring itself to continuethe stick approach in its recent budget, ob-serving that: “we weren’t getting the resultswe wanted.” Quebec has instead opted for re-investment in income security and employ-ment incentives to help people back to work.

Ontario is emerging from a long period ofretrenchment in its social assistance program.What is needed now is a significant and sub-stantial public debate on a new direction forincome security in Ontario. This debate is

needed to mobilize a public that, while beinggenerally opposed to the social assistance sys-tem as it currently exists, does believe in theneed for a strong social safety net. It needs totake into account the new realities of the la-bour market that have changed substantiallysince the recession of the early 1990s. Andcrucially, it needs to take into account the livedexperience of low-income Ontarians and theirinteraction with current programs.

The new Liberal government in Ontarioshould be taking the lead in initiating thisdebate. But unlike the last serious attempt atreviewing income security in Ontario — Tran-sitions — that reported just over fifteen yearsago, a public consultation on welfare cannotbe a delaying tactic or a recipe for inaction.The needs are such that the governmentshould set a firm deadline of one year to re-view and prepare for implementation a newstrategy to address income security in Ontario.

In the meantime, the Ontario AlternativeBudget is proposing what we consider to beinitial first steps in rebuilding and reinvest-ing in income security for working ageOntarians. The proposals fall into three cat-egories: first, measures to address basic incomeinadequacies; secondly, measures to buildupon the welfare to work provisions that cur-rently exist in the system; and third, meas-ures that enhance asset retention, an area thathas until recently been given short shrift insocial policy debates.

Building for a new income security model inOntario

The OAB is putting forth a plan that bal-ances the call for fundamental program re-view with the need to address the immediateincome inadequacies that place social assist-ance recipients at severe risk. Program review


Budget Document

cannot be an excuse for delay. It should aimfor implementation of a new system withinone year.

The goals of a reformed system should beto:• Provide benefits sufficient to cover the real

cost of living in Ontario;• Respond effectively and flexibly to the re-

alities of the labour markets in which so-cial assistance recipients seek to participate;

• Support the transitions from social assist-ance to work and ease the transition fromwork to social assistance for those who losetheir jobs and their EI benefits; and

• Meet the needs of all low-income Ontariofamilies and individuals for fair wages; ad-equate housing; high-quality, affordablechild care; accessible heath care; and op-portunity for their children.

This cannot be a long-term plan. The needfor change is urgent. And there is no pointpretending that it will not be expensive. Inaddition to the substantial amounts neededto address the current crisis detailed below,the Ontario Alternative Budget sets aside aminimum of $575 million for new programimplementation.

Immediate action on the current crisisOur proposed plan combines immediate

and achievable down-payments on the incomeneeds of social assistance recipients, whilebeginning to re-build the areas of highly sup-ported areas of social assistance that are ori-ented toward improving labour market attach-ment.

Income adequacyIn Ontario social assistance cheques are

comprised of two portions: the basic needs

allowance and the shelter allowance. As itsname implies, the shelter allowance is in-tended to cover the cost of shelter accommo-dations. Recipients receive an amount equalto the actual rent they pay up to a set maxi-mum. The recipient is then responsible formeeting any dollar amount paid in rent be-yond that maximum. For most recipients, thisentails diverting money from the food budget(basic needs allowance) in order to pay forthe cost of rent. For example, a family of threereceives a maximum shelter allowance of $554per month. If that family pays rent of $500per month, it would receive a shelter allow-ance equal to its rent ($500). If that familypays a rent of $600 per month, it would re-ceive the full $554 shelter allowance. How-ever, the additional $46 in rent must be metthrough other income sources. This is the re-ality for most recipients.

Low social assistance rates have forcedmany household into unstable homes as ris-ing rents and the elimination of funding forthe development of affordable housing haveplaced safe, secure homes out of welfare re-cipients’ price range. Municipalities across theprovince have documented the precarioushousing situation facing welfare recipientsbecause of inadequate welfare rates and thelink between low rates and increasing home-lessness. To provide stability in the housingsituation of welfare recipients, and to stem theincidence of economic eviction, the OAB pro-poses a “Shelter Enhancement” that would beavailable to all welfare recipients paying abovethe current maximum shelter allowance. ThisEnhancement would cover the difference be-tween the actual rent paid by the recipientand the maximum shelter allowance, andwould be payable on a monthly basis for aperiod of one year.



This will provide $400 million in addi-tional benefits to social assistance recipients— both those on welfare and those on dis-ability benefits — living in private housing.

The majority of Canadian families withchildren receive a benefit from the federal gov-ernment called the “National Child Tax Ben-efit.” Low-income families with children alsoreceive an extra amount called the NationalChild Tax Benefit Supplement (NCBS). Thissupplement is meant to help families pay forsuch necessities as food and clothing for theirchildren. However, some provinces, includ-ing Ontario, reduce social assistance chequesby the amount of the National Child Tax Ben-efit Supplement. This results in a singlemother with one child on social assistanceseeing her family’s annual NCBS payment of$1,511 deducted dollar-for-dollar from hermonthly social assistance payment. Thismoney is, in turn invested in other programsfor low-income families with 80% fundedthrough the province and 20% fundedthrough municipalities. Children, who makeup about half of social assistance beneficiar-ies, are now living with families whose ben-efits are only about half of the poverty line.The OAB will restore this benefit to familieson social assistance to help combat child pov-erty, while maintaining the programs fundedwith the reinvestment money.

This will put $200 million into the handsof families with children living on social as-sistance.

During the 2003 election, the Liberal partycommitted to a cost of living adjustment(COLA) for both Ontario Works and On-tario Disability Support Plan recipients. Thiswould result in an increase of about 3%, or$30 per month for a single parent with onechild. The OAB believes we can improve upon

the Liberal commitment by matching thecommitment made by the Conservative Partyduring the 2003 election to raise ODSP ratesby 5% in addition to the first year of a per-manent commitment to cost of living adjust-ment. We will therefore raise both the ODSPrates and the basic needs allowance of OW by5% plus cost of living as an immediate andachievable down-payment on in the incomesecurity needs of Ontarians, while recogniz-ing the need for continued future increases tobring rates in line with costs of living.

Including the inflation adjustment for2004, this change will add $310 million tosocial assistance payments.

Immediate action to ease the transitionfrom welfare to work

The OAB wants to make it simple for thosereceiving support to make the transition outof social assistance into the labour marketthrough constructive rather than punitivepolicies. The irony is that, despite its pur-ported emphasis on welfare-to-work, the pre-vious Conservative government did not up-date the employment oriented benefits alreadyavailable in the welfare program, nor the onesthey introduced when they cut welfare ratesand invited recipients to “earn the moneyback.” The OAB will begin the process of up-dating these welfare-to-work benefits by:• Doubling the Employment Start-Up Ben-

efit (ESUB), which was last raised in 1993,from $253 to $500. The ESUB is paid upto once per year, and helps Ontario Worksrecipients cover the costs associated withtaking paid employment.

• Index earnings exemptions in OntarioWorks from 1995. Earnings exemptionsallow Ontario Works recipients to receivemoney from employment without having


Budget Document

it deducted dollar-for-dollar from theirwelfare cheques, and therefore act as anincentive to take jobs.

Furthermore, we believe that making a pro-ductive and sustainable transition from socialassistance to work requires individualizedopportunity planning that takes into accountparticular needs. For example, recent immi-grants with high levels of education do notrequire the same job skills training as an ag-ing worker with out-of-date skills.

The OAB will invest up-front $250 mil-lion in new job training that will move awayfrom a “one-size-fits-all” approach that greatlyfrustrates Ontario Works and Ontario Dis-ability Support recipients to an opportunityplanning model that accommodates diverseneeds.

Asset retentionAssets have long been underestimated in

social policy circles. Current research indicatesthat assets help low-income people stay in thelabour force, and reduce the time spent onsocial assistance — both important goals. Butbefore qualifying for social assistance in On-tario, an applicant must become destitute byselling off or spending down accumulated as-sets:

• a single OW (welfare) recipient is allowedjust $520 in “liquid” assets;

• a single parent is allowed just $1,457 +$500 per child.

In fact, social assistance programs are theonly income security programs subject to as-set testing. It is inconceivable, for example,to imagine a senior being required to sell offassets in order to access public pension plans.While asset testing ensures that those apply-ing for and receiving social assistance benefitsare truly in need, this must be balanced withthe goals of social assistance programs, whichare to help recipients achieve self-sufficiency.

The OAB will start the process of re-evalu-ating the role of assets in social policy by ex-empting Registered Education Savings Plans(RESPs) from Ontario’s social assistance assetrules, for both welfare and disability benefici-aries. RESPs help families save for their chil-dren’s education and in the process break thecycle of poverty. They are considered by thepublic to be a beneficial investment vehiclefor all Ontarians, and can be exempted withlittle or no cost to the province.

A short-term program in perspectiveWhile these changes will result in an in-

crease in disposable income for social assist-

Social assistance – cost of reform ($ million)

Set shelter allowance at actual rent (interim) $400Increase social assistance basic allowance by 5% $100Increase ODSP rates by 5% $120Restore National Child Benefit $200New investment in job training $250Increase employment start-up benefit $10Exempt RESP savings from asset restrictions $0Index earnings exemptions in Ontario Works $20Reserve for comprehensive social assistance reform $575TOTAL $1,700



ance recipients, they are not enough. Substan-tial reform of the entire system is needed onan urgent basis. But social assistance recipi-ents cannot be expected to wait for a new sys-tem — even a new system that is developedon an urgent basis. At the same time, it wouldbe a mistake simply to put more money intothe current system, and leave it as it is.

A new model is needed for income secu-rity that promotes the social inclusion of eve-ryone in Ontario. That is the goal.

Homes for all

Ontario’s affordable housing crisis remains ata desperate level. Fully 565,000 households(that’s about 1.5 million women, men andchildren) are paying more than 30% of theirhousehold income on rent — the standardwarning sign that rents are unaffordable.That’s 42% of the 1.3 million renter house-holds in the province.

The provincial housing crisis has two di-mensions: supply and affordability. There aresimply not enough homes to meet the hous-ing needs of all Ontarians. And the homesthat are available have rents that are too highfor low, moderate and often even middle-in-come renter households.

On the supply side, Ontario has suffered anet loss of rental units at a time when the needfor new homes is rising rapidly. The provincelost 13,258 private rental units since 1995,according to a 2003 technical report from theCanadian Centre for Policy Alternatives. Addto this the estimated 58,800 subsidized unitscut by the Harris government from 1995 to2002, and the total adds up to more than72,000 units since 1995 — enough to pro-vide homes for almost 200,000 Ontarians.

While the province’s renters have suffereda net loss of housing, the need for new unitsgrows every year. Federal and provincial stud-ies estimate that Ontario needs between12,000 to 20,000 new rental units annuallyto meet the growing need for new affordablehomes.

As the shortfall in new rental housing growslarger, the rental vacancy rate for Ontario rosein 2003 to 3.5% from 2.7% in 2002. Somelobbyists for private sector landlords and de-velopment interests claim that the higher va-cancy rate signals an end to the affordablehousing crisis in Ontario. In fact, the afford-able crisis is continuing — and is generatingmore homelessness.

The Canada Mortgage and Housing Cor-poration rental market survey for 2003 reportsthat there were a total of 21,656 vacant unitsin all Ontario. Compare that to the socialhousing waiting lists in the Greater TorontoArea alone, which have more than 100,000households seeking an affordable place to callhome.

On the affordability side, rents in the pri-vate market have increased to the point that agrowing number of low, moderate and evenmiddle-income renter households have liter-ally been priced out of the market. Or, in thewords of a CMHC economist in 2002, rentshave reached a “price-sensitive threshold” andmany tenants simply cannot afford to paythem. So tenants are forced to double and tri-ple up — two, three or more families livingin a one-bedroom unit — and many face eco-nomic eviction as they cannot afford to paythe rent, plus feed the kids or cover the utilitybills.

A recent survey by Statistics Canada showsthat half of all renter households in Ontariohave annual incomes of $23,215 or less. Based


Budget Document

on the standard affordability calculation of30%, about 900,000 renter households canonly afford rents of $580 a month or less —yet average rents are 44% higher.

The McGuinty Liberals campaigned in thefall of 2003 on a promise to re-build Ontario’spublic services. Their specific housing com-mitments include:• “almost 20,000 new housing units for

needy families”;• “a housing allowance for low-income fami-

lies [to] provide direct, immediate hous-ing relief for 35,000 families”;

• “a provincial rent bank to help tenants withshort-term arrears so that they can keeptheir homes”;

• a “priority to the development of afford-able housing on Ontario government-owned lands”;

• the creation of a new “Ontario Mortgageand Housing Partnership to provide com-petitive financing rates for non-profit, co-operative and commercial developers whowant to build rental housing in Ontario”;and

• a “significant increase [to] supportive hous-ing options for those suffering from men-tal illness”, approximately 6,600 units overfour years.

The homeless, low-income tenants andhousing advocates welcomed the Liberalpromises, even as they warned that the num-

bers were too low to meet the real needs ofOntario’s renters.

To date, the Liberals have announced $10million for the rent bank and re-announced apromise made by the Harris government inMay of 2002 to provide $2,000 per unit tohelp build new affordable housing.

The Ontario Alternative Budget proposesa socially and fiscally responsible affordablehousing program that includes:• $650 million annually for 9,300 new pro-

vincially-funded affordable units;• $72 million annually for 2,400 new units

as Ontario’s share of the federal-provincialAffordable Housing Program;

• $178 million annually for 37,000 new rentsupplement units; and

• $200 million annually for a housing reha-bilitation fund.

As in previous years, the OAB also pro-poses to return the cost of social housing pro-grams to the provincial level, where they be-long. The Harris government downloaded thecost of co-op and non-profit housing to mu-nicipalities starting in 1998.

The OAB housing plan would fund thecreation of 11,700 new social housing unitsevery year in Ontario. These new homes,along with the 2,000 or so private rental unitsthat are currently being built annually inOntario, would — over time — ease the af-

Affordable housing ($ million)

A new Ontario Housing Supply Program @ 9,300 units per year $650Ontario’s share of Federal-Provincial Affordable Housing Program @ 2,400 units per year(fully funded as of year one) $72Rent supplements for 40,000 new rent supplement units $178Housing rehabilitation fund $200Province re-assumes responsibility for housing $850



fordable housing crisis and end homelessnessin the province.

About one-quarter of the new rent supple-ment units would be allocated to the new so-cial supply to ensure that low and moderate-income households could afford the rents. Theremaining 28,000 units would go to low-in-come households in existing social or privateunits that are struggling to pay their rent.

As Ontario’s rental housing supply ages,especially the former public housing (knownas Ontario Housing Corporation), the hous-ing rehabilitation fund would allow housingmanagers to maintain the buildings to aproper standard.

Health care

The McGuinty government has attempted toposition itself as the saviour of Medicare inCanada. McGuinty himself has committed toa leadership role in the federal-provincial ne-gotiations, and has spoken about his govern-ment’s commitment to a universal, publicly-funded health care system, and to account-ability in the system. However, despite itsstrong words, the McGuinty government hasfailed in its leadership role. The governmenthas failed to state its support for not for profitdelivery of health care. Furthermore, it hasnot called on the federal government to en-force the Canada Health Act and to imposeconditions on federal transfers.

But McGuinty’s most damaging failure ofleadership is his failure to challenge the as-sumption that health care costs are rising outof control and beyond our ability to pay.While this assumption is commonly acceptedby critics of our public health insurance sys-tem and is used as a point of departure for

advocates of privatization, it are not supportedby the facts.

The Romanow Commission considered allof the evidence, and came to the opposite con-clusion. Recently, a study by the federal De-partment of Finance leaked to the Globe andMail confirms it.4 The federal Finance De-partment report estimates that health care willremain affordable for the next 40 years. Thefederal Finance Department report estimatesthat governments’ share of total health careexpenses for the country will likely remain lessthan 10% of the size of the Canadianeconomy. Currently, public and private healthcare account for 9.8% of GDP.

The Romanow Commission asked for evi-dence that would support a move towardsincreased for profit health care. All of thosevested interests, with all those potential prof-its, could not provide the Romanow Com-mission with any evidence that for-profithealth care was cheaper, better quality or moreefficient.

The McGuinty government’s failure tochallenge the unfounded claim that the sys-tem is unaffordable is unfortunate, because itraises questions about the ultimate goals ofhis government’s legitimate efforts to intro-duce accountability into the system and toaccelerate primary care reform.

That skepticism about the government’sgoals is reinforced by its actions since it tookoffice in October, 2003.

It has failed to effectively stop the P3 (theso-called public-private-partnership) hospitalsas it promised. It has failed to return the MRIand CT Scans Clinics to the not-for-profitsystem, as it promised. And it has failed inthe drafting of Bill 8 the “Commitment tothe Future of Medicare” Act.


Budget Document

Prior to the last provincial election cam-paign, Premier’s McGuinty promised Ontariothat he would make William Olser HealthCentre in Brampton and the Royal OttawaHospital publicly owned and publicly fi-nanced. After the election, the McGuintygovernment reneged on its promise. In No-vember 2003, the government announced itwould be proceeding with plans to redevelopthe hospitals as P3s. Not only did the Liber-als break their pre-election promise aboutWilliam Osler and Royal Ottawa, but the Lib-erals are moving to create more so called pub-lic/private partnerships. The P3 option is nowbeing considered for eight other facilities.

We know from international experiencethat P3 hospitals drive up costs and provide alower quality of care. Furthermore, there is alack of transparency and accountability in theinformation that has been made availableabout these hospitals. 5 We also know that P3sare a more expensive financing method. Esti-mates suggest that each $1 billion in capitalraised by a P3 model costs taxpayers almost$7 million more than it would if it were fi-nanced by the government.6

In November 2003, the new governmentintroduced its “Commitment to the Futureof Medicare” Act. This legislation was de-scribed as protecting universal public medi-care and protecting the health care systemfrom privatization.7 While the Bill’s pream-ble has much to commend it, the Act itself isvirtually the same as its predecessor, the 1986Health Care Accessibility Act. It focuses solelyon accountability of health care providers togovernment. It does not provide for furtheraccountability of the government to the pub-lic on health care decisions or spending. Theexperience of P3 hospitals in Brampton and

Ottawa illustrate the need for the governmentto be more accountable in its actions.

The original drafts of the Bill permittedthe government to open up collective agree-ments. This serious interference with the rightof workers and their unions to collectively bar-gain caused great concern to the labour move-ment and others in Ontario. In March 2004,the government proposed and voted in sup-port of key amendments that significantlynarrowed the powers granted to the Ministerof Health.8 These amendments removed anypotential authority that the Bill gave the Min-ister to impose accountability agreements onindividual practitioners and trade unions, toissue compliance directives and orders againstindividual practitioners and trade unions, andto amend or alter collective agreements.

However, the accountability regime re-mains a fundamental feature of the Bill. Itcould be used to facilitate increased centrali-zation, regionalization, and privatization anddivestment of hospital and other health careservices.

The public should be concerned about theMinister’s power to control and direct theoperation and restructuring of the health caresystem through accountability and perform-ance. The Bill grants to the Minister of Healthand to cabinet unprecedented centralizedpower to compel fundamental restructuringin the delivery of hospital services with lim-ited accountability to the public for these ac-tions.

StabilizationThe entire health care system in Ontario

needs stable, multi-year funding that will, atminimum, attempt to keep up with inflation.In addition to the targeted increases in fund-ing outlined below, the Alternative Budget will



increase the base health care budget by 3%per year. That will result in an increase in fund-ing of $840 million in each year.

People: The backbone of health careAs the 2003 OAB paper “The Cure is

Worse than What Ails Us” demonstrated,there is a shortage of health care workers inOntario.

Staffing levels in Ontario’s hospital andlong-term care facilities have dropped dra-matically. In 1995, there were 168 hospitalstaff and 93 long-term care staff for every10,000 Ontarians. Today there are 153 hos-pital staff and 75 long-term care staff per10,000. This budget will rebuild our healthcare system by rebuilding staffing.

Had the ratio of staff to population beenmaintained, there would be 18,000 more hos-pital workers and nearly 22,000 more long-term care workers in Ontario. To address thisproblem, $1.1 billion dollars will be directedto increase staffing in hospitals and long-termcare facilities. Some of these monies will bedirected specifically to hiring registered nurses.

Ontario has the lowest nurse to popula-tion ratio in the country — 65 RNs per10,000 compared to 78.6 for the rest of thecountry.9 Excessive workloads along with anaging workforce have resulted in high rates ofinjury. Early retirements further exacerbate thesituation. Ontario has a high share of part-time and casual employment — currently43% but as high as 50% in recent years. Thiscasualization of nursing has negative implica-tions for the continuity and safety of patientcare. As we saw during the SARS crisis, it alsohas a detrimental effect on public health asRNs require multiple jobs at multiple facili-ties to support themselves.

The McGuinty government must keep itscampaign pledge to create 8,000 additionalnursing positions and make sure that 70% ofregistered nurses in Ontario are working full-time. In earmarking $50 million in this fiscalyear to funding 800 full-time nurses the gov-ernment has made a start towards fulfillingthis commitment.

Now, the government must maintain thatcommitment by establishing a four year fund-ing schedule which will increase the numberof RNs and the number of full time positions.Hiring an additional 8,000 full time registerednurses costs $500 million annually. The costof bringing the current registered nursingwork force up to a ratio of 70% full timeworkers would be a further $340 million an-nually.

The remaining funds from a $1.1 billionannual commitment to staffing would be di-rected toward training, upgrading and hiringa wide range of health care workers that arein short supply in all sectors of the health caresystem.

Home careThe Romanow Commission identified the

expansion of the home care system as an es-sential element of an expanded Medicare sys-tem. The Liberal government made an elec-tion promise to invest in home care. In 1996,the Conservative Government established 43regional Community Care Access Centres(CCACs) to govern the delivery of nursinghome visits, homemaking services and admis-sions to long-term care facilities. The com-munity care access centres were supposed tomake the provision of home care more effi-cient by introducing “market discipline.” Infact, the opposite has occurred. A 2001 studyby the Ontario Health Coalition found that


Budget Document

these reforms resulted in: a lack of standardsand quality control; burgeoning waiting lists;a lack of assessment of population need; se-vere staffing shortages; and increased admin-istrative costs through duplication, waste andprofit-taking.10

In May 2001, the Conservative govern-ment announced a funding “freeze” that es-sentially cut millions from the CCAC budg-ets, leaving them $175 million short of meet-ing demand. Not surprisingly, services werecut, hospitals backed up and a flood of com-plaints ensued. The result is that personal sup-port services were cut for patients across On-tario. There was a reduction of 115,000 pa-tients served from April 1, 2001 to April 1,2003. In this period six million hours of serv-ice were cut - a 30% drop.11

The Alternative Budget would restore andexpand funding to home care. This expan-sion in funding would help restore non-profitservices in home care. This would require$600 million.

Primary health care reformPrimary Health Care Reform will trans-

form Ontario’s Medicare program. While theLiberal government’s expansion of familyhealth networks is a step in the right direc-tion, it doesn’t go far enough. The primaryhealth care system should change from a froma doctor-dominated, fee-for-service practicesto an expansion of Community Health Cen-tres open seven days a week, 24 hours a day.

Salary based teams of health care workers, in-cluding doctors, nurses, nurse practitioners,therapists and counsellors will work togetherto make the most of all the talents of the healthcare team.

Significant start up and transition costs re-quire an investment of $300 million for pri-mary care reform.

Environment

Ontario’s environmental deficitPublic health, an efficient economy, and

our children’s future: all of these depend on aclean environment. Repeated public opinionpolling shows that a huge majority of On-tario citizens support strong environmentallaws, even in times of recession and govern-ment deficit cutting. Yet one of the Harris Evesera’s most dubious achievements was the un-doing of the entire environmental protectionregime in this province. Its four-part strategy— dismantle environmental laws, weaken therole of government, shut out the public, andsell off our natural heritage — essentially crip-pled the province’s ability to regulate environ-mental quality in the public interest.

This budget would begin to change thatreality.

The massive cuts of the last eight years haveleft staff capacity down 40% and the com-bined operating and capital budgets of theMinistry of the Environment (MOE) and the

Health care summary ($ million)

Health care staffing enhancement 1,100Long-term and home care reform 600Primary care reform 300Maintain existing base (3%) 837



Ministry of Natural Resources (MNR) cut byover $100 million. As our environmental chal-lenges escalate, Ontario no longer has the ca-pacity (let alone the political will) even tomonitor environmental performance, muchless to enforce existing environmental stand-ards or to develop and implement the newstandards that are badly needed.

An effective environmental policy, whichseriously intends to address Ontario’s grow-ing “environmental deficit”, must start by re-instating the enforcement and planning ca-pacity in both the MOE and MNR. We arecommitted to doing that.

We would increase funding to MOE by$80 million to restore capacity, and to MNRby $150 million to develop the tools and poli-cies needed to manage our province’s resourceswell.

The catastrophe at Walkerton delivered aclear message. We cannot take safe, cleandrinking water for granted. It also points tothe need for Ontario to rebuild its sewer andwater infrastructure. A new Clean Water Fundwould devote $250 million per year in newfunding to sewage and water treatment capi-tal projects.

Adequate funding for these two key min-istries would provide the capacity to embarkon the fundamental reforms that are neededin Ontario. It will not be easy to undo theimpacts of the recent gross mismanagementof environmental issues, but with adequateresources we can develop the initiatives weneed.

A start would be the development of crea-tive technology, forcing regulation which canmake an important contribution to bringingOntario the clean air, clean water and healthyfood that we need. Making a priority the de-velopment of a more energy and materials ef-

ficient economy, less dependent on fossil fu-els and rooted in innovation, would pay divi-dends to all of Ontario residents, not just high-income earners.

Ontario pays a tremendous price every dayfor the environmental recklessness of this gov-ernment. The Ontario College of Family Phy-sicians is concerned that in southern OntarioCanada’s highest levels of smog caused by ur-ban sprawl, automobiles, industry and coal-fired power plants, on both sides of theCanada U.S. border, cause premature deathsfor up to 6,000 Ontarians each year. If thegovernment really was concerned about“health issues”, as it claims, it would get seri-ous about Ontario air quality issues immedi-ately.

It would be providing funding for exten-sive additions to public transport all over On-tario, rather than new spending on highways.It would be providing funds to promote moresustainable forms of energy and energy con-servation, not looking to privatize Ontario’s“white elephant” nuclear plants.

This budget commits $300 million for sup-port to public transport and other energy-ef-ficient transportation options. And a signifi-cant amount of the community economicdevelopment funds can be used for energy-efficient renovations and water conservationinitiatives, which deliver employment at thelocal level while accomplishing larger environ-mental goals. (See “Restoring Basic PublicServices”, below.)

Urban sprawl is at the heart of many ofthe environmental challenges we face.Whether it is on the car-choked freeways ofsouthern Ontario or the short-sighted devel-opment proposals to pave over much of theOak Ridges Moraine, the lack of effective landuse planning and the Government’s abdica-


Budget Document

tion of responsibility is handcuffing our abil-ity to act in our own best interests.

One of the first acts of the previous Gov-ernment was to throw out key changes to thePlanning Act in Ontario which had been de-veloped over four years of consensus buildingunder the Sewell Commission. Effective landuse planning must be at the heart of Ontariopolicy development to provide the vision andthe ideas that we need to confront the mis-takes of the past. Confronting urban sprawland reintroducing public control over thedevelopment industry would be a key part ofour agenda to reduce greenhouse gases pro-duced in Ontario and to promote the inten-sification of housing in urban areas.

We need to extend the Countdown AcidRain Program. We need a Safe Drinking Wa-ter Act and a comprehensive Water Policy, aPollution Prevention Planning Act, and newPesticide Standards. We need an 80% reduc-tion in garbage disposal and a commitmentto meet or exceed Canada’s commitmentsunder the Kyoto Protocol, complete with astrategy to make it happen.

Ontario needs a public lands policy respect-ful of: First Nation treaty rights and the con-stitutional obligation to consult before deci-sions are taken; the need to manage Crownlands in the public trust; biodiversity protec-tion which assures long-term ecosystemsustainability; and the need for “real” pro-tected areas safe from mining, hunting, andforestry, rather than the Lands for Life set of

policies which promote the intensification offorestry and mining on public lands.

There is much that needs to be done toaddress Ontario’s environmental deficit, butan excellent place to start would be to re-ori-ent the Ontario tax system.

We should penalize excessive energy useand promote material efficiency in oureconomy and use incentives to promote effi-ciency and creative solutions to our pollutionchallenges. Investments in energy efficiencyhave been found to produce four times morejobs than equivalent spending in new suppliesof conventional energy. We are lagging behindEurope and Japan in utilizing new energy-ef-ficient technologies and techniques, eventhough these new approaches could reduceenergy cost, improve air quality, improve pub-lic health, stimulate new industries, and cre-ate new jobs. We must begin the transition toa renewable energy economy now and aban-don the deadly coal-fired energy stationsOntario Hydro is so dependent upon.

Many of the ideas we can use have alreadybeen developed in other jurisdictions aroundthe world. In these days of rising worldwidetemperatures and shrinking ice caps, what weneed in Ontario is the political will to take onour environmental deficit for the crucial chal-lenge it really is. This budget would be animportant first step in the right direction andprovide a base for much more innovative andcreative solutions for the future.

Environmental investments

Rebuilding the Ministry of Environment $80 millionRebuilding the Ministry of Natural Resources $150 millionThe Clean Water Fund $250 million



Restoring basic public services

Worker protectionIn one of its first acts, the Harris govern-

ment destroyed the Ministry of Labour’s ca-pacity to enforce Ontario’s worker protectionlaws. Huge cuts to budget and staff, and tothe laws themselves, have given bad bosses agreen light to exploit. The OAB would re-store the budget to the Ministry of Labourwith an investment of $25 million, and re-establish the Wage Protection Fund.

Community social developmentOne of the many unfortunate conse-

quences of the transfer of more than $12 bil-lion in tax cuts to Ontario’s upper middle classhas been the elimination of hundreds of mil-lions of support dollars for essential social andeconomic infrastructure.

Thousands of voluntary cultural, social,recreational and community action groupshave been de-funded.

This key component of Ontario’s socialfabric will be supported by the OAB at $225million per year.

Rebuilding infrastructure

That Ontario faces a crisis in public infrastruc-ture is hardly news. That fact has been obvi-ous for more than a decade. The evidence ofthe wide and growing gap between what weneed and what we have is uncontested. Andthe basis of the problem — under-investmentby the provincial government and the agen-cies for which it is ultimately responsible —is equally obvious.

As a province, we have not been buildingnew public infrastructure to keep pace withneed. We have not built a single unit of socialhousing in nearly ten years. The WalkertonInquiry condemned our water and sewagetreatment facilities as inadequate. Public tran-sit investments — particularly in the GreaterToronto Area — are falling far short of de-mand.

Nearly 20 years of negative pressure on op-erating funding for schools, hospitals, collegesand universities and municipalities has lim-ited investment in new facilities to accommo-date growth and driven a steady deteriorationin the state of good repair of existing facilitiesas funds have been diverted from capital intooperations, and maintenance has been de-ferred, and deferred and deferred again.

Protecting working people

Restore Ministry of Labour $25 millionWage Protection Fund $20 million

Supporting communities

Community Economic Development $225 millionTransportation and Transit $300 millionNative Affairs $8 million


Budget Document

Estimates of the infrastructure fundingshortfall amount to billions of dollars, in everysector of the public economy.

According to Statistics Canada, Ontario’spublic infrastructure is valued at $240 billion.The Government of Canada owns approxi-mately 12%. The rest — an estimated $211billion — is either owned directly by the pro-vincial government or owned by transfer pay-ment agencies for which the provincial gov-ernment is ultimately responsible. Just tomaintain this capital stock in a state of goodrepair through life cycle replacement is esti-mated to cost 3% of the value of the stock,currently about $6 billion a year. That amountwill tend to increase over time as the size ofthe capital stock grows and as repair and re-placement unit costs increase.

That amount doesn’t take into account theneed for public infrastructure investment tokeep pace with growth. Since for most publicinfrastructure, demand is related to the needsof the economy, we should expect to have toincrease the stock of public infrastructure at arate roughly equal to the rate of real growthin the economy. With long-term real growthat roughly 3%, annual capital expansion re-quirements will also require an investment ofapproximately $6 billion, indexed to unitcosts.

And these numbers do not address thebacklog of deferred maintenance and unmetneeds for new facilities created by prior years’funding constraints.

None of this should be surprising.What is surprising is the failure of succes-

sive governments to come to terms with theproblem.

Governments are approaching the infra-structure funding problem as if there is somemagic, undiscovered pot of money out there

that will enable them to avoid paying the po-litical price for years of neglect — as if in-volvement of the private sector in public in-frastructure is some kind of magic bullet forfunding shortfalls. Unfortunately for govern-ments trying to avoid tough choices, the ideathat private sector involvement will enablegovernments to avoid costs is an illusion.

Even the starting premise is false. It is nottrue that the private sector is not now involvedin either the construction or the financing ofpublic infrastructure. Almost all infrastructureconstruction is carried out under contract byprivate construction companies and builders.And the financing of public infrastructure isgenerally funded through the issuance ofbonds, which are sold in private sector mar-kets.

There are five primary differences betweentraditional public sector capital investmentand so-called public-private-partnerships.First, the private sector developer generallyretains some degree of control of the asset fora considerable period of time, often as the ex-clusive operator. Second, the private sectordeveloper expects to earn a profit over andabove normal borrowing costs, and that ex-pectation is build into the financing structurefor the project. Third, the private sector de-veloper, as the borrower of the capital neededto fund the project, will pay interest based onits credit rating, which will generally be lowerthan that of any government-backed agency.That higher interest will be built into the fi-nancing structure for the project. Fourth, insome cases income is generated for the projectthrough user fees. Fifth, the cost of the projectwill not appear on the government’s bookswhen the project is completed. Instead, thecosts will appear on the books spread out over



time as the payments are made under the con-tract.

Three of these differences are clearly nega-tive. One need only look to Highway 407 foran example of the problems associated withloss of public control. The profit and higherinterest costs inherent in P3s amount to pay-ing a private operator for a financing transac-tion which the government could do itself forsubstantially less money.

One is neutral. The only obstacle to thegovernment itself levying user charges is po-litical. It would appear that governments in-terested in P3s believe that the public is morewilling to accept a user charge levied by a pri-vate operator than one levied by the govern-ment.

And the final difference is a quirk of thenonsensical way governments account forcapital investments. Under the accountingrules that applied until 2001 in Ontario, allcapital spending was counted as a cash cost inthe year the investment was made, rather thanspread out over the economic life of the asset,as is the practice in the private sector. Evennow, with new rules in place for the province’sown capital spending, capital funding fortransfer payment agencies of the government— municipalities, school boards, universities,hospitals — are still accounted for on a cashbasis. The one substantive difference betweenP3 financing and direct government financ-ing is that P3 financing costs to the govern-ment can be spread out over the life of theproject.

In other words, with P3s, we are giving uppublic control and incurring substantiallyhigher costs to deal with an accounting prob-lem.

Until the problem of how to account forand pay for public infrastructure investments

is addressed and resolved, governments willcontinue to face an artificial political obstacleto making those investments, and will con-tinue to be vulnerable to costly and short-sighted public private partnerships that arelittle more than costly money-launderingschemes designed to make it appear as if tax-payers are not on the hook for the costs.

As an interim arrangement designed topump substantial additional funding into re-building our public infrastructure, the Alter-native Budget for 2004-5 proposes a substan-tial increase in annual allocations for capitalinvestment:• $250 million per year for clean water in-

vestments;• $925 million per year for social housing

investments;• $500 million per year for college and uni-

versity capital improvement;• $250 million per year for school boards to

reduce outstanding deferred maintenance;• $300 million for transit; and• $1,500 million per year for a general pub-

lic capital renewal fund.

In total, including the $2.5 billion in an-nual capital investments in the base budget,the Alternative Budget for 2004-5 calls for abudget allocation of $6,225 million annually,in 2004-5 dollars, adjusted to reflect annualpopulation growth and inflation. If normalcost sharing arrangements can be made withthe federal government, this increased fund-ing allocation will have a substantial impacton Ontario’s capital investment shortfall.

In addition, the substantial increases insupport for local governments will enable mu-nicipalities to focus on renewing services, in-cluding their capital investment needs. Theproposal to return responsibility for housing


Budget Document

funding to the province and the gas tax shar-ing proposal alone will direct more than $1.3billion into the municipal sector.

Federal – Provincial – Municipalissues

While Ontario’s budget and public investmentdeficits are entirely self-inflicted, thanks to theHarris-Eves era of unaffordable tax cuts, thestark fiscal imbalance in Canada’s politicalsystem poses a significant long-term problemfor the health of our public services.

It has long been said of the Canadian fis-cal system that local governments have the re-sponsibility, but not the money; the federalgovernment has the money, but not the re-sponsibility; and the provincial governmentssit in the middle. Indeed, intergovernmentalfiscal arrangements have been a preoccupa-tion in Canada for most of the country’s ex-istence.

Historically, about once a generation, westudy ourselves and develop new arrangementsbetween provinces and the federal governmentdesigned to address fiscal capacity imbalancesboth among individual provinces and betweenthe provinces as a group and the federal gov-ernment.

In the 1960s and early 1970s, we createdfiscal arrangements that made possible the de-velopment and maintenance of nationalstandards for health, social services and post-secondary education. Federal governmentbudget cutbacks, which began in the mid-1980s and continuing until the late 1990s,destroyed those fiscal arrangements. Federalgovernment transfers to provincial govern-ments shrank dramatically. Provincial govern-ments responded by squeezing their health

care systems and pushing responsibilities andcosts down onto their transfer payment agen-cies.

While health care funding is the mostprominent issue in federal-provincial fiscal ar-rangements, it is by no means the only one.The shrinking fiscal equalization program ishaving a profound negative impact on serv-ices in Canada’s “have not” provinces. The endof the Canada Assistance Plan and the reduc-tions in federal government support for theunemployed have effectively shifted the bur-den of economic stabilization onto provin-cial governments, whose revenue bases aresimply not robust enough to cope. Post-sec-ondary educational institutions have beendamaged by the exit of the federal governmentfrom direct funding. Direct assistance to stu-dents is not an adequate response.

Because big city governments sit at thefront line in meeting service needs and at thebottom of the food chain when it comes torevenue, all of these issues have come to a headin the demand for a “new deal” for Canada’smajor cities. Although much lip service hasbeen paid to the idea of a new deal by boththe federal and provincial governments, thereare ominous signs that even at this stage inthe debate, senior governments — most no-tably the federal government — do not get it.

This is not a problem of “communities”,or of “municipalities” in general. It is a bigcity problem. And it demands responses thatrecognize that fact.

The allocation of shared gas tax revenueamong municipalities and the seriousness withwhich affordable housing is taken as a financ-ing issue have emerged as powerful symbols.A distribution of gas tax revenue based onexpenditures on public transit would demon-strate recognition of these issues as big city



issues. A distribution based on populationwould demonstrate a total lack of understand-ing of the problem. Likewise, refusing to fundan adequate social housing program indicatesa failure to appreciate the nature of the issue.

We believe that these issues must be re-solved, on an urgent basis. However, we havenot based our 2004-5 budget on the assump-tion that they will.

Our revenue projections assume that fed-eral health transfer increases will be limitedto those already announced and that other fed-eral transfers will increase at the rate of growthof the economy.

Any and all increases in federal funding willbe directed towards new public investments.Increased health care funding will be investedin accelerating change in the system: deepen-ing primary care reform; expanding homecare; extending Ontario’s prescription drugplan.

As a first step towards a rationalization oftaxation arrangements, we are proposing toharmonize Ontario’s corporate income tax sys-tem with the federal system. Tax system trans-fers for the arts and culture will be convertedinto targeted grant programs, delivering thesame dollars in a much more effective way.

The most regressive single tax change madeby the federal and Ontario governments inrecent years was the reduction in the capitalgains inclusion rate from 75% to 50%. Thathad the effect of reducing taxes on unearnedincome by one third. And because gainswithin RRSPs and gains on principal resi-dences are already totally exempt, the benefitfrom these changes went almost entirely tovery high-income taxpayers.

Mike Harris and Ernie Eves were the driv-ers of this dramatically regressive change inCanadian taxes. Ontario pushed the federal

government into its first stage reduction, to62.5% and then pre-empted the federal gov-ernment by reducing its own inclusion rateeven more, to 50%.

Unfortunately, it is difficult to turn a raceto the bottom into a race to the top. Prov-inces may be able to start a race to the bot-tom; it is virtually impossible to reverse theprocess from the provincial level.

Ontario should pressure the Federal Gov-ernment to restore the principle that a buckis a buck in Canada’s corporate and personalincome tax systems. Rather than returning tothe 75% inclusion rate, the rate should beincreased to 100% with the capital gains baseindexed to the cost of living.

If this measure were taken by the FederalGovernment and followed by Ontario, pro-vincial revenue would increase by at least $1.6billion.12 This in turn would enable a $1.6billion reduction in the size of the OAB 2004-5 tax proposal.

With respect to Ontario’s cities, the Alter-native Budget makes a substantial down pay-ment on a “new deal”.

Under our proposal, Ontario will:• reassume responsibility for funding afford-

able housing, at a cost of $850 millionannually;

• reinstate the 75% funding formula forpublic transit capital;

• Transfer over $500 million annually ingasoline and motor vehicle fuel tax revenueto local governments based on public tran-sit expenditures;

• make an annual contribution of $1.5 bil-lion a year to a capital renewal fund, muchof which will be directed towards local gov-ernment initiatives;


Budget Document

• reform and renew the social assistance sys-tem, which will alleviate some costs cur-rently borne by local governments;

• restore the ability of school boards to par-ticipate fully in supporting services to chil-dren;

• implement the recommendations of theWalkerton Inquiry by creating a clean wa-ter fund at $250 million per year; and

• provide additional direct funding for thenon-profit organizations whose work is soimportant to developing and maintainingcommunity social infrastructure.



Investing in public services renewal — summary Subtotal

Health CareStaffing restoration 1,100Home Care Reform 600Primary Care Reform 300Maintain value of current base (3% annual) 837 2,837Social AssistanceSet shelter allowance at actual rent (interim) 400Increase social assistance basic allowance by 5% 100Increase ODSP rates by 5% 120Restore National Child Benefit by ending clawback 200New investment in job training 250Index earnings exemptions in Ontario Works 20Increase employment start-up benefit 10Exempt RESP savings from asset restrictions 0Reserve for comprehensive social assitance reform 575 1,675HousingNew Ontario Housing Supply Program 9,300 units) 650Federal-Provincial Program (2,400 units) 72Social housing rehabilitation fund 200Province re-assume responsibility for housing 850Rent supplements for new & existing housing (37,000 units) 178 1,950Early years and child careThe Early Years Program and $5 a day child care 1,134 1,134Education -- Elementary and SecondaryAnnual update -- 3% 459Actual cost of employing teachers 600Actual cost of school operations (1997 updated) 240Learning opportunites grant and ESL 306Adult education 150Rozanski benchmark updating outstanding 520Rozanski new investments outstanding 314Community access funding 75Class size reduction 340Cancel province-wide testing program -50 2,954Education -- post-secondaryUniversities -- Enrolment increases 202Universities -- Infrastructure improvement 450Universities -- Move towards national average funding 860Universities -- 10% tuition cut 200CAATS -- Move towards national average funding 298CAATS -- Enrolment increases 85CAATS -- Infrastructure improvement 55CAATS -- 10% tuition cut 120Annual update all budgets -- 3%Student Grants Program 135 2,405


Budget Document

Environmental ProtectionRestore the capacity of the Ministry of Environment 80Restore capacity of Ministry of Natural Resources 150Clean Water Fund 250 480Protecting Working PeopleRestore Ministry of Labour 25Wage Protection Fund 20 45Capital Renewal Fund 1,500 1,500Supporting CommunitiesCommunity social infrastructure. 225Transportation and Transit 3002 cents per litre of gas tax 418Native Affairs 8 951

Increases to sustain real per capita programs not otherwise specified 399 399

Total program funding increase, 2004-5 $ 16,330

Of which: funding to offset cost and population increases included aboveHealth 739Social Assistance 106Elementary and Secondary Education 259Post-Secondary Education 106Real per capita maintenance, other programs 399TOTAL cost and population growth offsets 1,609

Net new program spending 14,721

Investing in public services renewal — summarySubtotal



Section III:Fiscal framework

The tax changes introduced by theMcGuinty Government in the fall of 2003,as important as they may be symbolically, areonly a start.

We estimate that the Harris-Eves era taxcuts have reduced Ontario’s fiscal capacity bynearly $18 billion. However, the extendedperiod of export-led growth that coincidedwith the first six years of the Harris Govern-ment gave rise to substantial growth in On-tario’s tax bases. As a result, it is not necessaryto replace all of the foregone revenue to bridgethe gap between Ontario’s fiscal capacity andthe funding needed to rebuild public services.

We reject explicitly, however, the sugges-tion that Ontario’s revenue raising capacitycan or indeed should be rebuilt through in-creasing user charges. In the first place, theexisting user charge base is not even close tosufficient to solve the problem. A doublingof motor vehicle and drivers’ licence fees,LCBO profits and other fees would raise about$3.5 billion — still not enough to solve thefiscal problem. More important, as a recentstudy by OCUFA has demonstrated, user feeshave already been increased substantially bythe Harris-Eves governments. It is simply badpublic policy to respond to reduced capacityin the progressive taxes in the system by in-creasing the most regressive sources of revenuein the system.14

The OAB fiscal framework for 2004-5 setsout the basis for a substantial reinvestment inpublic services over a four-year period.

By the 2004-5 fiscal year, the budgetary im-pact of the tax cuts introduced and plannedby the Harris and Eves governments wouldhave reached $17.6 billion per year, distrib-uted as follows:• $10.8 billion in personal income tax cuts;• $4.1 billion in corporate income tax cuts;• $0.9 billion in Employer Health Tax cuts;• $1.0 billion in other tax cuts; and• $0.9 billion in carrying costs for money

borrowed to finance tax cut deficits.13

Ontario cannot begin to redress the dam-age caused to its public economy in the Harris-Eves lost years without dealing with the de-struction of this province’s fiscal capacity thataccompanied it. The fact is that, thanks tothe tax cuts, the province no longer has thefiscal capacity to pay for the services we need,and without which this province cannot fulfillits promise. No amount of blaming the pre-vious government for the fiscal mess the Lib-erals inherited — no matter how justified thatblame might be — can avoid the harsh factthat, to enable Ontario to reinvest in renewedpublic services, Ontario’s fiscal capacity willalso have to be rebuilt.

And no matter how often PremierMcGuinty declares that he will not burdenOntario taxpayers with the cost of rebuildingpublic services in this province, the only wayto raise the revenue we need is from Ontariotaxpayers.


Budget Document

The framework is based on the followinggoals and assumptions:• financing of $14.7 billion in renewal in-

vestments over a 4-year period;• maintaining the real, per capita value of

the spending base as it existed in 2003-4;• real economic growth for 2004 and 2005

as forecast by the five largest charteredbanks in their fall, 2002 forecasts and 3.0%per year thereafter;

• an increase of 0.45% in Ontario’s growthrate in 2005 and 2006 as a result of thesimulative effect of the implementation ofthe Alternative Budget;

• inflation as forecast by the chartered banksfor 2004 and 2005, and 2% thereafter; and

• a balanced budget by the fourth fiscal year.

For the purposes of this forecast, we haveassumed that the deficit for 2003-4 will be asestimated in Ontario Finances for the 3rd

Quarter of 2003-4. Recent reports that thedeficit for 2003-4 may reach $8 billion willnot affect these projections because any revi-

sions will involve one-time-only reductionsin outstanding liabilities.

The key economic assumptions, on a cal-endar year basis, are presented in table 3.

Over the four-year period, the frameworkprovides for renewal investments of $14.7billion in 2004-5 dollars, while maintainingthe real, per capita value of the 2003-4 ex-penditure base.

Our plan will wipe out a substantial fiscaldeficit and restore Ontario’s public economyto 14.5% of GDP — still slightly below the14.9% average share in the 20 years beforethe Conservatives were elected in 1995, un-der governments of all three major politicalparties.

Our plan calls for the implementation ofthe proposed new investments gradually overthe four years: 50% of those investments in2004-5 and the remainder spread over the sub-sequent three years. Correspondingly, approxi-mately 50% of our proposed $10.1 billion ($2004-5) in revenue recovery would be imple-mented in 2004-5 with the spread over the

2004 2005 2006 2007 2008Real GDP 2.7% 3.65% 3.65% 3% 3%Inflation 1.6% 1.8% 2.0% 2.0% 2.0%Nominal (real + inflation) 4.30% 5.45% 5.65% 5.00% 5.00%Population 1.00% 1.00% 1.00% 1.00% 1.00%10-year Government Bonds 5.1% 5.60% 5.80% 5.80% 5.80%

Table 2: Economic assumptions15

OAB 2004-5 fiscal framework2003-4 2004-5 2005-6 2006-7 2007-8

Projected Projected Projected Projected ProjectedRevenue 69.5 80.1 86.3 93.2 99.2Program & Capital 64.4 72.8 78.2 84.1 88.2Interest 10.0 10.3 10.2 10.0 10.0Contingencies 0.7 1.0 1.0 1.0 1.0Balance (5.6) (4.0) (3.0) (2.0) (0.0)

Table 3 — Fiscal framework summary (all figures $billion)



following three years. To the extent that eco-nomic growth exceeds our conservative as-sumptions, and revenue runs ahead of pro-

Phase-in of revenue measures and investments2004-5 2005-6 2006-7 2007-8

RevenueCurrent value of total ($ billion) 10.1 11.0 11.4 11.7% implemented 54% 61% 84% 100%$ implemented ($ billion) 5.4 6.7 9.6 11.7InvestmentsCurrent value of total 14.8 15.2 15.7 16.1% implemented 50% 67% 90% 100%$ implemented ($ billion) 7.4 10.1 14.1 16.1

Table 4 – Phase-in summary (all figures $ billion)

jections, the full revenue recovery package willnot be required and will not be fully imple-mented.


Budget Document

Section IV:Financing the fiscal framework

income in excess of $100,000, 2% abovethe current top bracket

All Ontarians have paid a price, in reducedor deteriorating public services, to achieve theOntario Conservatives’ single-minded goal ofreducing taxes. And we believe that all On-tario taxpayers can and should share, basedon their ability to pay, in the additional coststhat will be incurred as we rebuild public serv-ices.

Much of the additional fiscal capacity weneed can be recovered by stabilizing corpo-rate income tax rates that should never havebeen cut in the first place.

We will introduce fairness into the systemfor funding health care by ensuring that everyemployer makes a contribution to the healthcare system through a flat rate employer healthtax. We will target a fixed 25% share of healthcare costs to be funded from the EHT, mov-ing towards that target over a four-year pe-riod.

We believe that a portion of the cost shouldbe generated through increases in the PersonalIncome Tax — increases that would be paidby all Ontarians, based on their ability to pay.

Spreading the renewal of public servicesover a two year period means that it does notrequire substantial additional sources of rev-enue to get us back on a sustainable track.The recommended tax increase is modest: anincrease in all personal income tax rates of 5%.This is a very important element of the OAB

The revenue recovery measures required byour budget framework are significant. Thesemeasures are required to eliminate the twosubstantial deficits left behind by the Harris-Eves era: a multi-billion dollar fiscal deficit;and a debilitating public services investmentgap.

Approximately one third of our proposedrevenue recovery package will be devoted tothe elimination of the on-going portion of the2003-4 deficit. The remainder will fund the60% of our proposed new investments thatcannot be funded from economic growth.

Revenue packageThe OAB revenue package for 2003-4 to2004-5 is based on the following objectives:• generate the revenue needed to finance

services renewal;• ensure that all Ontario taxpayers share in

the financing of public services renewalthrough the personal income tax.

• spread tax increases over the four-year pe-riod;

• reverse the Harris Government’s race-to-the-bottom legacy of concessionary corpo-rate tax rates, restoring rates to their pre-2000 levels;

• establish a structure for the EmployerHealth Tax that reflects the substantial ben-efit to ALL Ontario employers from pub-licly funded health insurance;

• reaffirm commitment to progressive taxa-tion with a new tax brackets applicable to



in that it acknowledges that, since everybodybenefits from a better public economy, every-body, who is able, should pitch in to help re-build it. That means all taxpayers have a roleto play.

In addition, to offset some — but by nomeans all — of the exceptional tax reductionsprovided to high-income Ontarians by theConservative government, we call for a mar-ginal tax rate increase of 2% for income inexcess $100,000 per year.

These changes will restore about 40% ofthe personal income tax cuts implemented bythe Harris and Evens Governments between1996 and 2003.

Corporate tax rates will be rolled back totheir 2000 level and Ontario’s corporate in-come tax base will be harmonized with thefederal base, eliminating approximately $1.1billion in Ontario-only tax expenditures. Afurther $200 million in tax expenditures di-rected towards the arts and culture will beconverted into targeted grants.

Tobacco taxes will be increased to the west-ern Canadian standard of $32 per carton.

Revenue measures ($ million)2004-5 $

Personal income tax 2,295Employer Health Tax 3,096Corporate income tax rates 2,267Corporate income tax loopholes 1,157Gasoline and motor vehicle fuel 418Tobacco 463Tax administration 418

Table 5: Sources of additional revenue

Examples of personal income tax impactsIncome level Impact of PIT changes$35,000 $80 increase$50,000 $150 increase$100,000 $650 increase$185,000 $4,000 increase

Motor vehicle fuel and gasoline taxes willbe increased by 2 cents per litre to generaterevenue for sharing with municipalities fortransit.

The revenue package is summarized in ta-ble 5.

Revenue summary

Personal Income Tax• A 5% increase in each Ontario tax rate;• Introduce a new tax bracket 2% above cur-

rent maximum on income in excess of$100,000.

Corporate income tax rates.• Restore corporate income tax rates to lev-

els existing prior to 2000.

Corporate tax expenditures• Reduce cost of Harris-Eves era corporate

tax expenditures by eliminating some andconverting others to direct grants, reduc-ing the total cost of tax expenditures inexcess of those provided for in the FederalCorporate Income Tax by 80%.

Employer Health Tax• Immediately eliminate graduated rate

structure and replace it with a flat rate taxof 1.95% on all payroll, and on the in-comes of self-employed individuals andover a four-year period phase in a tax ratesufficient to cover 25% of health care op-erating costs (estimated rate, 2.7%).


Budget Document

Tobacco taxation• Increase tobacco taxes by $5.00 per car-

ton, putting Ontario among the Canadianleaders in pricing tobacco as a disincentivefor smoking.

Motor vehicle fuel taxation• Increase motor vehicle fuel tax by 2 cents

per litre.

Revenue recovery from tax administration• Following up from repeated recommenda-

tions by the Provincial Auditor, generate1% more revenue from the existing taxsystem through tougher enforcement.



Appendix I:Additional background on revenue measures

Since the graduated rate was based on to-tal payroll rather than the pay of individualemployees, an individual earning $200,000 ayear in a oneemployee business would pay thepreferential rate whereas a minimum wageemployee in a supermarket would pay the fullrate. In its first budget, the Harris Govern-ment compounded the unfairness. It replacedthe graduated structure with a blanket exemp-tion for the first $400,000 of annual payroll.In addition to being unjustifiable on fairnessgrounds, ironically, this exemption is not evenprimarily of benefit to small business.

The Fair Tax Commission’s analysis of theEmployer Health Tax found that two thirdsof the benefit from an exemption for the first$100,000 of payroll would go to employerswith annual payrolls in excess of $400,000.Using data from the same Fair Tax Commis-sion Technical Paper on the EHT, we estimatethat the Harris Government’s EHT exemp-tion reduces EHT revenue by a total of $893million in 2003-4 compared to what wouldhave been raised on the preCSR graduatedscale. More than 54% of the benefit from theHarris exemption went to employers withpayrolls in excess of $400,000 a year.

In addition to the problems of fairness andtargeting of the EHT exemption, there is afurther problem in principle. Public healthinsurance is not only a major benefit to Ca-nadian individuals and families, it is also asignificant competitive advantage for Cana-dian business. The EHT is the only tax levy

Personal income tax

The OAB 2002-3 proposal is for two newincome tax measures:• Increase each tax rate by 5% — for exam-

ple, the bottom rate would increase from6.05% to 6.35%.

• Add a new 2% tax bracket on incomes over$100,000.

Paying for health care —the Employer Health Tax

When the Ontario Employer Health Tax(EHT) was introduced in the late 1980s as areplacement for OHIP premiums, it includeda graduated rate structure. The rate was 0.98%for employers with total payrolls of less than$200,000, increasing on a graduated scale to1.95% on payrolls exceeding $400,000.

It was the only payroll tax levied in Canadawith a graduated rate structure. In its analysisof the tax, the Ontario Fair Tax Commissionconcluded that the graduated structure inplace at the time was not appropriate. Al-though it was presumably designed to pro-vide relief to small business, benefit from therate structure concession actually bore verylittle relationship to the size or nature of abusiness or its ability to pay the tax.

The fact that payroll taxes tend to be shiftedback onto employees raised further questionsabout the fairness of the system.


Budget Document

that reflects in any way that competitive ad-vantage, and in fact covers only a fraction ofthe cost of OHIP.

Eliminating the Harris Government’s EHTexemption give-away and moving to a singlerate of EHT would raise an additional $1.1billion. This change would take effect withthe 2004-5 budget.

Thereafter, the tax rate would be adjustedand reviewed annually to maintain a 25% ra-tio between EHT revenues and provincialbudgetary expenditures on health care, laggedby one year. The EHT rate will be adjusted toachieve this target over a four-year period. Weestimate that the rate required to achieve the25% target in 2007-8 will be 2.7% comparedwith the current rate of 1.95%.

Corporate income taxation

The Harris Government has proudly declaredits intention to start, and win, a race to thebottom in corporate taxation in NorthAmerica.

There is no evidence that this policy willhave any impact, other than to deprive thepeople of Ontario of revenue from the profit-making activities that take place here and toreduce the contribution of the corporate sec-tor to the financing of the public services onwhich much of their earnings potential de-pends.

Information tabled as part of the 2003 Fed-eral Budget shows that corporate tax rates inOntario are already below those in the keycompeting jurisdictions in the United States.

All corporate tax rates — including thesmall business rate — will be maintained attheir levels prior to January 1, 2000.

In addition, all of the many corporate taxgive-aways — corporate tax expenditures —of the Harris-Eves era will be reviewed andeither eliminated or converted into equiva-lent, publicly accountable grant programs, ata cost savings of 80%.

Tobacco taxation

In the early 1990s, the tobacco industry per-suaded the Government of Canada that hightaxes on tobacco products in Canada weregiving rise to a massive increase in tobaccoproduct smuggling. According to tobacco in-dustry reports, Canadian_manufactured ciga-rettes exported to the United States and smug-gled back into Canada were taking up a sub-stantial proportion of the market for Cana-dian cigarettes.

Despite widespread evidence that steady in-creases in tobacco taxation over the years hada real impact on smoking by young people,the Federal Government met the industry’srequest and reduced its taxes. But rather thansimply lower federal excise taxes on cigarettes,the Federal Government chose to lever corre-sponding reductions in provincial taxes. Inprovinces that chose to lower their taxes, fed-eral taxes would be reduced. In provinces thatdid not choose to give the industry a break,there would be no federal tax reduction.

Ontario reduced its taxes, as did Quebec.Other provinces either reduced taxes by lesseramounts, or did not reduce taxes at all.

It is now evident that this policy shift wasa significant mistake. Tobacco use by young,firsttime smokers is on the increase. Thepromised dramatic reductions in smugglingactivity did not materialize, and to the extent



that smuggling has declined, the change hasbeen attributed to other factors.

The Federal Government signalled its viewthat this policy was a failure by restoring aportion of the tax that was cut in 1993 andby taking the tobacco industry to court.

Ontario has been moving gradually to re-cover revenue lost in the early 1990s. The Lib-erals have made a commitment to move On-tario’s tobacco taxation levels to the currentCanadian average. The problem with thatstrategy is that Ontario itself brings the aver-age down. We believe that Ontario should bea leader in Canada in all aspects of tobaccopolicy, including taxation. Ontario’s rates

should be increased beyond the Liberals’promise to match the $32 per carton rate inAlberta, BC and Saskatchewan.

That would raise just over $500 million.

Gasoline tax

To offset a portion of the subsidy currentlyprovided for road use and urban sprawl, andto generate the additional revenue requiredfor revenue sharing for urban transit, the gaso-line and motor vehicle fuel taxes will be in-creased by 1 cent per litre, raising approxi-mately $410 million.


Budget Document

1 See below, health care section.2 Because the government has not restated its rev-

enue and expenditures to reflect the integrationof electricity sector expenses for years prior to2002-3, the currently stated revenue and ex-penditure shares of GDP are not comparable tothe historical data. For the purposes of compari-son, current data are adjusted to reflect a basisconsistent with historical measures.

3 Source: Department of Finance, Ottawa, unpub-lished data, October 2002.

4 “Medicare Study Challenges Crisis Scenario”,The Globe and Mail, 15 April, 2004.

5 Toronto Health Coalition Submission, OntarioPre-Budget Consultations, Toronto, February11, 2004

6 ibid, p.67 “Notes Concerning Bill 8 The Commitment to

the Future of Medicare Act” Ontario Council ofHospital Unions Brief to the Standing Commit-tee on Justice and Social Policy of the OntarioLegislature, February 12, 2004.

Endnotes

8 Sack Goldblatt Mitchell, Analysis of the Effectof Bill 8 Amendments on the Validity and En-forceability of Collective Agreements, March 11,2004.

9 Doris Grinspun Speaking Notes: Standing Com-mittee on Finance and Economic Affairs, Pre-Budget Hearings, February 11, 2004.

10 Secrets in the House: Home Care reform in On-tario: 1997-2000. Ontario Health Coalition,2001

11 Ontario Health Coalition Backgrounder, HomeCare, November , 2003.

12 $1.6 billion is the estimated cost in 2004-5 ofthe reduction in the inclusion rate from 75% to50%.

13 OAB estimates: variance from Department ofFinance results from the fact that the OAB esti-mate is a more comprehensive estimate of cuts.

14 Choose Change or Loose Change: User Fees areso 20th Century - April 2004, Vol.5 No.2

15 Not including growth impact of OAB of 0.45%in 2005 and 2006.

Canadian Centre for Policy Alternatives410-75 rue Albert Street

Ottawa ON K1P 5E7

http://www.policyalternatives.ca

the ontario alternative b u d g e t 2004 · 2015-02-24 · dalton mcguinty declaring that he ... a...

Documents