This afternoon, Ontario Finance Minister Vic Fedeli delivered the Progressive Conservative government’s first Fall Economic Statement (FES). The delivery of Ontario’s Economic Outlook is an opportunity for the sitting government to not only reflect on its early achievements, but also to update the public on the broad thematic areas it plans to pursue and rollout a handful of specific policy announcements.

Under the narrative of “Making Ontario Open for Business,” the PC government’s first major fiscal plan (the previous 2018 Budget was rolled out by the Liberal government), is focused largely on eliminating or reviewing previous programs the government deemed either inefficient or too costly. With no election looming until 2022, the PCs have the benefit of time on their side to make difficult and unpopular decisions now, early in the mandate and with enough road ahead that voters will likely have moved on well before the next election. While previous Liberal fiscal plans were framed as opportunities to invest to encourage growth, the PC government’s FES takes a more restrained approach, with a revised real GDP growth projection (down to 2.0 per cent from 2.2 per cent projected in the 2018 Budget) and a lower nominal GDP growth forecast over the 2019 to 2021 period.

Fiscal update

The FES indicates a revised budget deficit of $14.5 billion. Although there was limited detail on its “meaningful debt reduction policy” to come, the government argues it will return to balance “in a responsible, pragmatic way.” It also suggested it has realized $3.2 billion in savings from program spending reviews and cuts, but much of this was offset by revenue losses from the cancellation of the cap-and-trade program, which the government has argued will save taxpayers $260 a year on gas, home heating, and other costs.

Confirming previous news

The FES confirmed several items that the government, again following longstanding tradition, leaked to media in the days leading up to the formal rollout of its plan.

• The introduction of the Low-Income Individuals and Families Tax Credit (LIFT), widely seen as the government’s response to its cancellation of the final planned increase to the minimum wage. The plan will ensure that the vast majority of those earning $30,000 per year or less will pay no personal income taxes at all when they file their 2019 tax returns. The measure will provide tax relief to 1.1 million people in Ontario.
• The elimination of the standalone offices of the Environmental Commissioner (being folded into the Auditor General), Ontario Child Advocate (being merged with the Ombudsman) and the French Language Services Commissioner.
• Expanded retail hours for the sale of alcohol, to 9am-11pm, seven days a week, which will match cannabis retail hours.

Health care

The PC government will invest in 6,000 new long-term care beds (at a cost of $300 million) and reiterated its commitment to spend $1.9 billion over 10 years on mental health.

The government also provided additional detail on OHIP+ changes: starting in March 2019, children and youth under the age of 25 who are not covered by private plans will continue to receive coverage for eligible prescription medications from the government; children and youth who are covered by private insurance will bill those plans – changes the government suggests will generate annual savings of at least $250 million.

The government also announced that it will examine the Ontario Drug Benefit Program “with the objective of creating an easier to understand, more consistent and more sustainable drug system.”

On the increasingly-important topic of Personal Support Workers, the government again announced the cancellation of a planned initiative, this time by winding down the Self‐Directed Personal Support Services Ontario agency in order “to reduce the administrative burden of delivering home care.” Responsibility around services and support will remain with Local Health Integration Networks (LHINs).

Tax changes

Changes to treatment of passive investment income earned by small businesses

The PC government announced that if the federal government introduces the immediate expensing of depreciable assets similar to the United States, Ontario will mirror the measure.

The province also announced that it will not proceed with the previous government’s plan to mirror the federal government’s measure to phase out access to the small business corporate income tax (CIT) rate based on the amount of passive investment income earned by a corporation. The PC government argued that had it proceeded with the 2018 Budget proposal, it would have reduced or eliminated the benefit of the lower small business CIT rate for some of Ontario’s small businesses. The PC government will propose legislation to ensure that Ontario will not mirror this new federal restriction, and all eligible Ontario small businesses will continue to receive the Ontario small business deduction.

Increase to Employer Health Tax (EHT) exemption

Ontario announced that for eligible private-sector employers, the amount of payroll exempt from the EHT will increase from the first $450,000 of payroll to the first $490,000 in 2019.

Changes to R&D tax credits

The PC government announced that it will not implement a change proposed in the 2018 Budget that would have linked a corporation’s tax credit rate to the level of its investment in research and development. The government suggested it will ensure that support provided for research and development is effective and efficient.

Transportation

While the language was vague, the government announced amendments to the Metrolinx Act, 2006 that are likely to give the Ministry of Transportation greater powers in transit planning and result in measurable governance changes.

The government also confirmed that the province will develop a plan to upload responsibility for the Toronto Transit Commission subway infrastructure from the City of Toronto to the Province.

WSIB review

While the government pointed to the reduction in WSIB premium rates as a benefit to businesses, it announced the launch of a review of the workers compensation system to “assess whether risks are being appropriately considered while providing rate predictability for employers.”

Political fundraising

The government is introducing legislation that would reduce the allowances to registered political parties and constituency associations in 2021, before fully eliminating allowances in 2022. Notably, the PC government is also raising the limit for political donations to $1,600 per year, up from $1,200, and Ministers, MPPs, their top staffers, and candidates will again be allowed to attend political fundraising events.

Rental housing

The government announced the cancellation of the previous government’s $100 million Development Charges Rebate Program, as well as the reintroduction of the rent control exemption, which will apply to new rental units first occupied after November 15, 2018.

However, it is still unclear what specifically constitutes a “new unit,” including whether a new-build or a basement apartment being rented out for the first time would apply.

Cap-and-trade elimination/federal carbon tax

Despite numerous (39) mentions of the carbon tax, there was little new within the FES, other than new transparency measures to list the additional costs of the federal carbon tax on services including natural gas and gasoline.

Red tape and interprovincial barriers

The government also followed the longstanding tradition of setting a target for red tape reduction – this time, 25 per cent by 2022.

Notably, the government will also relinquish its veto power over national pipeline projects.

Next Steps – 2019 Budget Consultations

Despite the looming holiday season and House rising, hard work lies ahead for new PC government. To prepare the 2019 Ontario Budget, the Minister of Finance and the Parliamentary Assistant to the Minister of Finance will soon meet with communities across the province, beginning in December 2018.

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