The first budget from Ontario Premier Doug Ford and his “Open For Business” government predicts that the province, like the rest of Canada, is headed for an economic slowdown.
After ending the 15-year reign of the Ontario Liberals last June, the new Progressive Conservative government tabled a fiscal plan Thursday at Queen’s Park that shows the province’s economy will expand by 1.4 per cent in 2019, 1.6 per cent in 2020 and 1.5 per cent in 2021.
According to the plan, the relatively moderate output in Ontario’s future will follow economic growth last year of 2.2 per cent.
“There was a time when Ontario was the engine of Confederation,” said Ontario Finance Minister Vic Fedeli, according to a copy of a budget speech he was set to give Thursday afternoon. “After a decade and a half of economic mismanagement by the previous government, our engine is sputtering.”
In attempting to kick-start the province’s motor, the Ontario Tories are following the lead of the federal Liberal government.
After a decade and a half of economic mismanagement by the previous government, our engine is sputtering
The budget says the provincial government will provide $3.8-billion in tax savings over six years via the “Ontario Job Creation Investment Incentive,” which the budget says “parallels” the boost to capital cost allowances the federal government outlined in its fall update.
Ontario is obligated to mirror Ottawa on the move under a tax-collection agreement, but the province had pushed for it prior to the federal government’s official announcement.
The measures allow for immediate expensing of manufacturing and processing machinery and equipment, among other things, and will cost the province $615 million for 2018-19 and around $1.1 billion for 2019-20.
“By providing faster writeoffs of capital investments, this incentive will encourage businesses to invest in Ontario now and create jobs for the people of Ontario,” the budget says.
Only assets bought after Nov. 20, 2018, will qualify, with the measure to be phased out from 2024 to 2027. According to the province, the incentive will create an estimated 50,000 to 93,000 net new jobs and add between $7 billion and $10 billion in net new business investment.
The pick-me-up comes amid concerns about Canadian competitiveness following tax reform in the United States. Those reforms in the United States not only included accelerated depreciation, but a sweeping tax cut as well.
The Ontario Tories had promised a cut to the corporate tax rate in their campaign platform, but the government says their incentive will have the desired effect of lowering Ontario’s average marginal effective tax rate for corporations.
That rate, the budget says, will fall to 12.6 per cent in 2019 from 16 per cent last year, below the 18.7 per cent average in the U.S. this year following tax reform.
“We’ve done something … in our opinion and in the opinion of others, (that) is a lot better,” Fedeli told reporters when asked about the missing corporate-tax cut.
The finance minister added that when the government consulted with businesses, the expensing incentive was what they had wanted.
“It brings relief immediately,” Fedeli said. “And it drops us down farther than the states now, and so we protected the businesses by doing that.”
While a recession is not very likely in the next few quarters, this probability is gradually rising
The Ford government’s latest forecast shows a deficit of $11.7 billion for the 2018-19 fiscal year, to be followed by a string of shrinking shortfalls that will end with a surplus in 2023–24.
However, with the tax help, the province is not predicting it will crack the 2-per-cent mark for annual economic growth in any year between now and 2024.
While a more sluggish economy was not unexpected, the provincial government has revised the outlook from a fall update, which came before December’s serious slide in the stock markets and which had projected 1.8-per-cent growth this year and 1.7 per cent in 2020. The same update had predicted 2-per-cent growth for Ontario in 2018, an expectation that was actually surpassed.
Ontario’s forecast also challenges any expectation of a recession brought on by the imposition of the federal government’s carbon tax (in Ontario at least). That possibility was raised by Premier Ford, who has regularly railed against the climate measure.
“Ontario’s economy is expected to grow at a steady pace over the 2019 to 2024 period, moderating from recent years mainly due to a less supportive external environment,” the budget says.
Ontario’s latest budget was delivered as the possibility of a Canadian recession is still seen as relatively low.
On Wednesday, Bank of Nova Scotia released an economics report that said the likelihood of a recession in Canada in 2019-20 was “small but rising.”
“While a recession is not very likely in the next few quarters, this probability is gradually rising: the model-implied probability of a recession in Canada increases to 11 per cent in 2020,” the report said. “If Canadian consumer confidence starts to deteriorate in the coming months, the probability of a recession will rise further.”