The 2009 Ontario Budget: Big deficits, big spending

Single sales tax plan is the government’s only major showstopper

090325_daltonndwight1If imitation is truly the sincerest form of flattery, it’s safe to say Ontario’s got a crush on the federal government. Mirroring the federal Conservatives’ pre-emptive strikes in the weeks leading up to their January budget, the McGuinty government announced well before Thursday that the upcoming budget would usher in multibillion dollar deficits for the coming years—$3.9 billion for 2008-09 and $14.1 billion for 2009-10—and that it would substantially boost its short-term spending on infrastructure. On the eve of budget day, it “leaked” information about the only major showstopper—that the province would harmonize its sales tax with the GST.

The hope appears to be that spreading the bad news over days or weeks lessens the shock of just how dramatically the province’s fortunes have changed in the past year. Make no mistake: these are grim times for Ontario. Government revenues are down $2.9 billion since last fall, and by the end of this fiscal year are expected to fall $3.5 billion short of the figure projected in last year’s budget. Revenues will drop even further, falling $4.6 billion short of pre-recessionary projections. “Ontario is in the middle of a global financial storm not of its making,” the province’s finance minister, Dwight Duncan, told reporters on Thursday.

ALSO AT MACLEANS.CA: Answers to the most common questions about the government’s new ‘single sales tax’

The province appears to be just as anxious to share the responsibility for getting out of the economic crisis as it is to deflect blame for it. In a briefing session on Thursday, officials said they are counting on the stimulus packages in the U.S. and Ottawa to help breathe life into Ontario’s economy. In the meantime, the McGuinty government will follow their lead and try to spend its way out of the crisis.

Like in the U.S. and at the federal level, infrastructure is at the top of the shopping list. In all, Ontario has committed $34 billion over two years to stimulus spending, with more than 19 of every 20 of those dollars (or $32.5 billion) earmarked for infrastructure projects. For the most part, “infrastructure” translates into improvements to Ontario’s transportation grid and its health care facilities, with projects ranging from the expansion of northern Ontario highways to the construction of a new hospital wing in Toronto. A further $1.2 billion has also been set aside to top up the federal government’s investments in social housing. In all, the province boasts that its budget will “create or support” some 314,000 jobs over the next two years.

Though finance department officials pledged to get the stimulus money flowing quickly, the most contentious item in the budget won’t take effect for another 15 months. On July 1, 2010, the provincial government will merge its provincial sales tax with the GST to create a single 13 per cent tax collected by the federal government, with 8 per cent going to the province. The McGuinty government boasts the change will save businesses $500 million by simplifying the tax-filing process. But some products, on which consumers currently pay GST but not PST, will now be taxed 13 per cent. The cost of gasoline, haircuts, fast food, home heating fuel and a wealth of others, will increase by 8 per cent.

The McGuinty government is hoping a package of tax cuts and rebates will offset the sting of the increased cost on some consumer goods. Most notably, the agreement between Ontario and Ottawa reached earlier this month calls on the federal government to deliver $4.3 billion over two years to the province “to help offset the transition costs associated” with the new tax. The provincial Liberals have already committed to redistributing $4 billion of that money in a series of rebate cheques totalling $1,000 for families to earning less than $160,000.

Opposition parties have already seized on Duncan’s tax measures as a cash grab. “It’s appalling,” says interim provincial Conservative leader Bob Runciman, “to pile on more debt, more taxes on the backs of struggling families.” The Conservatives and the NDP have both said they will oppose the new tax and plan to make it an issue in the next election.

There’s little doubt this budget—and the harmonized sales tax in particular—will figure prominently when the parties hit the campaign trail in 2011. In fact, voters were reportedly voicing their concerns about the tax to their MPPs long before budget day. But the McGuinty Liberals appear to have planned for the backlash already. The last of those rebate cheques will be in Ontarians’ mailboxes two months before they go to the polls.