TORONTO—Ontario Finance Minister Charles Sousa delivered his 2014 economic update November 17 and confirmed that the province has seen a $509 million shortfall from its budget forecast and that the provincial deficit remains at $12.5 billion this year, projected to be $8.9 billion next year and dropping to $5.3 billion by 2016-2017.
The culprit is an anemic global economic growth environment, and a concurrent Ontario growth chart projected at 1.9 percent for 2014, although revenue is anticipated to rise to 2.4 percent for the years between 2015 and 2017. Those latter forecasts also fall below the pre-election budgetary crystal ball gazing.
“The global economic environment remains challenging and has contributed to a slower pace of revenue growth,” said Minister Sousa. “However, there are positive signs that the economy is gaining momentum this year, supported by a resurgence in the United States.”
The opposition Progressive Conservative party was quick to deride the Liberal fall economic update, calling it a fiscal fairy tale.
The minister was sticking to his guns on the deficit reduction target, however, leading both opposition parties to assert that the Liberals will have to raise taxes to balance the books by 2017-18. That is an assertion that Minister Sousa’s words did little to deny. “Should revenues fall further, the government must consider other tools to balance the budget,” he said.
“Instead of tackling the real core problem, which is they spend too much, they’d rather look for nickels and dimes in the couch and look at how to dip their hand in your pocket even deeper,” quipped Tory Finance Critic Vic Fedeli, adding, “the real solution is controlling spending.”
There were no new tax measures in the update but there was a clear warning shot in the minister’s address sent across the bows of tax-recalcitrant companies wishing to do business with the province. Minister Sousa said that companies wanting to do business with the province would have to prove that their taxes are up-to-date if they wanted to bid on contracts.
Minister Sousa also sent a warning to those dealing in contraband tobacco, corporate tax avoiders and those whose ‘cash’ transactions are designed to sidestep taxes, particularly in the roofing and auto body sector. The concept of tackling revenue leakage, as it is called, is not a new one, having almost as much traction as the ubiquitous ‘government waste’ mantra that is often the prevue of opposition critics. Minister Sousa went a step further than usual in pointing the finger at the dike, attributing the gap between projected and actual revenues to leakage.
“We have to address revenue leakage, because that’s been part of the issue affecting us and why 2013 numbers were down,” said Minister Sousa. “So we’re looking at the underground economy and ensuring that everyone pays their fair share.”
This approach from the Liberal government is nothing new, retorted the NDP. “It’s like Groundhog Day on contraband tobacco,” said NDP finance critic Catherine Fife. “This is clearly meant to be a distraction. The only thing leaking from this government is common sense.”
Contraband tobacco is definitely a tempting low-hanging fruit for the province. It is estimated that 40 percent of the cigarettes consumed in Ontario are sold outside of the tax regime. The practice of selling contraband tobacco is estimated to cost the province as much as $1 billion a year.
Although the province has been silent on why the long promised crackdown has yet to appear, the implications for a collision between First Nation communities and businesses may well play a role in impeding progress.
The news in the fiscal update was not all doom and gloom however. “Major Ontario economic indicators, including real gross domestic product (GDP), exports and household consumption, have posted solid gains,” said Minister Sousa in his update. “And most significantly for many Ontarians, our unemployment rate declined to 6.5 percent in October, down from 7.5 percent at the beginning of the year and the lowest rate of unemployment since 2008.”
Minister Sousa continued by pointing out “Mr. Speaker, we have overachieved on our fiscal targets for five years in a row in spite of lower-than-expected revenues, thanks to sound management of program spending,” he said. “From 2010–11 through to 2013–14, growth in program spending was held to an average of 1.2 percent per year. This low growth rate was due to fiscal discipline.”
