Rapid Policy Update
2020 Provincial BudgetNovember 6, 2020
On November 5, 2020, the Government of Ontario released its 2020 Budget, “Ontario’s Action Plan: Protect, Support, Recover.” Budget 2020 contains both measures to protect against the immediate impacts of COVID-19 (including new funds for testing and reducing the surgical backlog) and measures intended to lay the groundwork for economic recovery (such as electricity and tax reforms). The following is a summary of highlights from the perspective of Ontario’s business community.
The Province is lowering electricity costs for commercial and industrial ratepayers by directly funding a large portion of Global Adjustment (GA) costs to remove them from electricity bills. This will result in estimated electricity cost savings of 16 percent for Class A customers and 14 percent for Class B customers.
OCC analysis: Industrial and commercial electricity prices in Ontario are currently higher than in most other jurisdictions in North America, putting local businesses at a competitive disadvantage. The pandemic has exacerbated this challenge, as system costs have grown and many companies are struggling with cash flows and liquidity issues.
The government’s latest decision will make commercial and industrial electricity rates more competitive and allow businesses to focus on investing in recovery and growth. As the Budget notes, bringing average rates below the average in the United States will make Ontario a more attractive choice for business investment.
Budget 2020 includes a number of tax reforms aimed at reducing the tax burden on businesses, including reducing payroll taxes for private-sector employees by making the previous increase to the Employer Health Tax (EHT) exemption (from $490,000 to $1,000,000) permanent. The government is also addressing property taxes for business by standardizing and reducing all Business Education Tax (BET) rates at 0.88 percent. Lastly, municipalities will be granted the option to target property tax relief to small businesses through the introduction of a new optional small business property subclass.
OCC analysis: Reforms announced in today’s Budget will help reduce the tax burden on businesses across the province. In particular, the decision to make the higher EHT threshold permanent is a welcome change that will free up capital for employers with payrolls below $1 million – mainly small businesses. Meanwhile, the move to both reduce the BET rate and to address regional variances within that rate, both of which the OCC has advocated for in the past, will result in a tax break for 94 percent of Ontario businesses, according to government estimates. Finally, given that small businesses have been disproportionately impacted by the pandemic, the government’s decision to allow municipalities to target property tax relief specifically to them could be an effective tool to grant local communities greater flexibility to foster competitiveness and economic growth during these uncertain times.
Broadband and cellular infrastructure: Ontario is committing to an additional investment of $680 million (for a total of nearly $1 billion over six years) to improve and expand broadband and cellular access across the province.
OCC analysis: Broadband is critical infrastructure in today’s economy, and the pandemic has made it even more essential to public health and economic resilience. The vast majority of heavy lifting has been done by the private sector, which has invested heavily in digital infrastructure. However, there remain unserved and underserved communities that require government intervention. The OCC applauds the provincial government’s historic investment and hopes to see further commitments from the federal government to expedite and increase digital infrastructure programs.
Storm and wastewater infrastructure: The government will invest $15 million over two years in one-time funding to support municipalities to improve the management of Lake Ontario wastewater and stormwater discharges; $10 million to provide support for wastewater monitoring and public reporting in Great Lakes communities; and $12 million over two years in one-time funding to establish a pilot for detecting COVID‑19 in raw wastewater.
OCC analysis: The OCC has emphasized the importance of investing in storm and wastewater systems as communities grow and as Ontario adapts to the impacts of climate change. Support for municipalities to better manage these systems is critical for the future.
Transportation infrastructure: The government has allocated $2.6 billion in 2020–21 for the rehabilitation and expansion of highways and bridges across the province.
OCC analysis: Efficient transportation across Ontario is critical to business competitiveness. The Ontario Chamber Network has passed a series of resolutions in support of more funds for highways and roadways.
Budget 2020 includes $100 million in funding for skills training programs directed towards Ontarians disproportionately impacted by COVID-19. The government also reaffirmed their commitment to modernize Ontario’s skilled trades and apprenticeship system through a Skilled Trades Strategy and committed to $59.5 million over three years to support Ontario’s micro-credentials strategy intended to provide rapid training opportunities for interested applicants to acquire in-demand skills. Specifically, the new funding will be used to create an online portal to access micro-credential training opportunities, incentivize the development of micro-credential opportunities that reflect labour demands, promote micro-credentials to prospective learners and employers, and establish a virtual passport that issues and tracks quality-assured micro-credential programs.
OCC analysis: Reskilling is essential to the rapid re-employment of workers that have been displaced during the COVID-19 crisis. The OCC has called for the development of a micro-credential framework to support short-term programs that meet local and sectoral needs. The government’s decision to move forward with a micro-credential strategy will help employers and prospective employees adapt to quickly changing labour market needs with more demand-driven programming. Meanwhile, the OCC’s Workforce Development Council looks forward to continuing to work with the government on the three pillars outlined in their Skilled Trades Strategy: breaking the stigma, simplifying the apprenticeship system, and encouraging employer participation.
TRADE & INVESTMENT
Highlighted in Budget 2020 is the creation of an investment attraction agency, Invest Ontario, which will initially focus on three sectors where Ontario has a competitive advantage: advanced manufacturing, life sciences and technology. Invest Ontario is planned to be a “one stop shop” for investors and businesses interested in this province.
OCC analysis: Attracting trade and investment opportunities to Ontario is a critical part of economic growth and recovery. The OCC supports a straightforward, “one window” approach to attracting and supporting investors and companies that wish to do business in Ontario. We are also pleased to see the government recognize advanced manufacturing and the life sciences, alongside technology, as Ontario’s competitive advantages.
Tourism and culture: The government is proposing reimbursements for Ontario residents for up to 20 percent of eligible Ontario tourism expenses as a means of encouraging Ontario “staycations” in 2021. While details have yet to be confirmed, the government is setting aside $150 million for this initiative. In addition, they are committing $100 million over two years for the Community Building Fund to support tourism, culture, and sport organizations experiencing financial pressures due to the pandemic. For cultural industries, the Province is intending to temporarily extend tax credit eligibility timelines and amend some requirements, to help businesses manage uncertainty.
OCC analysis: Tourism and culture have been two of the hardest hit industries during the pandemic. The OCC is pleased to see government support for this sector, as well as a plan to encourage Ontarians to discover their own province when it is safe to do so, as outlined in our submission to the Standing Committee on Finance and Economic Affairs.
Agriculture and agri-food: The government will invest $25.5 million over three years for the Agri-food Prevention and Control Innovation Program, which is designed to reduce the risks of COVID-19 in the workplace and reduce disruptions to business operations.
OCC analysis: The OCC applauds this investment and in early 2021, the OCC will release Growing a More Resilient Food Supply Chain in Ontario with further policy recommendations to support the province’s food supply chain and the many sub-sectors that make-up this complex chain. This policy brief will examine seven issues that emerged in our supply chain as a result of COVID-19, and steps the Province (and federal government) can take to chart a better path forward for industry, farmers, and consumers.
Financial services: The government has approved an increase to the Financial Services Regulatory Authority of Ontario’s line of credit with the Province, allowing the regulator to provide emergency liquidity support to credit unions if need be.
OCC analysis: Credit unions provide important services to communities and businesses across the province. The government’s decision will help ensure credit unions can continue supplying businesses with much-needed access to capital through and beyond the pandemic, which has constrained lending conditions and augmented financing needs for many firms.
Intellectual property: Budget 2020 includes $1.5 million towards the implementation of Ontario’s Intellectual Property Action Plan, announced in July 2020. The funding will help strengthen commercialization capacity within post-secondary institutions, research organizations, and Ontario’s business community.
OCC analysis: The OCC has urged the Province to address the commercialization gap in Ontario and we believe the Action Plan will be an important step forward. In addition to its work on intellectual property, we encourage the government to be intentional about advancing made-in-Ontario innovation by leveraging procurement, channeling more support towards rapidly scaling firms, and incentivizing partnerships between government, academia, and the private sector.
Alcohol and cannabis: Ontario is freezing beer tax and mark-up rates until March 1, 2022, as well as proposing to retroactively cancel the increase in wine basic tax rates that were legislated to occur on June 1, 2020. Budget 2020 communicated LCBO to not proceed with the scheduled wine mark-up.
Additionally, the Province reiterates its commitment to exploring options to permanently allow licensed restaurants and bars to include beverage alcohol with take-out and delivery order before the existing regulation expires.
OCC analysis: The OCC is encouraged that the province has decided to temporarily freeze beer and wine mark-ups. As outlined in the OCC’s 2019 report, Refreshing the Sale of Beverage Alcohol, taxation is an acute concern for small beverage alcohol producers in Ontario as it impacts their ability to re-invest in their businesses and grow. Moreover, as tourism came to a halt with COVID-19 and restaurants have had to contend with limits to indoor dining, the beverage alcohol sector has also been affected.
While we applaud this temporary freeze on wine and beer taxes, the OCC believes the Province must take a comprehensive rather than piecemeal approach when it comes to developing policies that pertain to the beverage alcohol industry. For instance, although craft distillers rely on inputs from Ontario farms like the wine and beer industry, the spirits industry is heavily taxed. Accordingly, the province should consider fairness across all categories of beverage alcohol and producers. As outlined in our 2019 report, applying a graduated tax policy as in British Columbia to help Ontario craft spirits producers scale and align taxation levels for the craft cider industry with those of craft beer could help level the playing field between both industries.
The OCC is also pleased that the Province has reaffirmed its commitment to permanently allow licensed establishments to include beverage alcohol with food take-out and delivery orders, which would have otherwise expired on December 31, 2020. Similarly, we encourage the government to take a consistent approach when it comes to e-commerce and delivery options for the cannabis sector. Legal cannabis retailers should be allowed to engage in responsible curbside pick-up and delivery options that were temporarily granted at the beginning of the pandemic and subsequently removed. While we recognize and appreciate this was initially brought in as a temporary pandemic measure, the decision to not make this permanent fundamentally puts public safety, economic growth and jobs at risk.
Budget 2020 commits $283.7 million to address the backlog of over 180,000 surgeries that emerged as non-emergency surgeries came to a halt to ensure hospitals had the capacity to treat COVID-19 patients. Budget 2020 also states that the province will support extended hours for additional priority surgeries and diagnostic imaging. The province is also investing $1.4 billion to expand COVID-19 testing and increase case and contact management.
OCC analysis: The OCC applauds the government for this critical investment and its desire to tackle the backlog in surgeries. Accelerating efforts to reduce the surgical backlog in Ontario will improve the quality of life for Ontarians who are currently waiting for a range of procedures or diagnostic tests. While hospitals were allowed to gradually re-start all deferred scheduled surgeries in late May, it is estimated that the backlog could take 15-months to clear. Moreover, if subsequent waves emerge and a pause on non-emergency services is needed again, this backlog could worsen and continue to magnify wait times for patients in Ontario. Advancing Ontario’s testing and contact tracing capabilities will enable the province to identify cases, better contain the spread of the virus, and re-open our economy. The OCC will continue to consult the Health Policy Council on these and other issues to provide the province with advice to support our health care system.
SUPPORT FOR PEOPLE
Budget 2020 includes new funding to support Ontarians uniquely impacted by COVID-19. This includes:
- An additional $380 million in cash transfers to parents ($200-$250 per young child);
- An additional $60 million over three years in the Black Youth Action Plan to support Black youth in achieving social and economic success; and
- A proposed Seniors’ Home Safety Tax Credit to help seniors, and intergenerational families who have seniors living with them, make their homes safer and more accessible.
OCC analysis: Throughout the pandemic, many Ontarians with children and seniors at home have struggled to balance unpaid caregiving with paid work responsibilities. The OCC welcomes enhanced support for these families, as recommended in our recent report, The She-covery Project. Additionally, the OCC is pleased to see new investments to support Black youth, whose resilience and inclusion is integral to Ontario’s prosperity.
COVID-19 has also led to severe challenges and uncertainty for Ontario’s non-profit sector, an integral part of Ontario’s economy that delivers critical services alongside government and the private sector. To prevent their closure and its costly impact on communities across the province, the OCC urges the government to introduce a non-profit sector stabilization fund. Doing so would help lessen the downstream effects of the economic downturn and reduce the need for more costly government interventions in the future.
The government plans to update its debt burden reduction strategy and set a long-term target for the net debt-to-GDP ratio in the 2021 Budget.
OCC analysis: Fiscal sustainability remains important to Ontario businesses and the long-term well-being of Ontario’s economy. However, the OCC recognizes that unprecedented spending is required to minimize the long-term impacts of the pandemic. We look forward to assessing the government’s plan in Budget 2021, understanding that the pandemic and economic context will continue to evolve.