Introduction

Today the Hon. Charles Sousa, Minister of Finance, delivered the 11th budget* for the Liberal government in Ontario.  It has been widely expected that this budget will trigger an early spring election campaign and Premier Wynne’s letter tonight to Andrea Horwath giving her a deadline of Thursday, May 8th to respond further supports this notion.  Even if Premier Wynne has support from the NDP for the budget, she may still call the election to avoid a protracted debate and further hearings on the cancellation of two gas plants

The budget contained no major surprises as the government has made a string of announcements over the last several weeks.  This approach was designed to both appeal to the NDP and also make it difficult for the NDP to negotiate for further changes.  The key initiatives are summarized below.

The political implications of this budget are, frankly, greater than the fiscal and economic ones.  So what are the three parties saying?

For the Kathleen Wynne Liberals, this budget is all about going big and, if necessary, going to the polls.

It has been 15 months since Kathleen Wynne took over as premier and in that time she and her government have faced significant challenges.  From an OPP investigation to budget leaks to a libel suit against the opposition leader, there has been no shortage of political turmoil.

Through all of the turmoil, however, the Wynne Liberals have landed on a clear vision for the province that they are willing to take to voters.  The Liberal government will meet its fiscal targets but it will not do so on the backs of Ontarians.  The Liberals believe their plan to grow the economy and create jobs is broader than that of the PCs (spending cuts and tax reductions) and more responsible than that of the NDP (no plan has been released to date).  The Liberals believe that Ontarians want support and investment from their government.  This budget, and the resulting Liberal platform, will reflect that.

For the Ontario PC Party, the budget is not about the budget.  It’s about the ongoing fiscal and economic challenges Ontario faces that the PC Party believes the Liberal government is unable or unwilling to address.  The PCs will vote against the budget to express their lack of confidence in the government.

The PCs have been calling for an aggressive plan to balance the books by reducing costs and eliminating programs and freezing all public sector wages for two years.  While the government has argued that hurrying to eliminate the deficit will hurt economic growth, the PCs believe that a slow pace to balance the budget weakens Ontario’s economy.  PC Leader Tim Hudak has said he will focus on job creation and a key part of that is an accelerated plan to balance the budget.

For the party exercising the balance of power in this minority parliament, the ultimate question facing Andrea Horwath’s team is whether the Liberal government deserves another year in office before facing the electorate.

The Ontario New Democrats will evaluate whether the new spending contained in the budget is seen by voters as more than an attempt by the government to change the channel from the OPP investigations, scandals, and sluggish economic performance.

The electoral path forward for the Liberals is through increased New Democrat support. As such, the Liberal’s budget is designed to appeal to progressive-minded voters. Wynne will attempt to squeeze Horwath by using the time immediately following the budget’s announcement to publicly pressure the Ontario New Democrats to support it or be responsible for their defeat. Horwath must decide whether the appetite for change in Ontario is greater than any benefit the Liberals will realize from the billions in spending announcements in this budget.

To maintain the upper hand over the coming days, Horwath will hold off indicating whether she will support the budget. To come out too early and say that she will defeat the budget gives Wynne the opportunity to pull the plug herself and take charge of election timing. New Democrats will not want the election triggered until after the much anticipated and potentially Liberal damaging testimony next week at the gas plant hearings.

Budget Highlights

Pensions

Arguably the most anticipated section of the budget, the government finally shed some light on the details of the Ontario Registered Pension Plan (ORPP).  The ORPP is a mandatory savings vehicle structured similarly to the Canada Pension Plan.  The ORPP aims to replace 15 per cent of income up to a maximum of $90,000 in earnings.  Equal contributions would be shared by employer and employee, up to a maximum of 1.9 per cent each or 3.8 per cent combined.  ORPP and CPP combined would aim to replace a maximum of 40 per cent of income, up from the CPP’s current 25 per cent.

Improved pension security in Ontario could effect change across the country — the majority of provinces have indicated support for increasing the CPP, and continue to grapple with the problem of inadequate retirement savings in their jurisdictions.  This model also keeps the door open to the potential of a federal government willing to implement an enhanced CPP down the road.

Transportation

The budget reiterated the government’s commitment to invest $29 billion dollars over 10 years in transportation infrastructure projects. This money will be raised by allocating existing gas tax revenue and a handful of smaller tax increases as well as a few other measures.  The government created two funds (one for the Greater Toronto Hamilton Area and one for the rest of the province) where the new revenue will be dedicated.

Because the budget reallocates existing tax revenue, there are additional tax increases in the form of personal income tax for high income earners and tobacco tax to raise compensating revenues.

Energy & the Environment

There is very little in the budget that is material to Ontario’s energy or environmental sectors.  The document contains a five-point business energy savings plan focused on helping business manage the costs of electricity and it confirmed the government’s proposal to remove the Debt Retirement Charge from residential (but not business) hydro bills providing $70 on average in relief per household per year.

Social Ministries

The budget was positioned as a 10-year plan for the economy, and spending in the social ministries and programs were geared to support that framework.  Training and education programs to create opportunities for Ontarians to move into new careers with the potential for higher paying jobs were emphasized.

Budget 2014 did not focus on healthcare, mirroring the lead up of announcements to the budget.  Healthcare spending continues to be over 40 per cent of the provincial budget and will continue to grow at 2.2 per cent this year, similar to the amount projected in last year’s budget.

As with last year’s budget, the government again chose to invest in the home care sector with major investments in the wages of personal support workers (PSWs).   As announced on April 30th, Ontario will be raising the minimum pay for PSWs to $16.50 an hour, a four-dollar increase over the next three years.  Other initiatives highlighted include the creation of demonstration projects on self-directed care for seniors, continued advancement on improving end-of-life care, and commitments to increase the number of Health Links to more than 90. There was no discussion about the hospital sector.

Conclusion — Now what?

Over the next few days everyone will be watching the NDP.  Whether or not NDP Leader Andrea Horwath will support this budget may be less about the budget content itself and more about whether her party can support a government that has been clearly plagued with scandals and difficult fiscal and economic challenges.

Both the Liberal and PC parties are ready to face the electorate this spring.

With the Premier’s letter tonight to Ms. Horwath, there are effectively two scenarios: an election is called very quickly for early June or the budget passes and the Liberal minority government continues with the support of the NDP.  We believe the odds of a spring election are high.  Nevertheless, the one thing we are certain of is that unpredictable things happen in Canadian politics — just ask Rob Ford, Allison Redford, Christy Clark and Pauline Marois!

Links

Budget 2014: Building Opportunity, Securing Our Future news release

Full 2014 Ontario budget