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Budget 2014 -An Overview and Analysis
Published on: 01/05/2014
On May 1, the Wynne government published its second budget, after having previously developed an interim budget for fiscal year (FY) 2013-14 following her election as Party leader in January 2013. The Budget paints a favourable picture for the Ontario economy, with Wynne looking to convince voters of the strength of the Liberal PartyÃ¢â‚¬â„¢s plan to spend its way out of debt and into a balanced budget by 2017-18.
Budget 2014 seems to make its weight on the infrastructure file, with a number of significant spending announcements including a general commitment to $130 billion in investments over the next 10 years. This effectively commits to the rolling forward of the current budget level of $13 billion/year for the next decade (or approximately $830 per capita). A significant portion of the infrastructure budget is targeted at transit in major urban centres, which generally bodes well for OSWCA members due to the water and sewer upgrades that are expected to happen alongside these projects.
What is quite evident though, is that the province requires moderate-to-strong economic performance in order to balance the Budget by 2017-18, while also achieving its desired spending level. Some of the required funding will come through increased personal income taxes for high-income earners (over $150,000 per year), the repeal of the Fuel Tax exemption (diesel and gas) for construction equipment (unplated road building equipment under the Highway Traffic Act), and the leveraging and sale of government owned real-estate. A noteworthy percentage of this revenue is also projected to come from increased tax revenue as a result of private-sector spending and job growth numbers that are projected to be 10% higher in 2015-16 than they were in 2013-14.
As for general economic projections, OntarioÃ¢â‚¬â„¢s real gross domestic product (GDP) growth is expected to run at approximately 2.1%, while the budget deficit is expected to increase to $12.5 billion (up from $11.3 billion in 2013-14). With a number of increasing costs to the employer, including to minimum wage and taxes, it seems as though there is very little room for error in this budget.
Particular line items from the Budget that may be of interest to members have been summarized below:
On Infrastructure: $130 billion in projected infrastructure spending over the next 10-years, including the creation of two new (previously announced) infrastructure funds.
1. The Greater Toronto and Hamilton Area (GTHA) fund, with up to $15 billion for investment in transit over 10-years, including $1.7 billion in 2014-15; and
2. The rest-of-Ontario fund, with up to $14 billion for investment in roads, bridges, transit, and other critical infrastructure over 10-years, including $1.6 billion in 2014-15.
In order to appropriately allocate this funding, the Ministry of Infrastructure will utilize the latest census data to spend based on population.
Budget 2014 also seeks to repurpose and dedicate a portion of both the provincial fuel tax and HST specifically to transit and transportation infrastructure. On the fuel tax, the new dedication will go over and above the existing amount dedicated to municipal infrastructure development, without increasing the current rate of 14.7 cents per litre on gasoline and 14.3 cents per litre on diesel.
This dedicated funding for infrastructure development is certainly an encouraging piece for contractors, however it does come with some difficult trade-offs, which include:
Ã¢â‚¬Â¢ The repeal of the Fuel Tax exemption for road-building machinery, meaning an increase of 14+ cents per litre on fuel consumption for construction equipment;
Ã¢â‚¬Â¢ Restricting large corporations from claiming small business deductions; and,
Ã¢â‚¬Â¢ The phasing in of a 4% increase on aviation fuel over the next four years.
A number of other future revenue tools were noted in the Budget that would be dedicated to infrastructure development, including revenue from High-Occupancy Toll Lanes and Green Bonds, however, it remains to be seen when this revenue (and how much) would become available.
On Municipal Infrastructure Investment: The Budget allocated $2.1 billion in support to municipal infrastructure development, with $1.5 billion of this amount coming through the provincial uploading of municipal social programming costs, with the expectation that the municipality would then spend the saved amount on necessary construction. In order to facilitate this, the government is also continuing its support for the $200 million Municipal Infrastructure Strategy, which aims to help small- and medium-sized municipalities prepare asset management plans to identify required infrastructure upgrades.
On Alternative Finance and Procurement (AFP) Projects: The Budget continues to support the use of AFP projects, promoting the Ã¢â‚¬Å“on-time, on-budgetÃ¢â‚¬Â advertising line, by noting that a recent study of 30 AFP projects found that 29 came in under budget and 28 were completed ahead of schedule. It also notes that future AFP projects will require the hiring of apprentices, not making the distinction that not all construction projects require apprenticeable trades.
On the Ontario Retirement Pension Plan (ORPP): The Budget introduces the creation of the ORPP beginning in 2017. The initial plan calls a mandatory contribution of 3.8% of salary (half contributed by the employer and half by employee), with the ultimate aim being to replace approximately 15% of an individualÃ¢â‚¬â„¢s earnings by the time they retire (based on 40 years of contribution). Contribution to this fund would max out at $6400 per year for those earning $90,000 or more.
Budget 2014 has all of the makings of an election budget, rather than one concerned with fiscal austerity. The focus is on job creation and supporting the middle-class by increasing government spending and ultimately increasing the budget deficit. It explicitly notes its rejection of Ã¢â‚¬Å“reckless spending cutsÃ¢â‚¬Â that have been proposed by other political parties (PC) and seeks to demonstrate a rosy economic outlook in order to convince voters that the province in on the upswing.
Despite an increasing deficit, the Budget continues to claim that the government will balance the budget by 2017-18, which is difficult to understand how this would be accomplished without significant program cuts. There is an increasing reliance on private sector spending in order to reach government revenue targets, as demonstrated by a projected job growth rate that is 10% higher in 2015 than it was in 2013, and a projected expenditure increase on machinery and equipment by 3.5% in 2014 and by an average of 5.7% per year between 2015 and 2017.
Ultimately, there is very little wiggle room in this budget for the government to achieve all of its stated goals.