McGuinty Budget Grows a More Expensive Ontario

This week Ontario Finance Minister Dwight Duncan issued the first budget of the McGuinty government's second consecutive mandate. Instead of a taxpayer-friendly path forward, it grows a more expensive Ontario. No one should be surprised, really. The budget merely continues the government's preference for high taxes, high spending and its opposition to meaningful tax relief.

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The Ontario economy has seen tremendous growth and prosperity over the last ten years. Budgeting during these good times has been easy as government revenues soared. Unfortunately, during this long period of sustained prosperity, the government did not lay the necessary groundwork to deal with an imminent period of economic challenge. Had they done so, Mr. McGuinty would have controlled spending, reduced tax levels for individuals and business and begun to whittle away at the debt. Yet, Mr. McGuinty did everything but; and with this budget sends a clear message that Ontarions can expect more of the same. Ontario government program spending is growing at unsustainable levels and even beyond what is budgeted each year. Banks are forecasting Ontario GDP growth close to 0.5% and inflation of only 1.4% yet spending will go up at least 3.2% next year. Last year, spending increased by 6.3%, which is more than three times the rate of inflation. Mr. McGuinty repeatedly argues that he has had no fiscal room for tax relief. Yet, last year the government generated $5 billion more in revenue that it had forecast. This happened in large part because of the steady climb in personal tax revenues which have increased from $18 billion when Mr. McGuinty took office to a projected $28 billion in 2008-09. Instead of using this 'found' money to provide relief for tax-weary Ontarions or to help build a strong economic climate with business tax relief, Mr. McGuinty spent every single penny of it on programs and pet projects. This spending of excess revenue - which really is structural over-taxation - should not be allowed. Rather, spending and budgeting controls should be put in place to end this practice. The budget did offer a few very small nods towards tax relief with a handful of boutique tax cuts. The government identified the challenge of rising municipal property tax rates and is offering a $250 a year rebate for low-income seniors. This will grow to $500 per year in 2010. Unfortunately, municipalities are still free to raise tax rates at will. One good tax move is the government's announcement that it will not tax income coming from the new Tax Free Savings Accounts announced in the federal budget. This will allow tax free capital gains in the future from these accounts, and is good measure to stimulate personal saving. On the business tax front, the government made efforts to reduce burdens on manufacturing and resource businesses by retroactively eliminating the capital tax as of January 2007. Sadly, the rest of Ontario businesses will have to wait until July of 2010 to see the same. Yet, these tax measures will only amount to $142 million next year while spending will climb by $2.7 billion. This means that for every dollar of tax relief there will be $19 in new spending. This is anything but a balanced approach. Finally, there is an alarming trend by the McGuinty government to grow Ontario's debt. During his tenure, he has grown taxpayer-supported debt from $148.7 billion to $167.7 billion. That is an additional $19 billion handed future taxpayers. Because interest rates have declined, debt interest payments have remained stable at around $9 billion a year. Nevertheless, Ontario taxpayers pay $1 million an hour in interest! It's the equivalent of nearly a dime of every tax dollar sent to Queen's Park. This figure could jump dramatically if interest rates surge. Without a debt repayment plan, this payment erodes government ability to provide meaningful programs and tax relief for individuals and business. The idea that government can spend its way to prosperity is the failed politics of the past. Mr. McGuinty and his government can not give anything to Ontarions that it doesn't first take from them in taxes today - or tomorrow through debt. Hopefully, it will not take another three budgets like this one to learn the lesson.

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