Ford government’s first fiscal update sees Ontario changing business tax policies

The Ontario government proposed on Thursday to take steps to try to shore up the province’s competitiveness for business investment.

A fiscal and economic update tabled Thursday at the Ontario legislature says the province would mirror the federal government if Ottawa opts to offer companies accelerated expensing of depreciable assets, which is a policy that corporate Canada has been requesting.

“This would support jobs and growth opportunities in Ontario and strengthen Ontario’s competitiveness in the global economy,” noted the province’s 2018 economic outlook and fiscal review, a sort-of mini-budget tabled Thursday at Queen’s Park.

The province’s finance and economic development ministers had already written to the federal government calling for the accelerated depreciation. There have also been rumblings that Ottawa is preparing some measures aimed at Canada’s competitiveness in its own upcoming fall update.

Ontario’s update said Thursday that reform in the U.S. have wiped out the province’s “tax advantage” and made the province less attractive for business investment.

Yet in keeping with the work of new Premier Doug Ford, the Ontario update also proposes to try to undo some of the work of the province’s previous Liberal government.

For example, today’s Progressive Conservative government at Queen’s Park says it is proposing to break ranks with Ottawa on another measure: phasing out access to the federal small business tax rate based on how much passive investment income is earned by a corporation.

Ontario had proposed to match this measure for the province’s own small business deduction, which the government estimated would have hiked taxes on those smaller firms by about $160 million a year by 2020-21. Now, the Tories say they plan on ditching this move, and not paralleling Ottawa’s decision.

The new government also says it will be reviewing its research and development-related tax support and will not implement the previous regime’s plan to link the rates of an R&D and innovation tax credit to a company’s level of investment.

This is all in addition to the savings that the new regime says they are providing to businesses by cancelling the province’s cap-and-trade carbon-pricing system, as well as by freezing Ontario’s minimum wage at $14 per hour. Businesses are also set to pay less in the way of Workplace Safety and Insurance Board premiums.

Under the watch of Premier Ford, Ontario would also no longer “stand in the way” of pipelines transporting oil to or through the province from Western Canada, the update says.

Fedeli’s remarks to the legislature said that Ontario would “unilaterally relinquish our veto over new pipeline construction within our borders.”

“Pipelines create good jobs, both in Ontario and across the country,” added the update. “In every way possible, Ontario will support its partners looking to expand oil distribution, and at the same time, protect their competitiveness from the federal carbon tax.”

Ontario’s former Liberal government had projected a $6.7-billion deficit for 2018-19 in its spring budget, with no plan to balance the books until 2024-25. The Liberals had also forecast a $600-million surplus for 2017-18.

But Ford’s government had ordered up an independent inquiry into the province’s finances after winning a majority in June’s election. The commission of inquiry revised the province’s financial figures, pegging the projected deficit for 2018-19 at $15 billion, and the Tories declared that Ontario actually ran a $3.7-billion deficit for 2017-18.

The fall update now says that the province is projecting a $14.5-billion deficit for 2018-19, down $500 million from what the inquiry laid out. When the province would return to a balanced budget under Ford, or if it would this term, remains to be seen.

Also in the province’s fall update was a new tax measure for lower-income Ontarians, the Low-income Individuals and Families Credit, or LIFT credit, which the government said would result in a single, full-time worker making minimum wage would pay no provincial personal income tax in Ontario.

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If Doug Ford honours his campaign promises, Ontario’s deficit monster will grow to $18.7 billion next year

Finances in Ontario, already one of world’s most indebted regions, will get a whole lot worse if the government follows through on its campaign pledges.

The budget deficit in Canada’s most populous province is poised to jump almost 50 per cent to $18.7 billion (US$14.3 billion) in 2019-20 from this fiscal year under plans by new Premier Doug Ford, according to a report from Toronto-Dominion Bank. By 2022-23, the province’s net debt would rise to $483 billion, or to about 48 per cent of its annual output.

Finance Minister Victor Fedeli is scheduled to release an economic update on Nov. 15. It comes in the wake of an independent inquiry that estimated in September the deficit for the fiscal year ending March 31 2018-19 could be as high as $15 billion, more than double the previous government’s forecast, due largely to accounting changes. TD is estimating a budget deficit of $12.5 billion for this year including a $1 billion reserve.

“The upcoming fiscal update will provide a huge opportunity for the government to signal how it plans to slay the deficit monster,” TD’s economists Derek Burleton and Rishi Sondi wrote in the note released Wednesday. “From a credibility perspective, the sooner the government gets its fiscal house in order, the better.”

Ford, who took office late June, pledged to cut corporate and personal income taxes, which could cost $3.6 billion per year by year three of its mandate, according to TD. A promise to reduce the gas tax would would cost another $1.2 billion per year.

To be sure, Ford has committed to balancing the books over time, and could introduce cuts or other spending restraints. The government has already halted expansions at some universities, scrapped a pilot basic income program, and plans to cap social assistance which together with other measures could shave off $2 billion from spending this year, according to the report. Allowing other programs to lapse could save another $1 billion while freezing a minimum wage hike may support employment and boost revenues.

“If the government plans to honour its campaign promises, program spending will have to be pared significantly,” the economists said. “Should the economy take a turn for the worse, the government’s job becomes exponentially harder. All told, the path to balance will be fraught with hard decisions.”

Bloomberg.com

Ontario, Saskatchewan premiers vow to reduce provincial trade barriers

TORONTO — The premiers of Ontario and Saskatchewan said Monday they are working together to reduce trade barriers between their provinces.

Speaking at a joint news conference in Toronto, Ontario Premier Doug Ford and his Saskatchewan counterpart Scott Moe said they have signed a memorandum of understanding on the issue.

Ford said Canada has focused on free trade with the United States at the expense of internal trade, and must reduce interprovincial hurdles to stay economically competitive.

“I hear from business leaders that this is one of the primary obstacles to attracting new investment and jobs to our country. We can’t afford not to act,” Ford said.

“Most of barriers when it comes to free trade between provinces is regulations. We’re going to put a list together, both myself and Premier Moe, of different sectors — let’s use transportation for example — where we can start knocking down some regulations,” he said.

Though they gave few concrete details of their plan, Moe promised swift action. “I think you can look for us to move very quickly on initiatives,” he said.

The pair would not, however, say why they did not send representatives to a meeting on internal trade last week.

“We’re just signing an MOU and we’ll move forward on that MOU,” Ford said.

Ontario’s New Democrats said the two premiers’ absence from the meeting suggests they aren’t interested in working with the rest of Canada on this issue.

“If you’re going to have interprovincial trade agreements they should be negotiated on a pan-Canadian basis,” NDP legislator Peter Tabuns said. “A patchwork is not a good thing for us, it’s not a good thing for the rest of the country.”

Ford and Moe are already joined in the opposition to Ottawa’s carbon pricing plan for provinces that don’t have their own system in place by next year.

Both provinces have launched legal challenges to the federal plan and are intervening in each other’s cases.

Ontario scraps beer tax increase planned by previous Liberal government

TORONTO — The Ontario government says it will cancel a scheduled increase in the provincial beer tax that was set to kick in next month.

The Progressive Conservatives say the three-cent-per-litre increase was planned by the previous Liberal regime and will be scrapped.

The government says beer taxes have increased by three cents per litre each year since 2015.

It says it’s stopping the increase that was set to go into effect Nov. 1 as it reviews the province’s approach to beer and wine sales, including the possible expansion of sales into corner and big box stores.

The government could not immediately say how much tax revenue it will forgo by halting the tax increase.

Beer and wine taxes brought in revenues of roughly $589 million in 2016-2017.

The move to cancel the beer tax increase comes after the government brought back so-called buck-a-beer to the province this summer.

The policy lowers the minimum price of a bottle or can of beer to $1 from $1.25. Brewers are not required to charge less and the minimum price doesn’t apply to draft beer, nor does it include the bottle deposit.

Businesses were offered prime spots in Liquor Control Board of Ontario stores and advertising in the store magazine’s inserts, among other possible incentives for selling their beer for $1.

Two breweries, Cool Brewery in Toronto and Barley Days Brewery in Picton, Ont., have said they will offer lower-priced brews, while Loblaws offered its President’s Choice beer for one dollar a bottle for a limited time.

Doug Ford vows to scrap key Liberal labour reform legislation that hiked minimum wage, gave workers more protections

TORONTO — Ontario Premier Doug Ford is vowing to scrap labour reform legislation from the previous Liberal government that raised the province’s minimum wage and introduced a range of other worker protections, a declaration that comes days after his government said the law was under review.

Ford’s comments, made in the legislature Tuesday, caught the opposition off-guard and upset those in the labour community who have been supporters of the law known as Bill 148.

“We’re going to make sure we’re competitive around the world,” the premier said. “We’re getting rid of Bill 148. We’re going to make sure we protect the front-line workers.”

The Progressive Conservatives said last week that they would halt a planned increase to minimum wage set to kick in next year as a result of the Liberal law, and the labour minister said the rest of the legislation was being reviewed.

The bill mandates equal pay for part-time and temporary workers doing the same job as full-time employees and increases vacation entitlements to three weeks after a worker has been with their company for five years. It also requires employees to be paid for three hours if their shift is cancelled within 48 hours of its start, and expands personal emergency leave to 10 days per year, two of them paid.

When asked to clarify Ford’s comments, Economic Development Minister Jim Wilson maintained that the law was still under review but called it a “real concern.”

“There are parts that we will keep and there are parts that probably will go,” he said. “But we’re consulting on that. We’re just not in a position today to tell you where we’re at.”

Bill 148 — dubbed the Fair Workplaces, Better Jobs Act — was applauded by labour activists who had been calling on the government to increase the minimum wage for years. Former premier Kathleen Wynne used the policy, and its theme of fairness, as a major plank during the spring election.

Some businesses, however, complained about the hike in minimum wage — from $11.60 to $14 an hour on Jan. 1 — and raised prices, cut staff hours and reduced employee benefits in response.

On Tuesday, NDP Leader Andrea Horwath said it’s not clear, despite Ford’s latest comments, just what the government plans to do with the labour reform law. Repealing the legislation will only make life more unstable for workers across the province, she said.

“At the end of the day, dragging us backwards to the days where people couldn’t get three weeks vacation or they couldn’t get sick time off when they were sick at work, these are things that we worry about,” she said.

Interim Liberal leader John Fraser said it sounds like Ford will scrap the bill, despite his minister insisting it is still under review. The premier’s declaration hurts workers across the province, he said.

“It does a disservice to the office to not fully consider the direction you’re going in,” he said. “The premier’s not doing that.”

Pam Frache, the Ontario co-ordinator of the Fight for 15 and Fairness, a group that supports the law, noted that the government has not yet introduced legislation to replace or repeal Bill 148, despite Ford’s comments.

“We still think there’s time for the premier to change his mind, to do the right thing and to stand with the people, not with the corporate elites,” she said.

Meanwhile, the Ontario Chamber of Commerce, which represents the province’s business community, said it would like the government to repeal Bill 148.

“The very real unintended consequences (of Bill 148) have forced our members to decrease product offerings and increase the price of products being sold, hire fewer employees, reduce services and hours of operation, cut back on employee benefits, and halt capital investment — all in an effort to stay afloat,” president Rocco Rossi said in a statement.

Ontario’s Ford government eyeing changes to the Liberals’ scheme to cut hydro bills

Ontario Premier Doug Ford’s government is apparently aiming to either axe or alter a key plank of their predecessors’ debt-laden plan to lower household electricity bills.

The move was mentioned in Ontario’s 2017-18 public accounts, which were released on Friday and indicated that the Ford government intends to stop “refinancing” the province’s global adjustment charge.

Global adjustment is a longstanding part of Ontario power bills that chiefly represents the difference between the market price for electricity and the usually higher rate the province owes power companies, either due to contract terms or regulatory decisions. The charge has shot up over the past decade, costing customers billions, and now makes up the bulk of the commodity cost of electricity in Ontario.

Feeling the heat over energy prices, Ontario’s then-Liberal government rolled out their so-called Fair Hydro Plan in 2017, resolving to lower electricity bills by an average of 25 per cent for residential consumers, and then to hold rate increases to the rate of inflation for four years.

The plan did so in part by “refinancing” the global adjustment charge — essentially borrowing money to reduce the amount current ratepayers owed on their bills, with future ratepayers left to pay it back. An auditor’s report on the Fair Hydro Plan last year suggested the total borrowings to be repaid could surpass $39 billion over the life of the program, including interest.

But according to the public accounts, those refinancing plans are being targeted for a change under Ford, whose government has been busy scrutinizing the financial situation left behind by the Liberals.

“In September 2018, the government made a decision to make a future proposed legislative change to the Ontario Fair Hydro Plan Act to cancel the Global Adjustment Refinancing component of the plan,” said part of the province’s recently released financial statements.

“The government will fund all the future obligations issued and outstanding as of the date the guarantee is invoked.”

Another passage in the public accounts said the Ford government would make changes to the act “reducing the amount of the current electricity price reduction to be borne by future ratepayers, and making any recovery from future ratepayers optional.”

However, while future ratepayers may end up no longer on the hook for the refinancing, the effect of the changes on today’s electricity customers remains unclear.

A commission of inquiry struck by the Ford government recently noted that the global adjustment refinancing part of the hydro plan provided nearly two-thirds of the Liberals’ 25-per-cent cut.

Ford has also promised ratepayers a 12-per-cent cut in the price of electricity on top of the 25-per-cent reduction introduced by the Liberals, something the government has suggested can be achieved through moves such as cancelling pre-construction green-energy projects and returning to ratepayers the dividends the province receives for its ownership stake in Hydro One Ltd.

“The government will have more to say about this in the future,” a spokesperson for the province’s finance minister said in an email.

As well, the latest public accounts show that Ontario has recorded an approximately $1.64-billion obligation to a Fair Hydro Trust, which was set up under the previous regime to help with the refinancing and to borrow some of the money needed to pay for the Fair Hydro Plan rate cuts.

The trust is managed by provincially owned Ontario Power Generation Inc., but is a separate financing entity. It will apparently no longer conduct debt offerings, turning Ontario’s already-issued hydro bonds into collector’s items.

“All debt issued under the Fair Hydro Trust will remain outstanding,” said Gadi Mayman, chief executive of the Ontario Financing Authority, the agency which borrows money for the province, in a message posted online Monday.

“The Province will be responsible for making all interest and principal payments due on those bonds. Going forward, there will be no issuance by the Fair Hydro Trust.”

As of this week, the trust had completed two debt offerings, issuing a combined $900 million in bonds with a term of either 15-and-a-quarter or 20 years. Before being brought to a halt, it was anticipated to borrow far more.

But shuttering the trust follows the release last week of recommendations from the independent commission of inquiry into the province’s finances. One of the commission’s recommendations, which were accepted by the Ford regime, was to adopt the preferred accounting of Ontario’s auditor general for the global adjustment refinancing.

The finance minister’s spokesperson said that “our Government has accounted for the Liberals hydro scheme on the Province’s books as previously recommended by the Auditor General in a bid to improve financial transparency for Ontarians.”

Ontario’s auditor had butted heads with the Liberals over the accounting. The watchdog also warned last year, citing another legislative officer, that the financing structure of the Fair Hydro Plan could cost Ontario up to $4 billion more in the long run, as OPG and the trust face higher interest rates to borrow than does the province itself.

“The government’s desired outcome was that the electricity subsidy would be funded by ratepayers and therefore have no impact on the deficit or net debt,” the commission’s report stated, adding that the global adjustment refinancing “also presents a risk that the global adjustment itself may be struck down as unconstitutional.”

“There is a risk that a court may find the global adjustment is not a valid regulatory charge if shifting costs over a longer period of time inadvertently results in future ratepayers cross-subsidizing today’s ratepayers.”

The recent moves by the Ford government fit into their broader strategy of undoing the plans of the previous Liberal regime. Since winning the June election, the Ford government has taken steps to dismantle the province’s carbon-pricing system, prevent another minimum wage increase and to repeal green-energy legislation.

The government has said they are trying to put the province’s finances back on track, and their commission of inquiry projected the province’s deficit for 2018-19 would be $15 billion — more than double what the Liberals’ budget had forecast, which is partly due to the inclusion of the hydro plan-related expenses.

“I can tell you that we now know the Fair Hydro Trust was all about a cover-up, and the first phase is exposing what the Fair Hydro Plan is,” Ontario Finance Minister Vic Fedeli told reporters last Friday.

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Hydro One earnings surge clouded by fears of government interference

Hydro One Ltd. has begun to rebuild after a management shake-up at the hands of Ontario Premier Doug Ford, but the company still faces the spectre of political interference, including new government controls that it warns could tamp down earnings and make it difficult to recruit executives.

The Toronto-based electricity utility reported Tuesday that profit was $200 million for its second quarter ended June 30, up from $117 million a year ago. The increase was due in part to greater energy use because of warm weather, as well as the favourable impact of a regulatory decision.

However, Hydro One’s latest results also come after the sudden retirement of former chief executive Mayo Schmidt and the replacement of its board of directors.

The moves were made under pressure from Ford, whose successful campaign for the premier’s office in Ontario’s June election included a vow to fire both the board and Schmidt, who Ford dubbed the “Six Million Dollar Man” over his approximately $6.2-million compensation package for 2017.

Moreover, the Ford regime recently passed legislation that gives Ontario — which remains Hydro One’s largest shareholder, even after the previous Liberal government sold approximately 53 per cent of the once provincially owned utility — greater control over the company’s C-suite.

The Doug Ford regime recently passed legislation that gives Ontario greater control over Hydro One’s C-suite.

Among other provisions in Bill 2, the legislation sets out that the Ford government can issue orders regarding compensation for directors and certain executives of Hydro One, Ontario’s largest distributor and transmitter of electricity.

“The introduction of Bill 2 may adversely impact the company’s ability to continue to attract and retain executives,” warned Hydro One in its latest financial filings.

Hydro One already has another executive they must replace. On Tuesday, Paul Dobson, Hydro One’s acting CEO, said the company is losing Ferio Pugliese,​ executive vice-president of customer care and corporate affairs, as of the end of this week. Pugliese is leaving for another opportunity, Dobson said during a conference call with analysts.

“We are pleased to have significant bench strength and management depth within Hydro One and we are confident that we will be in a position to appoint a well-qualified and experienced replacement in the near future,” he added.

Bill 2 also allows for the Ontario energy regulator to keep the cost of Hydro One’s executive pay out of the electricity rates charged to customers, which the utility said is estimated to reduce net income for 2018 by around $9 million.

A new board of directors at Hydro One was named Tuesday as well, which will be chaired on an interim basis by provincial nominee Thomas Woods, the former vice chairman of Canadian Imperial Bank of Commerce.

Hydro One has a new board after the last one resigned en masse.

Other directors named Tuesday include interim Canada Post Corp. president and CEO ​Jessica McDonald, who was also previously CEO of the British Columbia Hydro and Power Authority, and Russel Robertson, the former head of the anti-money laundering unit at Bank of Montreal.

Under the terms of an agreement between the company and the Ford government, the transition to a new board of directors was to be finalized by Wednesday. Ontario nominated four replacement directors for the company. Another six nominees were put forward by an ad hoc nominating committee made up of four of the company’s other largest shareholders.

The new board will be tasked with finding a successor to Schmidt.

Still, the turmoil atop Hydro One has jolted the utility’s nearly $7-billion takeover of northwestern U.S. energy company Avista Corp. Reviews of the Avista deal by some state regulators in the U.S. have been delayed, with the leadership changes at Hydro One cited as a cause.  

Hydro One’s financial filings warned: “If the closing of the merger does not take place as contemplated, the company could suffer adverse consequences, including the loss of investor confidence, and may incur significant costs or losses, including an obligation to pay or cause to be paid to Avista corporation a termination fee of US$103 million.”

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Unveiling of Ontario’s buck-a-beer scheme expected today

Ontario Premier Doug Ford is expected to roll out the provincial government’s buck a beer plan when he visits a brewery early today in Picton, Ont.

The move was one of Ford’s promises during the spring election campaign. He has also vowed to expand the sale of beer and wine to corner and box stores in Ontario.

A source with knowledge of the plan told The Canadian Press last week that the Progressive Conservative plan will lower the minimum price of a bottle or can of beer to $1 from $1.25 by the Labour Day weekend.

Brewers would not be required to charge less, however, and the lower minimum price would not apply to draft beer, nor would it include the bottle deposit.

The source said the government hopes to get brewers on board by launching what it calls a “buck-a-beer challenge” with incentives for those who cut prices to $1.

The Tories have said a return to buck a beer would see more competition in the beer market without affecting the province’s revenues from beer and wine taxes, which government documents show brought in roughly $589 million in 2016-2017.

Ontario previously had buck-a-bottle beer but the Liberal government quietly hiked the minimum price in 2008, citing its “social responsibility” mandate.