Ontario's Fiscal Imbalance an Illusion - Province Swimming in Tax Revenue
TORONTO: The Canadian Taxpayers Federation (CTF) reacted to the McGuinty government's 2006 Budget presented by the Minister of Finance at Queen's Park this afternoon.
"If the resolve existed to restore Ontario's fiscal house, the books could have been balanced in 2005," observed federal director John Williamson. "This is a tax-and-spend budget from a high tax and high spending government. Since the Liberals assumed office in 2003, program spending has jumped over 20 per cent. The deficit will be $1.4-billion in '05 and another $1.4-billion in '06. The government will wait until next year's budget before balancing because it will be an election year. Premier McGuinty's fiscal record is hurting economic performance. Over the next two years the province's growth rate will lag behind the national average."
A government swimming in tax revenues
Queen's Park's tax bite continues to sink deep. Since the Liberals assumed office personal income tax revenues - which included the health tax - have increased by an astounding 32 per cent, rising by $6-billion since 2003. Without the health tax, personal income tax revenues increased by 18 per cent.
The rise in corporate tax revenues is even more dramatic. Upon assuming office the McGuinty government repealed corporate tax relief: the general rate rose from 12.5 per cent to 14 per cent and the manufacturers' rate jumped to 12 per cent from 11 per cent.
And yet another deficit on the books because every revenue increase is met with a corresponding spending increase
Over the past two years, the CTF has repeatedly called on the government to reduce spending in non-priority areas and spend smarter with the tax money it collects. Instead, the more tax money sent to Queen's Park, the faster it is spent. Following the release of the 2005 budget, the CTF applauded the McGuinty government for its plan to keep program spending growth to 4.5 per cent, which was half the 2004 increase of 9 per cent. The 2006 Budget, however, shows program spending in fact jumped again by 8.9 per cent in '05, not 4.5 per cent as advertised.
"Is this deception or incompetence " Williamson asked. "Obviously the spending projections for '06 should not be given much weight. The government says its spending will increase by less than 2 per cent this year, but based on its spending record, I do not believe this target will be met, certainly not in an election year."
The McGuinty government's tax-and-spend philosophy:
"Send us your money and we will spend it."
Still in the Red
After promising to balance the budget every year in the 2003 election campaign, Premier McGuinty quickly reneged on that commitment and instead promised to eliminate the deficit by 2008. (The budget will, in fact, balance sooner because voters go to the polls in October 2007.) Due to last year's repeal of the Balanced Budget Act, Cabinet members will not suffer any drop in salary while the province remains in the red.
"Future generations will be 'indebted' to Mr. McGuinty because of the province's rising debt levels and his refusal to make debt-reduction a priority," observed Williamson. "Interest payments on Ontario's $147-billion debt cost Queen's Park in excess of $9-billion each year. This is nearly $25-million in interest payments each day."
Only two provinces in Canada are running budget deficits: tiny Prince Edward Island and mighty Ontario.
Higher taxes and more spending taking a toll on the Ontario economy
Between 1997 and 2002, the Ontario economy grew at a faster pace than the national average. Starting in 2003 the province dropped behind the Canadian average. The 2006 Budget forecasts the province will continue to lag behind the Canadian average over the next two years.
Ontario now ranks behind Alberta and British Columbia as an investment-friendly jurisdiction. Proposed tax reforms in New Democratic Saskatchewan (!) could soon push Ontario further down the ranking.
"Most jurisdictions in Canada and the United States understand the truism that governments cannot spent their way to prosperity," observed Williamson. "Ontario is the odd man out, spending freely and running multi-year deficits. The McGuinty Liberals seem to believe if they keep on spending the economy will strengthen. As taxpayers have witnessed in British Columbia, creating economic growth is the result of pro-growth policies, namely competitive tax rates and balanced budgets."
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For more information, contact John Williamson at 416-725-0501.