06 May 2013

Thoughts on the 2013 Ontario Budget

The budget that Charles Sousa presented last week is geared more towards ensuring the survival of the present minority government. This is obvious from the goodies that were announced, such as the mandated 15% reduction in auto insurance premiums. The law of unintended consequences dictates that this decrease will be made up elsewhere by the various insurance companies - another example of an initiative by the Province that is not clearly thought out for any reason other than to preserve potential Liberal votes for the next election.

Probably the most crucial issue is that of productivity in the business sector. The budget does acknowledge this, together with the issues of underinvestment in R&D and M&E compared to US-based businesses. Unfortunately, neither the provincial nor federal levels of government can influence this more than they have already done — their incentives are already very generous — other than to introduce sanctions for not doing so, which will be difficult to either conceive or be accepted.

There is little to report about tax changes — other than for tax rates and credits, Ontario automatically parallels federal taxation rules. The only significant item to note is what will happen to the calculation of Employer Health Tax. Beginning in 2014:

  • the portion of total Ontario payroll that is EHT-exempt will rise from CAD 400,000 to CAD 450,000
  • the exemption will be adjusted for inflation once every five years,  using the Ontario Consumer Price Index
  • private-sector employers (other than registered charities) with a total Ontario payroll greater than $5 million will no longer be able to claim the exemption
How does this translate in terms of total headcounts that will be impacted? According to Statistics Canada, average hourly weekly earnings for 2012 in Ontario amounts to CAD 908.00, which translates to an annual amount of CAD 47,216. Therefore:

  • the annual exemption in 2014 is equivalent to a headcount of just over 9 (450000/47216 = 9.53)
  • the maximum threshhold beyond which the exemption will cease to have effect is equivalent to a headcount of just over 105 (5000000/47216 = 105.90)
  • the EHT rate continues to be 1.95%

Considering how risk-averse most Canadian small businesses tend to be, there may be a lot of thought being given as to whether to hire employee #106, as that will mean an immediate increase of CAD 8775 (450000*0.0195 = 8775) in their total EHT liability. That is probably the wrong message to give to employers, and definitely a negative message to those people who are trying to find work after coming through the recent Great Stagnation.

Again, this strikes me as a measure that was not fully thought out. Let's see if this survives the coming budget debate.

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