Liberals ‘throw­ing money’ at fall­out from min­i­mum-wage hike, Tories say

Ottawa Citizen - - CITY - DAVID REEVELY dreevely@post­media.com twit­ter.com/davidreevely

The On­tario gov­ern­ment is cut­ting taxes on small busi­nesses and sub­si­diz­ing com­pa­nies that hire young work­ers, com­pen­sa­tion for an im­mi­nent hike to the min­i­mum wage that the op­po­si­tion par­ties say will still be dev­as­tat­ing.

“About a third of jobs in On­tario are in small and medium-sized en­ter­prises,” Fi­nance Min­is­ter Charles Sousa told the leg­is­la­ture in his an­nual up­date on the state of the prov­ince’s books Tues­day af­ter­noon. “To sup­port these busi­nesses, I am pleased to an­nounce that the gov­ern­ment is in­tro­duc­ing more than $500 mil­lion in new ini­tia­tives over the next three years to help them grow and re­duce costs.”

The tax cut is the mar­quee item, trim­ming the prov­ince’s take of small-busi­ness prof­its from 4.5 per cent to 3.5 per cent.

The fed­eral gov­ern­ment is cut­ting its share of the same tax, as Sousa’s fed­eral Lib­eral coun­ter­parts try to fix some of the po­lit­i­cal dam­age from their crack­down on per­sonal cor­po­ra­tions some peo­ple use as tax shel­ters.

“With the changes pro­posed by the fed­eral gov­ern­ment, the com­bined fed­eral-On­tario cor­po­rate in­come tax rate for small busi­nesses would be at its low­est in over 30 years,” Sousa said.

The cut, to the taxes on a busi­ness’s first $500,000 in in­come, kicks in Jan. 1. It’ll amount to a $150-mil­lion an­nual re­duc­tion in provin­cial rev­enues by 2019, Sousa fore­casts.

The gov­ern­ment also plans to spend $124 mil­lion — over three years — to give em­ploy­ers in­cen­tives to hire, train and keep young work­ers, those most likely to be paid min­i­mum wage. Em­ploy­ers have com­plained that brand-new work­ers of­ten aren’t re­ally worth the money they’re paid, grow­ing into their wages only af­ter they gain ex­pe­ri­ence.

This is all sup­posed to cush­ion the gov­ern­ment’s plan to hike the min­i­mum wage to $15 an hour by 2019 and re­quire em­ploy­ers to sup­ply other ben­e­fits to all work­ers, which Sousa said won’t change.

“We will not back down from these com­mit­ments,” he said.

“An in­crease to the min­i­mum wage can­not wait. Peo­ple can­not wait. De­lay­ing an in­crease is deny­ing an in­crease.”

That’s still a prob­lem, shot back Progressive Con­ser­va­tive fi­nance critic Vic Fedeli. Cut­ting a tax on busi­ness prof­its as­sumes busi­nesses have prof­its, he said; the em­ploy­ers who are in the big­gest trouble from the min­i­mum-wage hike don’t have them. He cited a res­tau­rant he knows where the owner clears $100,000 a year in prof­its but will have to pay $152,000 more in wages, leav­ing no earn­ings to cut the taxes on.

“Rather than slow down their min­i­mum-wage hike, they are just try­ing to throw more money at the prob­lem,” Fedeli said.

“This Band-Aid will do noth­ing for a busi­ness with no in­come or em­ploy­ees left.”

New Demo­crat fi­nance critic John Van­thof said the gov­ern­ment should have done more to make jobs less pre­car­i­ous, shouldn’t have sold a ma­jor­ity share in the prof­itable Hy­dro One util­ity to pay for in­fra­struc­ture projects, and shouldn’t have bor­rowed bil­lions of dol­lars to cut con­sumers’ elec­tric­ity bills.

Oth­er­wise, Sousa’s up­date is mostly a re­hash of things the gov­ern­ment promised in the full bud­get in the spring, which Sousa re­as­sures us are in­deed hap­pen­ing. That’s fine — au­tumn bud­get up­dates aren’t a time for rad­i­cal­ism un­less there’s a cri­sis that needs an­swer­ing.

One thing on which to cast a beady eye, though, is the shrink­ing of the con­tin­gency re­serve, the mar­gin of er­ror the gov­ern­ment gives it­self.

This year’s cor­po­rate-tax take is a bit big­ger than ex­pected ($1.6 bil­lion, to be ex­act), per­sonal in­come-tax rev­enues are a bit smaller ($1.8 bil­lion), rev­enues from Crown cor­po­ra­tions are up a bit ($200 mil­lion), and it all just about evens out. If it didn’t that’s what the re­serve would be for, at least no­tion­ally.

In prac­tice, the con­tin­gency is the funny-money sec­tion of the bud­get, cash the gov­ern­ment doesn’t in­tend to spend but can re­pur­pose how­ever it wants later. It can go to some pro­gram that sud­denly seems shiny and use­ful but that the Fi­nance Min­istry hadn’t thought of pre­vi­ously. It can go to tax cuts.

Or the gov­ern­ment can de­clare that hav­ing ex­actly the left­over money it ex­pected to have is a mark of its own su­pe­rior man­age­ment of the trea­sury.

His­tor­i­cally, that’s been about $1 bil­lion. But the con­tin­gency re­serve is down to $500 mil­lion for this year, the same amount next year, and $800 mil­lion the year af­ter that, the up­date says, “re­flect­ing con­fi­dence aris­ing from a strength­en­ing econ­omy that is en­abling the prov­ince to in­vest in the pri­or­i­ties that mat­ter most to the peo­ple of On­tario.”

You might think a stronger econ­omy would in­crease rev­enues and re­duce ex­penses, leav­ing the gov­ern­ment with more money even if it nips taxes a lit­tle. In­stead, we have a chance to op­er­ate even closer to the line, Sousa is say­ing. Bring in more, spend more, and keep less mar­gin for er­ror. We could just as eas­ily run the ar­gu­ment the other way and have it make just as much sense: “A weak­en­ing econ­omy re­quires the prov­ince to in­vest more in eco­nomic growth, run­ning a greater risk of deficit, to pre­serve a pros­per­ous fu­ture for the peo­ple of On­tario.”

But, you see, pru­dence is a thing to tout be­tween elec­tions, not in an elec­tion year. Pru­dence doesn’t win elec­tions.

New pro­grams and tax cuts win elec­tions, if any­thing does.

So that’s what we’re get­ting.

New pro­grams and tax cuts win elec­tions, if any­thing does. So that’s what we’re get­ting.

Charles Sousa

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