Sousa discards caution, shrinks margin for error

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 Tuesday. “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. Employers have complained that new workers often aren’t 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.

“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 the 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.

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

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.

Sousa’s update is mostly a rehash of things the government promised in the full budget in the spring.

One worrisome thing 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), personal income- tax revenues are a bit smaller ($ 1.8 billion), revenues from Crown corporations are up a bit ($ 200 million), and it just about evens out.

You might think a stronger economy would increase revenues and reduce expenses. 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 reverse argument: “A weakening economy requires the province to invest more in economic growth, running a greater risk of deficit, to preserve a prosperous future.”

But prudence doesn’t win elections. New programs and tax cuts win elections. So that’s what we’re getting.