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From today’s Financial Post, an opinion by economist Jack Mintz. Mintz holds the Palmer Chair in the School of Public Policy at the University of Calgary and is the former chair of the CD Howe Institute.

Canada’s sagging middle: Ontario
Ontario’s growth has lagged the rest of Canada, averaging less than 1% annually since 2009
With Quebec’s election over, we can turn to Ontario where a scandal-plagued Liberal government will soon present its 2014 budget – and possibly trigger a spring election. Ontario is sagging under the weight of monstrous public debt, uncompetitive energy prices and rising taxes. Given Ontario’s size, other regions of Canada are being hurt.
Ontario has only one way out: economic growth. Luckily, the American economic recovery will significantly benefit Ontario. However, it won’t be enough. The government needs to get its house in order.
Pushing aggregate demand with deficit spending won’t achieve growth. Economic stimulus might provide some short-term relief but won’t generate sustained expansion. Instead, growth will be attained with supply-side policies by reducing onerous regulations, providing some smart tax reforms and shifting to growth-oriented spending, especially to address the notorious Greater Toronto Area infrastructure problem.
Nor will growth come from expansionary public programs like the proposed Ontario pension plan. Forcing people to hold assets in a government-sponsored plan might be helpful to some but it will be just another form of new taxation for others, who are already have adequate savings for retirement.
Ontario’s growth has lagged the rest of Canada, averaging less than 1% annually since 2009. Employment since 2009 has increased by 375,000 but the employment rate has fallen to U.S.-levels of 61.4% as of March 2014, far less than Alberta’s at almost 70%.
Ontario‘s fiscal picture is also not pretty, with gross debt over $290-billion (net debt is $272-billion), requiring $10.6-billion in taxes to cover interest charges. This expense is enormous, about one-half of education expenditures.
The average Ontario debt interest rate is only 4% but interest rates are expected to rise within the next few years. Each point increase in interest rates will add at least another $3-billion in annual interest expense.
Ontario’s energy prices are soaring. Look at any bill and one can read added delivery charges, regulatory charges, debt retirement charges and HST, resulting in an average price of 12.48 cents per kwh in Toronto for households. Large power customers pay 10.89 cents per kwh in Toronto, less than New York but higher than most eastern U.S. and Canadian cities.
Ontario made real progress in 2009 by adopting the HST to replace the provincial sales tax and reducing Ontario’s corporate and personal taxes to ensure that revenues would not increase. However, the province reneged on tax cuts only two years later.
The Ontario corporate income tax rate is stuck at 11.5%, compared to the promised 2009 legislated rate of 10%. None of this helps the province’s poor investment climate. Ontario’s share of business capital spending is only 32% of Canadian investment, less than its share of population and dramatically less than a decade ago.
Personal income tax rates have also increased to almost 50% at the top end, third highest in Canada. There is a reason why many high-income taxpayers have moved Alberta with its top rate of 39%. Alberta’s rich households, with over $500,000 in family income, account for 15% of Alberta’s taxable personal income. This ratio is two-thirds higher than Ontario.
Add in Ontario sales taxes at a 13% rate (about the average Canadian rate), fuel taxes (Ontario’s at 14.7 cent per litre is one of the highest in the country) and property taxes (Ontario is on the high side especially for non-residential property) – it all adds up to a yoke on growth.
Ontario’s Minister of Finance is in a bind. He needs more growth but he also has to deal with a large debt mountain and an uncompetitive tax system. So what are his options? Here is a five-point plan.
First, focus spending on growth-oriented programs. Transportation infrastructure should be on the top of the list as GTA traffic results in unproductive use of time.
Second, kill off the feed-in tariff program for wind and solar that creates excessive electricity costs for households and companies. This would both improve growth and help reduce administrative costs….

Read the full article here.

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