Ontario Budget 2021: A Closer Look, Commentary and Analysis

Ontario’s 2021 Budget focuses on the two big issues: protecting people’s health, and, getting the economy back on track. 

The COVID-19 pandemic has shifted the priorities of every government world-wide, and Ontario is no different. Key conservative philosophies such as balancing the budget, or encouraging business investment through strategic tax cuts, have largely been abandoned in favour of more (Liberal?) policies such as deficit spending, and direct funding support to business. Was there really any other choice when confronting the worst pandemic in a century?

Ontario is projected to spend $186.1 billion in 2021–22, compared to $148.8 billion in 2018–19 prior to the pandemic, a substantial investment to fight COVID, support health, and save the economy. As the government said on Budget Day, this is a race against time: its “vaccines vs variants”. 

Looking ahead, how will Ontario fight the deficit beast that has risen from the plague of COVID-19, and will be a force to contend with for years to come? The Finance Minister casts some light by picking the path (much travelled) of neither tax hikes nor program cuts, but betting big on economic growth to get Ontario out of the fiscal hole. While some economists question this assumption, politically it works as it takes the Conservative bogeyman of “cuts to programs” off the table in the lead up to the 2022 provincial election. That won’t stop the other parties from painting the Ford government “deep blue”, and that they have a “secret agenda” to cut program spending or privatizing public services, if they’re re-elected next spring.

A Closer Look: Items you may have missed in Budget 2021

While a lot of media attention has focused on the two broad themes of health and the economy, there are a number of items that have been missed by media and others that we review in further detail below. 

But first, the top headlines:

Defeating COVID-19, and Investments in Health and Long-Term Care

Defeating COVID-19 is everyone’s number one priority, and the Province is committing $1 billion for its province-wide vaccination plan. Additional investments include: $2.3 billion to support testing and contact tracing for communities and business, $1.4 billion for PPE, and $5.1 billion to support Ontario’s hospitals since the pandemic began, creating more than 3,100 additional hospital beds. 

The long-term care sector has suffered the full force of COVID-19, and a key contributor has been Ontario’s existing long-term care infrastructure. COVID hit Ontario’s LTC sector not because of the existence of private sector operators, but rather private sector operators have disproportionately more older facilities with more beds per room. This problem goes back to a failed funding formula that goes back over decades. 

“Fixing” long term care will take time and an enormous amount of funding. The Province is proposing to invest an additional $933 million over four years, for a total of $2.6 billion, to support building 30,000 new long‐term care beds. Additional investments include:

$650 million in 2021–22, to protect long term care residents from COVID-19 (bringing the total resources invested since the beginning of the pandemic to over $2 billion);

4.9 billion over four years to increase the average direct daily care to four hours a day in long‐term care and hiring more than 27,000 new positions, including personal support workers (PSWs) and nurses.

The Economy

The other major theme in the Ontario Finance Minister’s budget is getting the economy back on track, with a variety of supports and initiatives for business, skills training, and supports for workers and families. 

Supporting Business (especially small business) is a key theme, and there are a large number of new and renewed initiatives aimed at supporting businesses and encouraging investments: 

Ontario Small Business Support Grant: qualifying small businesses impacted by COVID closures will be able to access an additional $20,000 (bringing the total support up to $40,000 under this program).

Digital Main Street: the program, originally launched by the Toronto Association of Business Improvement Areas (TABIA) and is now Ontario wide, is getting an additional $10 million to continue supporting small businesses build an online digital presence and connect with customers online.

Ontario Tourism and Hospitality Small Business Support Grant: Ontario is creating a parallel program to support Ontario’s tourism and hospitality industries, which have been devastated by COVID-19. The new grant will provide an estimated $100 million in one‐time payments of $10,000 to $20,000 to eligible small businesses (although businesses will only be able to access one of the two programs).

Regional Opportunities Investment Tax Credit: To encourage business investment outside the GTA and Ottawa Regions, the Province is proposing to temporarily double the Regional Opportunities Investment Tax Credit (from 10 to 20%) for eligible expenditures on assets that become available for use in the period beginning on March 24, 2021 (Budget Day) and ending before January 1, 2023. Doubling the tax credit rate will provide a rebate to a maximum of $90,000 for qualifying applicants, making it a rather generous program.

Invest Ontario Fund: The Ford government is committing $400 million over four years to create the Invest Ontario Fund, aimed at encouraging investments in key sectors such as advanced manufacturing, technology and life sciences. To identify investments in high‐value projects, the Invest Ontario Agency will utilize a “sophisticated evaluation process” to inform its assessments and project selections (i.e. “picking winners”, not dissimilar to what Liberals did when in government under their myriad of programs, which picked a lowly start-up called Shopify several years ago). The agency will provide responsive and customizable investor services to support investment opportunities, including available financial assistance, talent support, advisory supports and concierge services – useful in navigating the various funding pools and local investment conditions that can support or kill any investment project. 

Ontario Vehicle Innovation Network (OVIN): Electric Vehicle (EV) manufacturing is here, with the investment announcements made by the big(ish) three over the last 6 months. But what is good for our climate, isn’t necessarily so great for Ontario’s vast auto parts manufacturers. EVs have a lot less parts compared to their gas guzzling cousins, which will present a challenge to Ontario’s existing auto parts companies in the years ahead. There is certainly a role for many in Ontario’s EV manufacturing future, but very careful attention, coordinated advocacy by industry players, and support from governments are necessary to ensure the EV revolution is a great one for Ontario auto sector workers and businesses (which it absolutely can be). 

The province is investing $56.4 million over the next four years to create the Ontario Vehicle Innovation Network (OVIN). The OVIN will support the development of next generation electric, connected and autonomous vehicle and mobility technologies, as well as supporting Ontario’s role as the manufacturing hub of Canada. The OVIN is also intended to encourage innovation and collaboration through partnerships between small and medium‐sized enterprises (SMEs), academia, the auto industry and battery sector, including critical minerals development in Ontario’s North. This is all positive, but Ontario’s auto industry players will need to organize themselves to be poised to take advantage of this effort, and ensure it drives industry priorities that will encourage EV investment, manufacturing mandates, and that all sectors have a role to play.

Capital Markets Modernization: Earlier this year, the Capital Markets Modernization Taskforce led by Walied Soliman (Chair, Norton Rose Canada) presented recommendations on modernizing the Ontario’s Capital Markets regulatory framework, which has not undergone a comprehensive review in over 17 years. The province is moving forward with legislative amendments to support the expansion of the Ontario Securities Commission’s (OSC) mandate to include competition and capital formation support economic growth, and is reviewing other recommendations to improve Ontario’s competitiveness compared to global peers. This will include consulting with the Ontario’s financial services sector and the publishing of a draft Capital Markets Act. In addition to these draft legislative reforms, the OSC is undertaking an analysis to inform its regulatory framework (that falls within OSC rule-setting). 

This work presents a critical opportunity for Ontario’s financial services sector writ large, from existing players to emerging fintech startups, to ensure there is a structure that is competitive with global peers, enhances economic growth and job creation, and protects consumers.

For more information, please contact:

Christopher Holz: chrish@campbellstrategies.com

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