Ontario’s borrowing costs are outpacing Quebec and its tax advantage compared with the United States is evaporating, argue a pair of new reports criticizing the province’s financial management.
Ontario’s finances are increasingly resembling Quebec’s, which has the province challenging Quebec for its title in “financial recklessness,” says are report from the Montreal Economic Institute (MEI).
Ontario’s cost of borrowing surpassed Quebec’s in early April, the report says, and Ontario is expected to turn in a $6.7 billion deficit in 2018-2019.
Moreover, Ontario is not forecast to return to a balanced budget until 2024-2025, whereas Quebec has recorded a balanced budget every year since 2015-2016, and is continuing to pay down its debt.
“When you look at debt, spending, and taxes, Ontario looks more and more like Quebec. This is due in part to Quebec’s improved performance recently, but also to the deterioration of Ontario’s public finances over the past decade and a half,” says Jasmin Guénette, vice president of the MEI, in a statement.
“Despite Quebec’s recent gains, both provinces are addicted to taxing, spending, and borrowing. The large debts in particular will of course have to be repaid with future taxes, a prospect that ought to alarm anyone concerned about the long-run prosperity and well-being of Quebecers and Ontarians,” adds Guénette.
A report from the Vancouver-based Fraser Institute, Time for Tax Reform in Ontario, urges Ontario to slash taxes to regain its tax advantage, particularly relative to the U.S. The province’s top marginal income tax rate is second highest in North America, the report says, and is much higher than neighbouring U.S. states such as Michigan, Ohio, and Pennsylvania.
Additionally the province’s advantage in corporate tax rates relative to the U.S. has been eroded by recent tax cuts, which reduced the U.S. federal rate from 35% to 21%.
The report recommends Ontario introduce a single tax rate of 8% for all personal and corporate income. Such a cut would cost approximately $11 billion per year in lost tax revenue, but “would make Ontario one of the most competitive pro-growth tax jurisdictions in North America,” the report says.
The cost of the cut could be absorbed by restraining government spending, it adds.
“Ontario’s economy has struggled for many years, partly because uncompetitive tax rates discourage businesses and entrepreneurs from moving here and investing in the province,” says Ben Eisen, director of the Fraser Institute’s Ontario prosperity initiative and co-author of the report, in a statement.
“Even modest spending restraint would create much of the fiscal room needed to pursue meaningful tax reform and relief that could help make Ontario a more attractive place for entrepreneurs, businesses, and skilled labour,” he says.