Legislative Assemblée Assembly of législative de Ontario l'Ontario STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS PRE-BUDGET CONSULTATION 2014 2nd Session, 40th Parliament 63 Elizabeth II ISBN 978-1-4606-3862-0 (Print) ISBN 978-1-4606-3863-7 [English] (PDF) ISBN 978-1-4606-3865-1 [French] (PDF) ISBN 978-1-4606-3864-4 [English] (HTML) ISBN 978-1-4606-3866-8 [French] (HTML) Legislative Assemblée Assembly of législative de Ontario l'Ontario The Honourable Dave Levac, MPP Speaker of the Legislative Assembly Sir, Your Standing Committee on Finance and Economic Affairs has the honour to present its Report on its Pre-Budget Consultation 2014 and commends it to the House. Kevin Daniel Flynn, MPP Chair Queen's Park March 2014 STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS COMITÉ PERMANENT DES FINANCES ET DES AFFAIRES ÉCONOMIQUES Toronto, Ontario M7A 1A2 STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS MEMBERSHIP LIST 2nd Session, 40th Parliament KEVIN DANIEL FLYNN Chair SOO WONG Vice-Chair STEVEN DEL DUCA VICTOR FEDELI CATHERINE FIFE DOUGLAS HOLYDAY MITZIE JACQUELIN HUNTER MONTE MCNAUGHTON MICHAEL PRUE Katch Koch Clerk of Committee Susan Viets Research Officer Ian Morris Research Officer * Toby Barrett and Donna Cansfield regularly served as substitute members of the Committee. i CONTENTS INTRODUCTION 1 THE ECONOMY 2 Economic Outlook 2 Fiscal Situation 3 MINISTRY OF FINANCE 3 Fiscal Strategies 3 Tax Policy 3 Other Matters 4 OTHER MINISTRIES 5 ABORIGINAL AFFAIRS 5 AGRICULTURE AND FOOD 5 ATTORNEY GENERAL 6 CHILDREN AND YOUTH SERVICES 6 CITIZENSHIP AND IMMIGRATION 7 COMMUNITY AND SOCIAL SERVICES 7 COMMUNITY SAFETY AND CORRECTIONAL SERVICES 9 CONSUMER SERVICES 9 ECONOMIC DEVELOPMENT, TRADE AND EMPLOYMENT 9 EDUCATION 9 ENERGY 10 ENVIRONMENT 11 HEALTH AND LONG-TERM CARE 12 Research and Innovation 12 LHINS and Related Service Providers 12 Homecare 13 Hospital Funding 13 Independent Health Facilities (IHF) 13 Nurses and Nursing 13 Long-Term Care (LTC) 14 Palliative Care 14 Mental Health and Addiction Services 15 Other Health Matters 15 INFRASTRUCTURE 16 LABOUR 17 MUNICIPAL AFFAIRS AND HOUSING 19 ii Affordable Housing 19 Planning, Zoning, Development Charges and the Building Code 20 Provincial-Municipal Finance 20 NATURAL RESOURCES 21 NORTHERN DEVELOPMENT AND MINES 22 RESEARCH AND INNOVATION 22 TOURISM, CULTURE AND SPORT 23 TRAINING, COLLEGES AND UNIVERSITIES 23 Universities 23 Colleges 24 TRANSPORTATION 25 Roads 25 Rail 26 Other Matters 26 RECOMMENDATIONS 27 LIST OF WITNESSES AND WRITTEN SUBMISSIONS 28 APPENDIX A Dissenting Opinion of the Progressive Conservative Members of the Committee APPENDIX B Dissenting Opinion of the New Democratic Party Members of the Committee 1 INTRODUCTION The Standing Committee on Finance and Economic Affairs conducted its pre- Budget hearings in January 2014 in Kitchener, Oakville, Peterborough, Sarnia, Thunder Bay, North Bay, Kingston, and for one day in Toronto at Queen’s Park. Witnesses included representatives from associations, community groups, organizations and unions, and interested individuals. The Committee also received presentations from municipalities and their associations, as well as local administrative bodies and service agencies exercising delegated authority and/or receiving transfer payments. In total, 156 witnesses appeared before the Committee during the hearings in January. In addition, about 125 written submissions were received from interested individuals and groups who did not appear before the Committee. The pre-Budget consultation provides an important forum for citizens, stakeholders, and local government partners to discuss their social, economic and program related concerns with elected representatives. The submissions to the Committee are a vital part of the political process by which governments are held accountable for their decision making and administration by the electorate. This report is an overview of the main issues raised by presenters during the pre- Budget consultation. Cost estimates provided by witnesses for their proposals have been included wherever possible. Details of submissions by witnesses and their responses to questions by Committee Members can be found in the Hansard of the Committee’s Proceedings. Committee recommendations are listed on page 27 of the report. A list of witnesses, as well as the organizations and individuals from whom briefs were received, appears at the end of the report. 2 THE ECONOMY Economic Outlook The 2013 fall Ontario Economic Outlook and Fiscal Review (Economic Outlook) indicates that the province is in a period of restrained growth with real Gross Domestic Product (GDP), the measure of economic activity, projected to increase modestly by 1.3% in 2013 and 2.1% in 2014, before improving to 2.5% in 2015. Ontario’s GDP at market prices was $675 billion in 2012-13, which was 3.0% higher than the previous fiscal year. Gains in exports and business investment are expected to lead economic growth over the medium term. Household spending is projected to grow moderately, in line with growth in household income. Job creation is forecast to strengthen over the medium term, with employment gains averaging 1.5% a year over the 2013-16 period. The unemployment rate is expected to decline steadily from an average of 7.5% in 2013 to 6.6% by 2016 due to anticipated solid employment growth. Housing starts in 2013 are estimated to have totaled 59,000 units, down from a recent peak of 77,000 units in 2012. Existing home sales are expected to be essentially unchanged in 2013, following a 2.1% decline in 2012. Demand for new homes in Ontario will continue to be sustained by growth in the population. Housing starts are projected to average 62,500 units per year between 2013 and 2016. The Canadian dollar has edged down from close to parity in 2012 to an average of 97 cents US in 2013. More recently, the Canadian dollar has depreciated further, dropping to 90 cents US in late January 2014. There is a wide divergence of views on the outlook for the currency over the medium term. Private sector forecasts for the Canada–US dollar exchange rate in 2016 range from a high of 103 cents US to a low of 93 cents US. Short‐term interest rates have remained relatively low as central banks around the world maintain accommodative policies to support growth. Long‐term interest rates have begun to rise as global financial markets anticipate the gradual reduction of exceptional monetary stimulus. The timing and pace of the adjustments are uncertain and, as a result, longer‐term interest rates are likely to remain volatile. However, both short‐ and long‐term interest rates are expected to rise over the medium term. Although the markets for Ontario exports have become more diversified in recent years, the United States remains by far Ontario’s largest trading partner. It was the destination for about 78% of the province’s international merchandise exports in 2012. Ontario exports of motor vehicles and parts to the United States totalled $54.5 billion and accounted for about 34% of Ontario’s merchandise exports in 2012. US motor vehicle sales are expected to reach 15.6 million units in 2013, up 8.0% from 2012, and to increase to 16.4 million units by 2016, providing a buoyant market for Ontario exports. In the United States, real GDP is projected to increase by 1.6% in 2013 and to average 2.8% growth over the 2014–16 period. 3 Employment is expected to improve modestly, with the unemployment rate declining from 7.5% in 2013 to 6.1% by 2016. Fiscal Situation The Ontario government plans to eliminate the deficit by 2017-18. The deficit was $9.2 billion in 2012-13 and is forecast at $11.7 billion for 2013-14. Global economic uncertainty is holding back economic growth in Ontario and dampening the outlook for provincial revenues. In response, the government will look to drive savings through an expenditure review and consider other tools, as necessary. Net provincial debt (the difference between liabilities and financial assets) was $252.1 billion as at March 31, 2013. Net provincial debt is projected to be $272.1 billion as at March 31, 2014. The Province’s net debt‐to‐GDP ratio is expected to rise due to the projected deficits and public investments in capital. The ratio is projected to peak at 40.5% in 2015-16, then decline to 38.9% by 2017-18 as the deficit is eliminated. MINISTRY OF FINANCE Fiscal Strategies Calls to balance the budget were made by industry groups and citizens. Strategies proposed included restraining public sector growth, reviving balanced budget legislation, and moving forward with recommendations from the Drummond report. One focus was maintaining the current path to fiscal balance without sacrificing public services. Witnesses urged the province to expand wage restraint measures across the broader public sector and close related loopholes, conduct a fundamental review of public services being delivered, recover tax evasion losses, and work with the federal government to reform the Equalization Program. Alternatively, some presenters wanted a focus on generating additional revenues, as opposed to cost cutting, to achieve a balanced budget. In particular, a labour representative suggested that low corporate tax rates in Ontario are a reason for Ontario’s low revenues and proposed a reversal of corporate tax cuts to bolster provincial income. Tax Policy Stakeholders disagreed regarding the ideal approach to corporate income taxes. Industry and business advocacy groups propose maintaining current corporate tax rates while anti-poverty and labour representatives suggest raising them. Some witnesses recommended restoring corporate tax rates to 2009 levels. Stakeholders also brought conflicting advice on personal income tax policy. Anti- poverty, labour, and student groups want a 2% increase to the current personal 4 income tax rate for income exceeding $250,000. Many witnesses urged the government to pursue a more progressive taxation system.