Wynne pushing back at Liberal calls for corporate tax hikes

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Ontario Premier Kathleen Wynne is resisting calls from fellow Liberals to use major tax increases to help eliminate the province's deficit.

At recent cabinet and caucus meetings, sources say, a contingent of Liberals made the case that Ontario has a revenue problem, not just a spending problem. With a national consensus on the merits of low corporate taxes seeming to soften after a period during which Ottawa and the provinces raced to reduce them, it was argued that larger businesses in particular should pay more.

Since a recent cabinet retreat, however, word has trickled through the government that any imminent tax changes will be relatively modest. Already signalling that, down the road, she wants to create new revenue streams to finance an expansion of transportation infrastructure, Ms. Wynne – widely perceived to be to the left of her predecessor, Dalton McGuinty – is said to be disinclined to make major moves in this spring's budget that would also raise general revenues.

As a result, increases to corporate or personal tax rates appear to be off the table. So, too, is the notion of doing away with or replacing most business tax credits. Economist Don Drummond put forward that idea in last year's government-commissioned report on the basis that the supports are no longer needed now that the corporate rate is lower. However, it is unappealing to politicians of all stripes because, by far, the biggest of those credits goes to small businesses.

Less easy for Ms. Wynne to dismiss are calls by the third-party New Democrats, whose support will be needed to pass the budget, to close what they refer to as "corporate tax loopholes."

One of three related NDP demands, a crackdown on companies that dodge collection by shifting funds outside the province, was quickly agreed upon. A second, to restrict a universal exemption on the first $400,000 of employers' health tax to smaller businesses only, may also be granted. But it is unlikely the Liberals will go all the way toward a third by cancelling the scheduled introduction of input tax credits – already available to smaller companies since the introduction of the harmonized sales tax – for larger corporations.

Beyond those measures, any business tax changes will likely be aimed at making certain credits less open-ended, perhaps by converting some – such as those aimed at luring film productions – to grants. Eligibility for some personal tax credits could also be narrowed because of a willingness to begin income testing for more expenditures.

Government insiders acknowledge that any such moves would have a limited impact on the province's bottom line, with some of them mostly serving symbolic purpose to show that everyone is being asked to pay their fair share. As such, the onus will remain mostly on spending restraint to balance the books by 2017-18.

That may disappoint some of the more prominent members of the Liberals' left flank, such as Community and Social Services Minister Ted McMeekin, who backed Ms. Wynne's leadership campaign. But insiders point to several reasons, beyond just avoiding playing to perceived type, the Premier might be reluctant to move more aggressively on taxes.

More conservative-minded cabinet ministers have cautioned that a government recently beset by spending scandals, most notably over the scrapping of power-plant projects, would be ill-positioned to make the case that it needs to collect significantly more money.

Liberals are also still cognizant of the lasting impression left by their imposition of a new health tax in their first year of office nearly a decade ago. With many of them in retrospect believing that levy was unnecessary or premature, they are wary of making a similar a mistake now.

Feeding into that concern is the likelihood that the deficit figure will be well below earlier projections, making it more difficult to argue that new revenues are urgently needed – especially at a time when the government will be gearing up to ask Ontarians to pay more for transit.

With the deficit potentially rising again in the years ahead, and the path to promised balance by 2017-18 still uncertain, Ms. Wynne could yet revisit the tax issue should she remain in office for future budgetary cycles. But this year's budget will be limited mostly to NDP-friendly tinkering that will allow the government to survive the spring.