THE WAY TO BUILDING A BETTER ONTARIO 2016 Ontario Pre-Budget Submission

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1 THE WAY TO BUILDING A BETTER ONTARIO 2016 Ontario Pre-Budget Submission February 2016 Tel/Tél: Toll-free/Sans frais: Fax/Téléc:

2 Who is Unifor Unifor is a new Canadian union with more than 310,000 members across the country in 20 economic sectors. Our 160,000 members in Ontario work in auto manufacturing, aerospace, natural resources, road transportation, air and rail transportation, telecommunications, media, health care, social services, education, retail, hospitality, and gaming, among others. We protect our members and play a leadership role in building thriving, safe workplaces and a strong economy so all workers in Canada have a good job and a decent standard of living. Unifor advocates for and defends the economic and social rights of working people, including their right to: safe workplaces, secure employment, wages, and benefits that provide a decent standard of living, dignity and mutual respect in the workplace. To achieve these goals, Unifor is not only active in workplaces and at the bargaining table, but in all aspects of our communities and in the political debate to make Canadian society more just and equitable. Investing in People: Strengthening Public Services and Creating Jobs Over the last decade, Ontario has seen gradual cuts to public program spending and a decline in provincial revenue as a result of changes to the tax regime and a struggling economy. At the same time, the province continues to contend with persistent labour market challenges, as more Ontarians find themselves working in jobs that are increasingly low wage, part-time and insecure in nature. As challenges with the economy continue, Ontarians are looking for the government to re-focus its priorities on investing in people to address these challenges. First, this means restoring and enhancing much-needed public programs that reduce poverty and support healthy communities. In the health care sector, hospitals are struggling to keep up with patient needs because of almost a decade of funding cuts and chronic underfunding. Ontario hospitals have the lowest funding per capita in all of Canada and the cuts have been brutal. Services continue to be cut and/or privatized and many workers have lost their jobs which has resulted in patients experiencing increasing wait times and user fees. 1 Cuts to hospital funding are part of a larger picture of eroded public services due to chronic underfunding. Ontarians need more investment in public programs to ensure that everyone has equal access to high-quality and public education, health care, child care, and social and community services. Public sector investment not only directly impacts Ontarians by improving the services they rely on, but it creates decent jobs and ensures that Ontarians are able to fully participate in the economy. The government s initiatives on gender equity and labour law reform are a positive step in addressing the pressing need to provide Ontarians with good, quality jobs. However, it is important to acknowledge that cuts to public services disproportionately impact certain groups. 1 Ontario Health Coalition. Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 2

3 Women, for example, are employed at a higher rate in the public sector, and as such, have experienced a greater burden of the job losses resulting from program cuts. Newcomers, unemployed individuals, low-income families, and other vulnerable groups disproportionately feel the impact of cuts to programs that they rely on. Total program spending in Ontario (adjusted by inflation, 2009) ($ 000's) 110, , , , , , , , , (Source: 2014 Ontario Economic Outlook and Fiscal Review; Statistics Canada) Second, communities across the province are still recovering from the significant transformation of the manufacturing sector. However, with a strengthening U.S. economy and lower Canadian dollar, investment in the province s advanced manufacturing sector (including but are not limited to: automotive, aerospace, and petrochemical) will better position the province s economy during this transformation. Strategic investment can help create good jobs and take advantage of the skills that Ontarians possess. If there was one message that can be taken away from the most recent federal election, it is that bold change is needed. Like the rest of the country, Ontarians understand that austerity and a strict adherence to balanced budgets is the wrong approach instead, the government should focus on strengthening services, creating jobs in the public and private sectors, and growing the economy through enhanced government investment. Recommendations: Increase real program spending to account for lost ground by recent spending cuts, inflation, population growth, and increased demand for services; and strengthen the economy. Restore hospital funding with the goal of reaching the average provincial per capita spending in Canada. Increase core funding for all levels of education, long-term care and home care, social assistance and social services. Strengthen investment in the province s advanced manufacturing sector. This includes enhancing existing provincial funding envelopes to encourage growth in the sector, making existing programs more effective and better coordinated with federal counterparts, and engaging in meaningful consultation with labour on an investment strategy. Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 3

4 Investing in Infrastructure and Shifting the Agenda on Privatization Ontario has rightfully acknowledged the importance of expanding and renewing public infrastructure, as reflected in the last Ontario budget. New infrastructure investment is long overdue and is a key measure in supporting economic growth especially as parts of the economy are weakening while creating jobs, and providing services that Ontarians rely on. The government s recently introduced plan to invest in public infrastructure over the next decade is a positive and much-needed step, and can help address the infrastructure gaps in transportation (such as public transit, high speed light rail, bridges and roads, among others), health care (including hospitals, long-term care facilities, community health centres), and education (supporting the needs of growing communities and full implementation of full-day kindergarten). While new investment is important, new infrastructure should be developed with a comprehensive strategy that does not jeopardize the long-term financial health of the province. The government s current approach relies on short-term revenue gains at the expense of existing public infrastructure and long-term provincial revenue. The decision to sell off 60% of Hydro One was a mistake, as clearly voiced by Ontarians and municipalities across the province. While the justification of the sale has been to generate short-term revenue for infrastructure investment, there are better and less harmful options. Ontario s own financial accountability officer asserted that the move would drive up debt in the long term because of the massive loss of annual revenue estimated to be up to $500 million per year once 60% has been sold that Hydro One would normally net the province. During a period of rock-bottom interest rates, selling off such a valuable public asset to finance shortterm projects is not fiscally responsible. Accumulated revenue loss from the partial sale of Hydro One ($ millions) ,000-1,500-2,000-2,500-3,000-3,500-4,000-4,500-5, * Assumes subsequent 15% sale in each year from to (Source: Ontario Financial Accountability Officer) Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 4

5 The Hydro One privatization scheme is bad for all Ontarians and the economy hydro rates will be driven up and as more of the electricity system becomes privatized, Ontarians will be less able to count on the Ontario Energy Board to regulate rate increases. Ontarians are still feeling the impact of other privatization schemes like the sale of Highway 407 and will continue to feel the impact for years to come. The government should learn from the past: short-term gain is not worth the long-term pain. In the same vein, the government s current strategy to sell off other public assets prime real estate assets, in particular reflects a short-sighted approach for financing new public infrastructure. A more sensible and fiscally responsible approach would be to find ways to maximize the use of these public assets and unlocking their long-term potential value. Recommendations: Expeditiously move forward on transportation, health care and education initiatives under the province s public infrastructure plan. Keep Hydro One public reverse the sale of Hydro One. Reverse plans to sell off public real estate assets for infrastructure and develop a strategy for maximizing the use of these assets. Fair Taxation With a pressing need for public program investments and commitments to new and renewed infrastructure, the conversation around paying for such investments needs to focus on fair and efficient ways of generating revenue. Instead of looking to privatization schemes, the government should be looking at new and/or enlarged revenue streams. Fair taxation will help restore fiscal balance in the province and redistribute the financial burden associated with public services a burden that has been unfairly loaded onto the shoulders of everyday Ontarians. The 2016 budget should address the revenue gap created when the general corporate income tax rate was reduced from 14 per cent in 2010 to the current 11.5 per cent. While the government made the right decision to reverse plans to further cut the tax rate in 2012 and 2013, Ontario s corporate income tax rate remains among the lowest in Canada. Corporate tax cuts have often been justified by governments on the belief that they would encourage private sector investment. Unfortunately, this approach has not worked. During the most recent recession, companies in Canada held onto billions of dollars in cash and equivalents ( dead money ) and economists generally agreed that these companies were not doing enough to create jobs and grow the economy through investment. Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 5

6 Corporate Income Tax vs. Business Investment Combined federal and average provincial CIT rate Investment in fixed assets as a % of GDP 60% 50% 40% 30% 20% 10% 0% % 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% (Source: Unifor Research) Recent studies have demonstrated that there is no real historical correlation between reducing corporate tax rates and higher investment activity by companies. Thus, the real impact of reducing the corporate tax rate in Ontario has been the loss of billions of dollars in government revenue estimated at more than $2 billion annually, and it continues to accumulate year after year without stimulating significant private-sector investment that is needed to strengthen the economy. 2 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Provincial and Territorial Corporate Tax Rates, 2016 ( Source: Canada Revenue Agency, Government of Alberta, Government of Quebec) Ontario Budget. Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 6

7 Ontario s revenue gap can also be addressed by targeted personal income taxes, particularly for higher income earners. The government made commendable changes in recent budgets by recognizing the need to increase tax rates for annual personal incomes over $150,000 and $220,000. Ontario s personal income tax rates for higher incomes are among the lowest in Canada, so there remains considerable flexibility in adjusting these rates in order to generate much needed provincial revenue % 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Top Provincial and Territorial Personal Income Tax Rate, 2016 (Source: Revenue Canada, Revenu Quebec) Some provincial tax revenue is gained through capital gains income in the form of stocks and dividends however, these gains are taxed at only half the rate of personal income. Almost two-thirds of the capital gains deduction is realized by individuals earning a total income of over $250,000, while only two per cent is realized by individuals earning less than $50,000 a year. 3 This differential tax rate largely benefits wealthier individuals and represents a loss of $1 billion annually in potential revenue. 4 Recommendation: Bring fairness to the tax system by considering a number of options: Increasing the general corporate income tax rate. Increase personal income tax rates on the highest income earners. Eliminate tax loopholes that disproportionately benefit wealthy individuals. 3 Canadian Centre for Policy Alternatives. Fixing Ontario s Revenue Problem Ibid. Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 7

8 Retirement Security The need for action on retirement security across the country, including Ontario, is clear. Only 37 per cent of Ontario workers are covered by a workplace pension, while only 28 per cent of private sector workers have a workplace pension plan. 5 Ontario workers are unable to save voluntarily for retirement as indicated by the hundreds of billions of dollars in unused RRSP contribution room especially as incomes have stagnated and jobs are increasingly low wage, part-time and precarious in nature. The government has acknowledged the importance of retirement security first by calling on the federal government to enhance the Canada Pension Plan (CPP), but also with the plans to launch the Ontario Retirement Pension Plan (ORPP). The direction that the government has taken in addressing retirement security is commendable. However, any new program should be implemented in the best way possible to ensure that no one is left behind. The federal government made an enhanced CPP a key plank in its election platform and the Ontario government has continually stated that the CPP is the first choice for a good retirement savings program for Ontarians. The CPP has excellent features that have engendered the widespread support and confidence of Canadians: mandatory participation for employees and employers; a defined benefit pension indexed to inflation; and portability, which has become even more important with the growth in precarious work. Universal coverage ensures predictable stable funding, allows prudent investment and enables risk pooling across age groups and economic sectors. Unifor encourages the Ontario government to continue to press the federal government for an enhanced CPP. The ORPP, scheduled to start in 2017, could offer a reasonable pension benefit to Ontario workers who have no workplace pension or an inadequate pension. However, the benefits to Ontarians will only be maximized if the plan models the CPP. In other words, the ORPP should feature elements that include: mandatory employer and employee contributions, a defined benefit pension indexed to inflation, portability and universal coverage. The ORPP should also mirror the CPP in allowing low-income workers to participate with the same basic exemption ($3,500 annual earnings) and have an independent administration board. It is only if the ORPP models the CPP that it could eventually be folded into an enhanced CPP. Recommendations: Prioritize working with the federal government and other provinces to significantly expand the CPP. If introduced, the ORPP should feature elements that mirror the CPP, that include: Mandatory employer and employee contributions; defined benefit pension indexed to inflation; portability; universal coverage; low-income participation with a basic exemption ($3,500); independent administration board. cope343my:ld 5 Ontario Ministry of Finance. Ontario Retirement Pension Plan: Key Design Questions Unifor l Building A Better Ontario 2016 Ontario Pre-Budget Submission 8

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