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Cablegate: 2007 Ontario Budget Focuses Social Deficit in Election

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DE RUEHON #0125/01 0822026
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R 232026Z MAR 07
FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC 1909
INFO RUEHOT/AMEMBASSY OTTAWA 1529
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 TORONTO 000125

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SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: EFIN PGOV CA
SUBJECT: 2007 Ontario Budget Focuses Social Deficit in Election
Year


Sensitive But Unclassified - protect accordingly.

1. (SBU) SUMMARY: Ontario's 2007 budget, unveiled on March 22,
focuses on reducing poverty, increasing services for modest-income
families, and reducing property tax increases. It contains little
additional funding for infrastructure investments and continues
funding programs previously announced by the McGuinty government.
Conservative opposition leader John Tory criticized the Liberal
government for inefficiency and waste, breaking its promises from
the 2004 election campaign, and for not doing enough to help hard
working middle class Ontarians. This was a political budget laying
the Liberal Party campaign foundation for the October 10 provincial
election. END SUMMARY

2. (U) On March 22, Ontario Finance Minister Greg Sorbara unveiled
the province's 2007 budget. Whereas previous budgets dealt with
physical infrastructure, health, and post-secondary programs,
Ontario's 2007 budget focuses on poverty reduction and services for
modest-income families with children. The centerpieces of the
budget are social welfare programs, an Ontario Child Benefit tax
credit, and increasing the minimum wage in Ontario from the present
C$8.00 an hour to C$10.25 an hour, to be phased in over the next
three years.

Promoting Investments in Ontario Businesses
--------------------------------------------

3. (U) The budget included a cut in the Business Education Tax (BET)
to 1.6% for both industrial and commercial properties by 2014,
resulting in C$540 million in savings for businesses. Businesses in
northern Ontario will benefit most, with an average 32% reduction in
the BET by 2014. The budget also accelerates the elimination of the
capital tax, from the scheduled 2012 to January 2010. The BET cut
and the capital tax elimination, coupled with the federal phased-in
Corporate Income Rate reduction, once fully implemented, means that
Ontario manufacturers will enjoy a combined average corporate income
tax burden 6% lower than manufacturers in the U.S. Great Lake
States. In addition to that advantage, Canadian businesses also do
not face the hurdle of funding employee health insurance that U.S.
businesses face.

Infrastructure
---------------

4. (U) Continuing to fund past infrastructure renewal promises,
Ontario infrastructure expenditures are expected to total C$5.9
billion this year, down from C$6.6 billion in 2006. Ontario will
spend C$1.7 billion to fix or expand highways, mostly in densely
populated southern Ontario. In an attempt to reduce congestion,
High Occupancy Vehicle (HOV) lanes will be constructed on some 400
series Highways (400 and 427 as well previously announced Highway
417) and the Queen Elizabeth Way. Ontario also plans to widen
Highway 10 in Caledon, Highway 401 in Kingston, and Highway 417 in
Ottawa. The budget announced a one-time investment of C$25 million
that municipalities across the province may use for their roads.

5. (U) No new border infrastructure funding was announced in this
budget. The government commits to continue the previously initiated
ReNew Ontario plan, of which C$800 million is devoted to border
infrastructure, including the C$300 million "Let's Get Windsor-Essex
Moving Strategy." The budget asks the federal government to help
Ontario and Quebec complete work on their plan to develop a
transportation infrastructure system encompassing Ontario and Quebec
called the "North America Gateway Strategy."

Environment and Justice
-----------------------

6. (U) Most environmental funding, C$51 million, is destined for
research and development in alternative energies and clean car
technologies, given as grants to universities and research centers.
The Finance Minister pledges to complement this modest funding with
C$200 million for further climate change initiatives, drawing from
the federal trust for clean air and climate change. Ontario plans
to spend C$30 million to restore the polluted shores of the Great
Lakes, under the Canada-Ontario Agreement Respecting the Great Lakes
Basin Ecosystem.

7. (U) The budget set aside C$1 million for a one-year pilot project
in the town of Stratford to target producers and traffickers of
methamphetamine and dismantle their labs. Stratford and the
encompassing Perth County in Southern Ontario have a large number of
clandestine methamphetamine labs.

8. (U) This is a balanced budget with a modest projected surplus of
C$310 million. Strong revenue gains, despite a very low real GDP
growth below 2%, allowed McGuinty to commit to multiple priorities.
Own-source revenues have climbed 28% and federal transfers are
forecast to jump 13.6%. The government plans to slash program
spending growth next year to 2.5%. Though the government is

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spending 5.2% more on health, education, and social assistance
spending in the coming year, they have cut spending for all other
areas by 8.2%. The Ministry of Finance predicts that Ontario will
be able to run surpluses for the next three years.

Critique from the Opposition
-----------------------------

9. (U) On March 23 Ontario Progressive Conservative leader John Tory
told an Economic Club audience in Toronto that Ontario is slipping
on Liberal Premier McGuinty's watch. Tory said the Liberal budget
should have included a health tax cut, a long term plan for transit
improvements (instead of one-off projects), support for displaced
manufacturing workers, a plan to solve municipal finance woes, a
"real plan" to help economically depressed northern Ontario, and
efforts to achieve greater government efficiency and stop waste
(such as paying C$6 million to change the provincial Lottery logo).
Tory cited broken promises made by the government since the 2003
parliamentary campaign such as the promise to close all coal plants
and improve air quality in Ontario by 2007. He said Ontario needs
to empower entrepreneurs to rebuild Ontario as the economic engine
of Canada.

10. (SBU) COMMENT: With the provincial election approaching on
October 10, this was a politically important budget, resembling the
federal budget in its attempt to please voters. Recent by-election
results, in which the Liberals lost to the New Democrats in
traditionally Liberal-ridings, undoubtedly contributed to the
budget's focus on social programs and the minimum wage increase.
Despite a slowdown in growth in the last two quarters and a
difficult year for the manufacturing and forestry sectors, the
strength of Ontario's revenue stream is notable. If voters do not
take the Liberals to task for "broken promises," the Liberals seem
to have positioned themselves well for the coming election campaign.
END COMMENT.

NAY

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