2015 Ontario Economic Outlook and Fiscal Review
Chapter I: Building Ontario Up — Progress for Prosperity

Section A: Fostering a More Innovative and Dynamic Business Environment

The government is helping Ontario businesses grow and succeed so they can create rewarding, high-paying jobs and contribute to the province’s economic prosperity. Since the 2015 Budget, the government has partnered with the private sector to promote investment and innovation, and is exploring additional ways to nurture Ontario’s businesses and its people for success in the new global innovation economy. To maintain Ontario’s competitive edge, the government is taking action to win the race for capital, customers and talent. This includes establishing the Sharing Economy Advisory Committee; developing a strategy that will help small firms scale up; and modernizing the regulatory system to lower the cost of doing business.

A dynamic business climate helps Ontario businesses invest and grow, creating rewarding, high-paying jobs and a more prosperous economy. Following the 2008–09 global economic recession, the Province took decisive action to foster an innovative and dynamic business environment by:

  • Improving tax competitiveness — the government reduced Ontario’s general Corporate Income Tax (CIT) rate from 14 per cent to 11.5 per cent, resulting in a combined federal–provincial general CIT rate of 26.5 per cent. This combined rate is lower than the combined federal–state general CIT rate in any of the U.S. states. The CIT rate reduction, together with other tax changes, has cut Ontario’s marginal effective tax rate on new business investment by half since 2009.
  • Reducing the cost of doing business in 2014, the government set a goal to help businesses save $100 million by the end of 2017 by reducing unnecessary regulatory requirements, eliminating duplication and improving the delivery of government services.
  • Helping small businesses grow — entrepreneurs have gained access to more capital as a result of government investments in the $205 million Ontario Venture Capital Fund, launched in 2008, and the $300 million Northleaf Venture Catalyst Fund, launched in January 2014.
  • Supporting research and innovation — the government has helped to bring ideas to market by supporting advanced research in Ontario’s world-class public institutions and by promoting greater industry–academic collaboration through initiatives such as the Ontario Network of Entrepreneurs (ONE).
  • Building strategic partnerships — Ontario has taken steps to strategically partner with the private sector to attract anchor investments through its 10-year Jobs and Prosperity Fund (JPF).
  • Boosting exports — Ontario’s Going Global Trade Strategy has helped Ontario firms compete and become more productive by learning about export opportunities. In the past fiscal year, over 1,150 Ontario firms were helped to become export-ready and expand globally.

Ontario Continuing to Attract Foreign Investment

Ontario’s dynamic business climate continues to attract foreign direct investment (FDI).

For the second year in a row, fDi Intelligence named Ontario as the number one destination in North America for global FDI, based on capital spending projects.

fDi Intelligence, May 15, 2015.

2015 Budget: Building Ontario Up

The government announced key initiatives in the 2015 Budget that focus on helping small businesses grow, providing support for research and innovation, reducing the cost of doing business, leveraging business investment through strategic partnerships and helping businesses go global, including:

  • Enhancing the JPF by $200 million, for a total of $2.7 billion over 10 years, to attract more business investment in innovation and job creation;
  • Participating in an innovation initiative with an experienced group of senior business leaders who would bring their capital, knowledge and networks to help Ontario startups scale up their growth; and
  • Consulting on an ongoing basis with sharing economy firms to ensure Ontario’s regulatory and tax environment reflects the evolving economy.

Progress since the 2015 Budget

The government continues to foster a more innovative and dynamic business environment.

Reducing the Cost of Doing Business

Ontario’s first annual report on reducing red tape for business, released in June, concludes that the government’s actions have resulted in $50 million in savings and 2.4 million saved hours for businesses in the last four years. The government is encouraged that this achievement to date puts Ontario well ahead of its annual target, and it continues to push for further progress.

The government is committed to reducing electricity cost pressures on small businesses and industrial consumers, while promoting energy conservation and supporting economic growth for the benefit of the people of Ontario.

The Industrial Conservation Initiative (ICI) encourages Ontario’s largest energy users to reduce their electricity use during peak periods, which not only saves them money, but also lowers costs and improves reliability for the electricity system as a whole. Since July 1, the expanded ICI program has helped over 280 of Ontario’s largest energy consumers save an average of about 25 per cent on their electricity bills.

As of April, 14 industrial companies have expanded their businesses, capitalizing on the Industrial Electricity Incentive, which was designed to provide incentives for industrial expansion through reduced electricity costs. These new business expansions will create hundreds of new jobs.

Fostering Industrial Expansion — Industrial Electricity Incentive
KGHM International Ltd., Sudbury, Ontario

FNX Mining Company Inc., a subsidiary of KGHM International, is a successful applicant in the expansion of the Industrial Electricity Incentive program for its new Victoria Mine project, an underground copper and nickel mine located in Whitefish, outside of Sudbury. The company estimates that the Victoria Mine contains over 14.2 million tonnes of resources, and according to the company at peak production will create more than 300 jobs.

As a further step to mitigate electricity cost pressures for non-residential users, the government introduced legislation that, if passed, would end the Debt Retirement Charge (DRC) on April 1, 2018 — nine months earlier than previously estimated — and reduce users’ electricity bills. Based on business size and consumption patterns:

  • Large industrial users could save about seven per cent;
  • Large northern industrial users could save more than eight per cent; and
  • Small businesses could save about four per cent on their electricity bills.

Ending the DRC on a legislated fixed date would provide certainty to commercial, industrial and other users, and help them plan their investment decisions more effectively. See Chapter III, Section D: Borrowing and Debt Management for more information.

Helping Innovative Small Businesses Succeed and Grow

In July, the Northleaf Venture Catalyst Fund announced it had met its fundraising target of $300 million, with two-thirds of the fund’s commitments coming from private partners. To date, the fund has made investments in six venture capital funds and seven companies. In September, the fund participated in a $35 million investment in ScribbleLive, a Toronto-based digital content marketing company that works with major brands and media companies around the world.

The fund’s investment activities contributed to a more than 35 per cent increase in Ontario’s total venture capital investment in 2014 compared to the prior year. Ontario had already surpassed its 2014 investment levels by the third quarter of 2015.

In April, the government announced it will invest in Scale Up Ventures, a new venture capital fund targeting early-stage Ontario companies. The new $50 million fund will include up to $25 million from the Province and be equally matched by private-sector partners.

Mentorship will be provided to the fund’s firms by the Scale Up Leadership Council. Led by former Rogers Communications CEO Nadir Mohammed, the council will include current and former senior corporate Canadian executives.

Providing Support for Research and Innovation

In June, the government announced $209 million in funding for 280 research projects and activities at leading research institutions across the province. This includes $196 million from the Ontario Research Fund to support world-class research projects and critical research infrastructure, and $13 million through the Early Researcher Awards program to attract and retain top talent at provincial research institutions.

In October, the government pledged $500,000 in additional funding to the Ontario Centres of Excellence (OCE) Connected Vehicle/Automated Vehicle Program, over and above the $2.45 million in funding recently provided. The program will help Ontario’s auto sector become a global technology leader by supporting innovative and commercially viable projects that use wireless technology to link vehicles with transportation infrastructure, mobile devices and other vehicles.

Ontario Leading the Way on Testing Automated Vehicles

In October, the government announced that, beginning on January 1, 2016, Ontario will become Canada’s first province to allow testing of automated vehicles and related technology on-road. The pilot will enable those companies to conduct research and development in Ontario rather than in competing jurisdictions, as well as supporting opportunities to bring automated vehicles to market.

Leveraging Business Investment through Strategic Partnerships

Project commitments by the JPF to date will support the creation and retention of more than 14,000 jobs, attracting investment of over $900 million to the province.

Recent Strategic Investments through the Jobs and Prosperity Fund
Toyota Canada
(July 2015)
An investment of over $42 million through the JPF to leverage a $421 million investment in Toyota’s Cambridge and Woodstock assembly plants. The project will result in increased production capacity, significant investments in worker training, and the introduction of cutting-edge technologies and production processes.
JLabs @ Toronto (September 2015) An investment of over $19 million through the JPF to launch JLabs @ Toronto, a new life sciences incubator created as a collaboration between
Johnson & Johnson, the University of Toronto and MaRS Discovery District. The incubator will support the growth of up to 50 promising young life sciences companies.
Lassonde Industries (October 2015) An investment of $1.5 million through the JPF–Food and Beverage Growth Fund to leverage an investment of more than $9 million to help Lassonde Industries purchase and install a new high-speed packaging line. The project will increase productivity, improve water input efficiency and costs, and improve competitiveness, while creating 15 new jobs and retaining 114 current jobs.

Ontario, the federal government and the Canadian Automotive Partnership Council (CAPC) have appointed Ray Tanguay, former chairman of Toyota Canada, as an auto adviser to develop a competitive auto sector investment strategy.

The government also continues to build partnerships with local and regional businesses and communities across the province through its economic development funds.

Recent Examples of Regional and Community Business Investments
Eastern Ontario Development Fund (EODF) Ritz Plastics Inc., a manufacturer of plastic components for the automotive sector, received a $202,060 EODF grant to invest in new equipment, create 14 new jobs and retain 95 existing positions in Peterborough.
Southwestern Ontario Development Fund (SWODF) Wolf Steel Ltd., North America’s largest privately owned manufacturer of wood and gas fireplaces, received a $1.5 million SWODF grant to expand its operations to begin manufacturing HVAC equipment currently made in the United States. The project will create 176 new positions and retain 574 jobs in Barrie.
Rural Economic Development (RED) Program The Mattawa–Bonfield Economic Development Corporation received $20,000 for an enhanced travel website, benefiting 35 businesses and five municipalities through new product development and business attraction and expansion. Eight new jobs were created through this project.
Northern Ontario Heritage Fund Corporation (NOHFC) Four agricultural infrastructure projects received $2.7 million to improve water systems and fencing across northeastern Ontario to help increase local farm production and boost local agricultural economies.
Aboriginal Economic Development Fund (AEDF) Apitisawin Employment and Training received an AEDF regional partnership grant of $175,034 to deliver a training program for up to 20 trainees, in partnership with Detour Gold. Participants will obtain the skills necessary to work in the mining industry.

Helping Businesses Go Global

The changing global trading environment offers tremendous opportunities for businesses. The government’s Going Global Trade Strategy helps Ontario firms compete and become more productive by learning about global opportunities and changing markets:

  • In September, Minister of Finance Charles Sousa travelled to China and Japan to meet with leaders in the financial services, banking and manufacturing sectors to promote Ontario as a favourable investment destination. Strengthening economic relationships in priority markets like China and Japan will benefit more Ontario businesses, especially small to medium-sized enterprises, looking to tap into these new markets.
  • In November, Premier Kathleen Wynne led a successful trade mission to California, showcasing Ontario’s leadership in information and communications technology (ICT), film production, cleantech, advanced manufacturing and tackling climate change.
  • That same month, the Premier conducted a second trade mission to China with business delegations to highlight Ontario’s expertise in the science and technology, cleantech and agriculture sectors, and to promote partnership opportunities in health care and education. The Premier and delegations signed more than 100 agreements and memorandums of understanding, with an estimated total value of $2.5 billion. The agreements are expected to create 1,700 jobs in Ontario.
  • The Premier will also lead trade missions to India in early 2016 and to Israel in the spring of 2016, to foster more opportunities for trade and investment and to promote Ontario’s expertise in sustainable development.

Ontario is working with the federal government to negotiate and implement important new trade agreements, while addressing the sensitivities of key Ontario sectors, such as agriculture and auto, and to ensure access to global markets in an increasingly competitive environment. See Chapter IV: Together towards a Stronger Ontario and a Stronger Canada for further details.

Supporting the Sharing Economy

Sharing Economy
The rise of technology platforms that enable individuals to exchange or sell goods and services has given rise to what many are referring to as the “sharing economy.” As new business models emerge in this important sector, the government is committed to responding in ways that support growth and foster innovation.

The sharing economy is an emerging sector with the potential to be a catalyst for positive change and a contributor towards solutions to some of Ontario’s most pressing challenges. It also has immense potential to foster economic growth and innovation.

The government is committed to an approach that facilitates the ongoing growth of this important sector. Going forward, Ontario’s framework will be guided by principles of accommodating new business models, fostering innovation, protecting workers and consumers, promoting a level playing field and ensuring tax fairness. To meet these objectives, new regulations may be required in certain circumstances. In other instances, it may require removing existing obstacles and unnecessary burdens, or maintaining aspects of an existing regime.

As a first step, in October, the Province established the Sharing Economy Advisory Committee, with representation from key ministries, to oversee the development and coordination of Ontario’s approach and to harness the opportunities presented by this emerging sector. The committee has begun acting as a window into government on policy, regulatory and legislative challenges typically associated with sharing economy business models. It will also be taking into account the views of traditional sectors to ensure that initiatives do not unduly affect the competitiveness of these industries. Ontario understands that responsibly enabling growth in the sharing economy requires a government-wide approach, and will report back through the 2016 Budget on its progress towards an integrated strategy.

Further, the Ontario Securities Commission (OSC) developed, and recently delivered for Minister Sousa’s consideration, a proposed crowdfunding rule that would accommodate newer ways for businesses to raise capital, while maintaining appropriate investor protection.

Working with the MaRS Solutions Lab

Ontario has provided funding to the MaRS Solutions Lab to research and prototype coordinated solutions to regulatory challenges presented by the sharing economy. The customer and service provider experiences in the transportation and accommodation industries within the City of Toronto are being explored. Initially focused on the City of Toronto, the project aims to identify key barriers and opportunities for governments to create a streamlined regulatory environment that fosters and supports innovation, while ensuring the public interest remains protected.

Business Growth Initiative

Globally, Ontario’s highly diversified economy sits in an enviable position. It has a talented and skilled workforce, a world-class innovation base, and an excellent health care and education system — all sitting next door to the largest economy in the world.

Much has been accomplished in fostering an innovative and dynamic environment for Ontario’s diverse businesses and skilled workforce, but challenges remain. Some are universal — a worldwide slowdown in economic growth, an aging population, rising income inequality, low growth in productivity, and increasing global competition.

Ontario’s growth trajectory today is at a crossroads. To prosper and grow, Ontario’s businesses need to harness innovation more rapidly, compete in global markets, adopt the latest technologies, and employ and retain high-skilled talent. Building on previous achievements, the government is developing a bold new plan to accelerate economic growth.

Ontario recognizes the role governments can play, but the Province cannot act alone. The federal government and municipalities must provide leadership. Private-sector leadership is also essential. Ontario is well positioned today, with leaders at all levels willing to work together and focused on building a stronger economy.

A collective vision is essential — one that addresses the competitive challenges of today’s economy and pivots to the economy of the future, while continuing to support health care, education, transportation and transit, a strong immigration policy, and funding for innovation and research.

The Province also needs an economic strategy that focuses on shifting the economy to new areas of growth where Ontarians can continue to get rewarding, high-paying jobs. Ontario must accomplish two goals simultaneously — improve the competitiveness of its existing economy and encourage a shift to a more knowledge-based economy driven in part by service exports.

Towards that end, the government will proceed with targeted steps now, followed by a more complete strategy to bolster competitiveness to be outlined in the 2016 Budget. The strategy will:

  • Promote the scaling up and growth of successful Ontario firms to become global leaders that export to key markets, including a focus on service exports;
  • Advance an innovation-driven, knowledge-based economy, where Ontario’s competitive advantage will be based on the entrepreneurial spirit, technological skills and expertise of people and businesses, and strive to be a world leader in smart manufacturing; and
  • Modernize the regulatory environment to reduce the administrative burden and lower the cost of doing business.

The Need to Scale Up: Catapulting More Ontario Firms into Global Leadership

Small firms are a very significant part of Ontario’s business landscape. However, difficulties in accessing capital, as well as limited resources and expertise, often result in lower export activity and less investment in innovation, research and development (R&D) and ICT — all of which are essential to productivity growth and competitiveness.

To help more Ontario firms scale up and become innovation and market leaders, the government will explore:

  • Better-targeted supports through the tax system to encourage business growth or scaling up;
  • The use of strategic, innovation-inducing procurement; and
  • Business support programming focused on high-growth firms and those with export potential.

Creating an Innovation-Driven Economy

Ontario needs to further adapt its economy so it can thrive on the initiative, creativity, education and skills of its people, and the value they add to specialized goods and services.

Disruptive Technologies
A disruptive technology is an innovative product or process that displaces established technology and may challenge incumbent firms or create a completely new industry.

To encourage innovation and knowledge-driven growth, the Province will partner with industry, focusing on key strategic opportunities, such as accelerating the development, testing, adoption and commercialization of disruptive technologies.

The government would also consider other actions, such as creating innovation zones where robust, real-world prototyping and testing of disruptive technologies can take place. This would give Ontario firms access to state-of-the-art science and technology, and help them become early adopters and market leaders, as early advantage often translates into global competitiveness. These actions include:

Brain-Belt Ecosystems
Brain-belt ecosystems are
open-platform technology hubs 
that help tackle complex, multifaceted technological and
other challenges, and connect
firms to a range of supporting organizations and enablers.1

  • Working to catapult “brain-belt ecosystems” in key sectors where Ontario has a competitive advantage, including the biochemical sector, auto industry, clean technology and mining;
  • Accelerating the innovation economy by working with postsecondary institutions to strengthen opportunities for collaboration with firms of all sizes, including expanding the number of co-op programs and providing fellowships to top graduates to be placed in scale-up firms; and
  • Establishing a strategic investments office to serve as the Province’s
    one-window point of entry, providing improved investment attraction services, including new licensing and permitting coordination, enhanced program coordination services and expanded site-selection services.

Lowering Business Costs through Modernized Regulations

A smarter regulatory system will enable Ontario to lower business costs and encourage more growth, while protecting environmental and work standards and enhancing health and safety. The government aims to create a regulatory framework that produces the best protections at the lowest possible compliance costs informed by the best systems around the world. As a first step, the government is implementing the following measures on an expedited basis:

  • Seeking advice, through the Ministry of Labour, from the Special Advisors on the Changing Workplaces Review to resolve concerns raised by business regarding the application of the emergency leave provisions of the Employment Standards Act. The advice is to be received in the spring of 2016, and the resolution is to be implemented in 2016.
  • Improving the environmental compliance approvals process by:
    • Reducing, by the fall of 2017, the amount of ministry time taken to review air and noise environmental compliance approvals by at least 50 per cent;
    • Implementing a one-year service standard for higher-risk environmental compliance approval requests received after 2017, including an appropriate performance measure for meeting that service standard, that recognizes the complexities of some approvals; and
    • Introducing a transparent means for applicants and the public to track applications and overall performance.
  • Streamlining Superload permits by amending the Highway Traffic Act to provide more options for escorts of loads, and consulting with affected parties to develop a streamlined and more efficient approval process including exploring enhanced permitting options, a coordinated permitting service and creating Superload corridors.
  • Removing the “30 per cent rule” for Ontario pension plans. See Chapter I, Section F: Strengthening Retirement Security for more information.
  • Through a proposed legislative amendment, modernizing the Mining Act to implement province-wide online registration of mining claims and administration of mining lands.
  • Permanently maintaining the industrial exception in the Professional Engineers Act.

Through the Open for Business initiative, the government has continually reviewed regulations to ensure they are appropriate and do not impose unnecessary burdens on business. The government is refreshing this initiative with a renewed and stronger mandate to root out existing regulatory burdens, and challenge new regulations. The mandate will be executed through several tools, including:

  • A Red Tape Challenge, a public engagement strategy that will allow all Ontarians to identify and work collaboratively with the government to reduce regulatory burdens while maintaining public interest standards;
  • A Regulatory Centre of Excellence that would identify and champion international best practices for regulation;
  • A Regulatory Modernization Committee to oversee and enhance the regulatory challenge function of the renewed mandate; and
  • A Government Modernization Fund to accelerate the modernization of outdated service delivery and regulatory processes.

[1] Based on Antoine van Agtmael and Fred Bakker, The Smartest Places on Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation (Public Affairs — forthcoming in March 2016).