2014 Ontario Economic Outlook and Fiscal Review
Chapter I: Building Opportunity, Securing Our Future

Section D: Creating a Supportive and Dynamic Business Climate

Ontario provides a supportive environment for business development and growth. The Province’s investments in skills and infrastructure have made Ontario an attractive place to start and grow a business. Overall business costs in Ontario are very competitive within Canada and internationally.  

In the 2014 Budget, the government committed to creating a supportive and dynamic business climate. Key initiatives under the plan include:

  • Investing in people’s talents and skills. See Chapter I, Section B: Investing in People’s Talents and Skills for more details;
  • Building modern infrastructure and transportation networks. See Chapter I, Section C: Building Modern Infrastructure and Transportation Networks for more details;
  • Maintaining a competitive tax environment that encourages businesses to invest and grow;
  • Building strategic partnerships with businesses, including investments through the 10-year, $2.5 billion Jobs and Prosperity Fund;
  • Reducing regulation for businesses;
  • Growing small businesses in Ontario;
  • Helping businesses manage electricity costs;
  • Modernizing financial services; and
  • Moving forward with the government’s Going Global Trade Strategy, to encourage Ontario businesses to expand their exports internationally.

Through these initiatives, the government will support growth across all regions of the province, encourage productivity-enhancing investments by business, and improve Ontario’s capital markets.

KPMG’s 2014 “Competitive Alternatives” report ranks Toronto’s overall business costs as second lowest among 34 large cities in Canada and the United States, and fifth lowest among 48 large cities in North America, Europe, Australia and Japan.

Maintaining a Competitive Tax Environment

Ontario has significantly improved its tax competitiveness, making the province a more attractive location for business investment.

Ontario’s general Corporate Income Tax (CIT) rate has been reduced from 14 per cent to 11.5 per cent, resulting in a combined federal–Ontario general CIT rate of 26.5 per cent. This combined rate is lower than the combined federal–state CIT rate in any of the U.S. states and lower than the average CIT rate of G8 and G20 member countries.

The reduction in Ontario’s general CIT rate, together with other tax changes, has cut Ontario’s marginal effective tax rate on new business investment in half since 2009. This encourages productivity-enhancing investments that enable Ontario businesses to improve their competitiveness and create more well-paying jobs.

Measures Taken to Maintain a Competitive Tax System

  • Introducing several tax reforms that deliver over $9 billion annually in tax cuts to businesses:
    • The Harmonized Sales Tax (HST), a more modern value-added tax, removes $4.7 billion a year in embedded sales taxes paid by businesses when fully implemented;
    • Cutting Corporate Income Tax (CIT) rates for businesses provides $2.3 billion of tax relief per year; and
    • Eliminating Capital Tax, which corporations pay whether or not they had a profit, provides $2.1 billion of tax relief per year.
  • Implementing significant cuts to high Business Education Tax rates has resulted in savings of over $200 million per year for Ontario businesses.
  • Providing a benefit of $265 million over three years by paralleling the 2013 federal budget measure to extend the 50 per cent accelerated depreciation rate for manufacturing and processing machinery and equipment to December 31, 2015.
  • Reducing business compliance costs by more than $635 million per year from the HST and streamlined CIT administration.

Building Strategic Partnerships

Private-sector investment is a catalyst for economic prosperity through enhanced productivity, strengthened innovation, increased exports, and better job opportunities. The government’s economic plan sets the stage for more business investment and long-term economic growth through strategic partnerships between government and business. These partnerships can take many different forms, including grants, loans, equity investments and fostering industry-academic collaboration.

Company Description
Honda Canada (2014) An investment of $857.4 million to support production at the company’s manufacturing facilities in Alliston.
OpenText (2014) An investment of up to $2 billion to expand operations across Ontario, including new jobs in research and development. OpenText is Canada’s largest software company, specializing in enterprise information management software.
Cisco (2013) An investment of up to $4 billion that will establish Ontario as one of the company’s research and development hubs. This project will support the development of technology used in mobile computing and video technology.

Based on an ongoing review of Ontario’s business support programs, the Province is adopting a more rigorous approach to evaluating potential strategic partnership opportunities with business. As part of this new approach, strategic partnerships will have an added focus on increasing business investment, particularly in productivity-enhancing activities such as research and development (R&D) and exports. Partnerships in strategic sectors such as advanced manufacturing foster enhanced business investment and long-term economic growth in the province. A strategic partnership investment should also align with the goals of a cluster or sector plan to increase growth and competitiveness. If passed, the Better Business Climate Act, 2014, would enable the Minister of Economic Development, Employment and Infrastructure to prepare plans for the development of economic clusters, which would help to inform strategic partnerships.

In the 2014 Budget, the government announced a 10-year, $2.5 billion Jobs and Prosperity Fund. The Fund is focusing on supporting strategic private-sector investments in innovation, productivity and export opportunities. All business projects supported by the Jobs and Prosperity Fund will undergo a rigorous assessment to ensure substantial economic benefits, cost-effectiveness for government, and a return on investment for Ontarians.

Across the province, communities have unique strengths upon which businesses from many different industries rely. Together, these local economies are the foundation of a resilient Ontario economy. For this reason, the government is partnering with communities across the province to improve economic outcomes, through programs such as the Rural Economic Development Program, Southwestern Ontario Development Fund, Eastern Ontario Development Fund and Northern Ontario Heritage Fund Corporation.

Supporting Jobs and Economic Development in Communities across Ontario

The government’s priority is to create jobs, growth and opportunity in every part of Ontario. Each region of the province has unique advantages to specific industries and economic activities that form a strong base to build resilient local economies. Examples include:

  • GlobalMed. Inc., located in Quinte West, makes plastic tubing used in medical applications. The company received $470,000 from the Eastern Ontario Development Fund to invest in new technology that will increase production and expand the range of products. The project will leverage $4.7 million in private investment, and is targeted to create 10 new jobs while retaining 180 positions.
  • CapsCanada, located in Windsor, received $1.5 million from the Southwestern Ontario Development Fund. The funding is for renovations to its Tecumseh facility to meet increasing global demand from health nutrition and pharmaceutical industries. The project will create 34 new jobs and retain 63 existing jobs.
  • Morin Industrial Coatings Ltd. is receiving $1 million from the Northern Ontario Heritage Fund Corporation to expand its corrosion control business in Lively, creating eight new jobs. The project will leverage $1.5 million in private investment.
  • The Rural Economic Development Program provided support to the Hensall District Co-operative (HDC), which processes and markets high-value field crops for over 2,000 Ontario farmers. The project is focusing on export growth and will create six jobs and retain eight. It will also leverage $4.3 million in private investment.

On October 7, 2014, the government launched the new three-year, $25 million Aboriginal Economic Development Fund (AEDF), which is part of the Jobs and Prosperity Fund. The AEDF will partner with First Nation, Métis and Inuit communities to grow local businesses and create jobs. It will help Aboriginal communities develop long-term strategies to diversify their local economies, improve access to financing, and facilitate collaboration among communities for regional employment and skills training projects.

Ontario is also committing $40 million annually, under the Jobs and Prosperity Fund, to help the agri-food and agri-products processing industry create jobs and attract new investment. The Premier has challenged the broader agri-food industry to double its annual growth rate and create 120,000 new jobs by 2020.

Other strategic partnerships include initiatives to improve access to capital for business. In January 2014, in partnership with the federal government and private-sector partners, Ontario launched the Northleaf Venture Catalyst Fund (NVCF). Since its launch, the Fund has grown to more than $233 million, targeting a final close of $300 million. To date, the Fund has made eight investments in companies and other venture capital funds.

In April 2014, the Northleaf Venture Catalyst Fund contributed to a $46 million investment in Toronto-based Wattpad, a social writing and networking company with more than 35 million users.

The success of NVCF builds on other provincial programs, such as the Investment Accelerator Fund (IAF), which provides financing at the critical early stages of a firm’s life. In October 2014, five IAF portfolio companies raised more than $50 million in financing alone, primarily from private-sector investors. By supporting dynamic entrepreneurial firms, the government is helping to lay the foundation for future economic growth.

The Province is also exploring ways to partner with the private sector to leverage public investments in health research that will contribute to improved health outcomes and economic activity. The Ontario Health Innovation Council was established in November 2013, and is currently developing recommendations for its final report on accelerating the adoption of new health technologies and innovations.

Reducing Regulation for Business

Ontario is working to create a regulatory business environment that will help business to grow. Through the Open for Business renewal initiative, the Better Business Climate Act, 2014, if passed, would ensure that regulatory burdens are being further reduced and smarter regulatory practices are being adopted. Doing so would help business save millions of hours in time and $100 million in costs by 2016–17.

Every year, the government will report on the efforts of ministries to further reduce the regulatory burden on business by at least one initiative per ministry. The government is committed to reducing the regulatory burden while protecting the public interest, including health, safety and the environment.

Growing Small Businesses in Ontario

Small and medium-sized enterprises are the leading source of business entrepreneurship and account for more than 60 per cent of private-sector employment. In a dynamic economy, successful small and medium-sized businesses will grow and prosper as they innovate and expand into global markets.

To foster a healthy and growing small and medium-sized business sector, the Ontario government is taking action, such as:

  • Employer Health Tax Exemption – supporting small employers by raising the exemption from $400,000 to $450,000 of annual Ontario payroll;
  • Five-Point Small Business Energy Savings Plan – ensuring small businesses have the tools they need to understand their bill, conserve energy, manage costs and save money; and
  • Venture Capital – creating a new venture capital fund in collaboration with the federal government and private-sector partners that will help innovative startups and other emerging companies get the financing they need to build competitive businesses and create tomorrow’s jobs.

Helping Businesses Manage Electricity Costs

Successful management of electricity costs can be key in growing Ontario businesses. Ontario is moving forward with a new stream of the Industrial Electricity Incentive (IEI) program and is expanding eligibility for the Industrial Conservation Initiative (ICI).

  • Industrial companies could be eligible for a significant reduction in electricity rates for incremental consumption through the IEI program if they start or expand operations. Contracts under the new stream are available for a longer term, with an end date of up to December 31, 2024.
  • The ICI is being expanded by lowering the threshold for qualifying industrial sectors from five megawatts (MW) to three MW, with new eligible participants who opt-in to begin receiving billing under the ICI starting July 1, 2015. Existing participants in ICI save, on average, an estimated 10 to 20 per cent on their electricity bill. The ICI encourages electricity conservation during peak hours, saving money for the entire electricity system.

In addition, the Province extended the Northern Industrial Electricity Rate (NIER) Program with $360 million over three years (2013–14 to 2015–16) to provide a rebate of two cents per kilowatt-hour to qualifying large northern industrials.

The initial streams of the Industrial Electricity Incentive Program resulted in seven projects, including Pembroke MDF (estimated 140 new jobs), ASW Steel (estimated 45 new jobs), Atlantic Packaging Products (estimated 80 new jobs), and Resolute Forest Products (estimated 78 new jobs).

Vision Extrusions, an extrusions manufacturing company in York Region employing 325 workers, could expect to save approximately $560,000, or 17 per cent, on its annual electricity costs under the changes to the Industrial Conservation Initiative, assuming the company reduces its electricity consumption by 15 per cent during times of highest system demand.

Modernizing and Strengthening Financial Services

A well-regulated financial services sector supports a dynamic business climate while protecting individual investors. As part of its plan for Ontario’s economy, the government is moving forward to strengthen its financial services sector by:

  • Playing a lead role in the establishment of a Cooperative Capital Markets Regulatory System; and
  • Supporting efforts to secure the designation of a Canadian renminbi trading hub.

As well, the Province is committed to reviewing the:

  • Mandates of the Financial Services Commission of Ontario and the Deposit Insurance Corporation of Ontario — key financial services regulatory agencies;
  • Legislative framework for credit unions and caisses populaires; and
  • Policy alternatives for more tailored regulation of financial planning.

The financial services sector remains an engine of growth for Ontario — the economy’s second-largest major sector after manufacturing based on output. In 2014 to date, it has continued to create jobs at a rate twice as fast as the overall Ontario economy. The financial sector also enables economic growth in the rest of the economy by supporting ancillary jobs in business services and other industries, as well as savings, access to capital for small businesses and consumers, and investment.

Toronto is the financial capital of Canada and a global financial centre — home to many leading banks, securities dealers, insurers and pension funds. Toronto is also the second-largest financial sector employer in North America, after New York. As a global financial centre, Toronto ranks highly as number six on The Banker magazine ranking after London, New York, Singapore, Hong Kong and Dubai. According to the Conference Board of Canada, 43 per cent of Canada’s financial services headquarters employees are based in Toronto, triple the nearest competitor, Montreal, at 12.4 per cent.

Strengthening Ontario’s Financial Services Sector

Establishing a Cooperative Capital Markets Regulatory System

Ontario continues to work alongside its provincial and federal partners to achieve a Cooperative Capital Markets Regulatory System (CCMR) framework.

The CCMR, once implemented, would make securities markets in Canada safer, more efficient, and more competitive. It would offer real benefits to Canadians by increasing businesses’ ability to raise capital, allowing households to save and invest with confidence, and helping create jobs and economic growth.

A strong cooperative securities regulatory framework would enhance Canada’s reputation and competitiveness in global capital markets.

In September 2014, the Ontario, British Columbia, Saskatchewan, New Brunswick, and federal governments announced a Memorandum of Agreement to jointly establish the CCMR and published for comment consultation drafts of the provincial capital markets legislation and complementary federal legislation that the new common regulator would administer. Momentum continues to build for the CCMR initiative, with Prince Edward Island agreeing to participate on September 30, 2014.

Ontario is working actively with all other participating governments to achieve the key milestones for this initiative and to encourage other provinces and territories to participate in and benefit from the CCMR.

Renminbi Trading Hub

Ontario supports the agreement recently reached between the federal government and Bank of Canada with the government and central bank of China, relating to the designation of a renminbi (RMB) trading hub in Canada. The RMB is the official currency of the People’s Republic of China.

A Canadian RMB trading hub, once implemented, would facilitate increased investment and trade by allowing the Canadian financial sector to quickly and efficiently clear and settle transactions in Canada. It would also strengthen Canada’s broader economic relationship with China and its competitive position in global financial markets by allowing businesses to raise funds in RMB and the financial services sector to offer RMB products to customers. Canadian importers and exporters that trade in RMB will also benefit from reduced administrative requirements in China.

Establishing North America’s first RMB trading hub will raise Canada’s stature as a global financial centre and facilitate increased trade and investment with China, thus benefiting the entire Canadian economy.

Modernizing Ontario’s Financial Services Sector

Reviewing the Mandates of Key Financial Services Regulators

The 2014 Budget noted that mandate reviews of all government agencies will be undertaken beginning this year. The Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO) play critical roles in the regulation of financial services. The FSCO is also responsible for the regulation of pensions in Ontario.

The government is undertaking reviews of both agencies’ mandates to further modernize regulation of financial services and advance ongoing work on pension reform.

The government is also committed to reducing risk in the agencies sector through strong agency oversight. The government is prepared to pursue early legislative changes to improve accountability and modernize agency governance.

Reviewing Ontario’s Legislative Framework for Credit Unions and Caisses Populaires

Credit unions and caisses populaires play an important role in Ontario’s economy. They promote a competitive financial services marketplace and some communities rely on their local credit unions and caisses populaires as their sole financial services provider. Almost 1.6 million Ontarians, more than 10 per cent of Ontario’s population, are members of a credit union or caisse populaire. The sector holds more than $40 billion in assets, employs over 6,000 people and, as of the end of 2013, had provided loans of more than $33 billion to individuals and businesses.

To ensure that Ontario’s credit union legislation remains current and in line with best practices, in the fall of 2014, the Minister of Finance appointed his Parliamentary Assistant, MPP Laura Albanese, to lead a review of the Credit Unions and Caisses Populaires Act, 1994. An Expert Advisor will be assisting Ms. Albanese in her review. As part of the review, Ms. Albanese is currently holding public consultations across the province.  Her final report will take these public views into consideration. It will contain recommendations to the government on proposed changes to the existing framework to promote competition, protect consumers and their deposits, and help credit unions continue to meet their members’ needs. Ms. Albanese’s final report will be released in the fall of 2015.

Reviewing Regulation of Financial Planning

Individuals are increasingly responsible for their own income security and require sound and professional financial advice and planning services. To help consumers make informed choices and investments, the government is moving forward with the appointment of an expert committee to thoroughly consider more tailored regulation of financial advisers, including financial planners.

Over the coming months, the committee, composed of independent members, will develop a mandate in consultation with key stakeholders. The mandate will include an analysis of relevant issues surrounding the profession, such as the sufficiency of regulatory frameworks; proficiency and education requirements;  the use of multiple titles; consumer access to information and complaint registration; and potential conflicts of interest. Upon a comprehensive analysis of relevant issues, the committee will provide key recommendations and submit their final report to the Minister of Finance for review by early 2016. 

Going Global

Growing Ontario Exports

Ontario’s Going Global Trade Strategy will help grow exports of Ontario’s high-quality goods and services as the global economy expands. Continuing to increase provincial exports is an important source of gross domestic product (GDP) and job growth. Emerging market economies will significantly increase their share of the global economy over the next five to ten years. China’s share of global output is expected to almost double to 27 per cent by 2035. Developed economies such as the United States and Europe will continue to increase their demand for high value-added products, including Ontario’s resources, high-technology exports, and professional and technical services.

A successful trade mission to China was concluded this fall. It included the Premier of Ontario, the Premiers of Quebec and Prince Edward Island, and 60 Ontario businesses and organizations. The trade mission helped showcase Ontario’s expertise, particularly in clean tech and science and technology, while increasing the province’s international profile. The Premier’s trade mission to China has already attracted nearly $1 billion to Ontario in new deals, creating more than 1,800 new jobs. The government signed 26 agreements during this week-long mission.

Huawei Technologies Co. Ltd. announced a major expansion to its Ontario operations, valued at $210 million, that will create 325 jobs, including approximately 250 positions for engineers and researchers and at least 75 new marketing, sales and support positions.

Yiwu North America Corporation announced a $100 million investment to establish a new trading centre in Whitchurch-Stouffville. The first phase of the project is expected to create 800 jobs.

The government continues to expand the reach of Ontario’s exports, building on a strengthening U.S. economy, and diversifying exports towards fast-growing markets abroad. It is also helping companies of all sizes, including small and medium-sized enterprises (SMEs), increase their success in exporting to global markets and creating jobs.

Ontario is partnering with the federal government on:

  • The recently negotiated Comprehensive Economic and Trade Agreement (CETA) with the European Union, a large and wealthy market of over 500 million people that holds out tremendous export and investment opportunities for Ontario firms, including SMEs; and
  • Negotiating comprehensive trade agreements with many of its other major trading partners, including countries that are part of the Trans-Pacific Partnership discussions. Ontario will continue to support trade agreements that benefit its economy while supporting strategic sectors.

Ontario is in the process of expanding its international representation to include South Korea, Chongqing in China, and Israel. This adds to the existing International Marketing Centres in New York, San Francisco, Mexico City, São Paulo, London, Paris, Munich, Beijing, Shanghai, Tokyo and New Delhi (including a satellite office in Mumbai).

The government continues to connect Infrastructure Ontario with Ontario’s international trade offices to create export opportunities for Ontario firms that have participated in Alternative Financing and Procurement (AFP) projects. Infrastructure Ontario is showcasing the made-in-Ontario AFP model through its involvement with the National Governors Association in the United States. In addition, over 40 international delegations have visited Infrastructure Ontario to better understand the made-in-Ontario AFP model.

Strengthening Partnerships with Provinces and Territories

While Ontario is expanding its global reach, it is also working to strengthen economic ties with the rest of Canada. The free flow of people, goods, services and investments within Canada helps the Ontario economy build on its strengths. Ontario strongly supports a more efficient and effective Canadian economic union. At the Council of the Federation meeting in August 2014, Premiers agreed to undertake a comprehensive renewal of the national Agreement on Internal Trade (AIT), which included aligning it with modern international trade agreements.

Ontario has been working to strengthen its relationship with Quebec in order to reinforce this key regional partnership. Both provinces are working to increase trade, expand access to public procurement and explore the viability of expanded electricity trade. As part of this initiative, the Premiers have agreed to pursue joint meetings of their Cabinets, the first of which will occur on November 21, 2014, in Toronto.

Attracting Foreign Direct Investment

Foreign direct investment (FDI) contributes to Ontario’s economy by improving productivity and competitiveness, introducing new technologies and creating new high-paying jobs for Ontarians. The Ontario government has played an important role in attracting FDI by contributing to a positive business investment climate and leveraging major capital spending projects by leading global companies.

Ontario remains the leading destination in North America for FDI.

  • fDi Intelligence, a major source of research and analysis on FDI trends globally, published in its report on global FDI trends in 2013 that Ontario is the number one destination in North America for global FDI, based on capital spending projects.
  • Ontario ranked second in North America in the software and information technology sector, third in autos and fourth in financial services. The province continues to punch above its weight in FDI in these major sectors, while ranking only fifth in North America in overall economic size.

Supporting a Vibrant Tourism and Culture Sector

Ontario’s tourism and culture industries not only create jobs and economic growth, they also enhance Ontarians’ quality of life. A key upcoming event in the tourism and culture sector is the commemoration of the 400th anniversary of the Francophone presence in Ontario, scheduled to take place from June to October 2015.

On September 25, 2014, the government announced funding of $5.9 million for a wide range of commemorative events for the anniversary. Specific tourism, cultural, educational and legacy projects will be announced in the coming weeks and months. The Province will be supporting projects that are geared towards job creation, attracting visitors, and celebrating the contributions of Franco-Ontarians to the social, cultural and economic development of Ontario.

Chart 1.3: An Internationally Competitive CIT Rate

This bar chart shows that in 2014 Ontario’s combined federal-provincial general CIT rate is lower than the average CIT rate of G20 and G8 member countries, 27.7 and 29.9 per cent respectively, and well below the average federal-state CIT rate in the United States (39.2 per cent), Michigan (38.9 per cent) and New York (39.6 per cent).

Return to Chart 1.3