Ontario to lower small business tax to counteract higher minimum wage

Ontario Finance Minister Charles Sousa talks to reporters as he makes his way to attend a meeting with Federal Finance Minister Bill Morneau and his provincial and territorial counterparts in Ottawa, on June 19, 2017. (THE CANADIAN PRESS / Fred Chartrand)

TORONTO -- Ontario will slash small business taxes and offer millions in incentives aimed at easing the transition to an increasing minimum wage as the province's Liberal government heads for a spring election.

Finance Minister Charles Sousa unveiled the plan in the province's fall economic statement Tuesday afternoon. The corporate tax rate for small businesses will fall from 4.5 per cent to 3.5 per cent effective Jan. 1, 2018, the same day the province will increase its minimum wage from $11.60 to $14.

Critics of the government's sweeping labour reform package introduced in May have called for the tax offsets for months to allow businesses to absorb the cost of the wage hike. The government plan will eventually see minimum wage jump to $15 an hour by Jan. 1, 2019.

"We will not back down from these commitments," Sousa said. "An increase to minimum wage cannot wait. People cannot wait ... delaying an increase is delaying an increase."

As part of the $500 million package for small business, Sousa said the province will designate that one-third of its procurement spending on goods and services will come from small and medium-sized businesses by 2020.

The government will spend $124 million over three years to help companies with fewer than 100 employees who hire youths aged 15 to 29. The government will pay incentives of $1,000 for each worker hired and another $1,000 for each worker retained for at least six months by a small business.

"We also want to help young people find meaningful employment," Sousa said. "To find their first job, or take their first steps towards building their career. And we want to support small businesses that hire these young people."

The province's economic watchdog, the Financial Accountability Office, has estimated more than 50,000 people could lose their jobs due to the minimum wage increase. A report from the FAO said job losses would be concentrated among teens and young adults, while the number of minimum wage workers in Ontario would increase from just over 500,000 to 1.6 million in 2019.

Progressive Conservative critic Vic Fedeli said the government's offsets will do little to address the impact the minimum wage hike will have on small business. The economic update is "nothing more than a pre-election Hail Mary pass from an out-of-touch government saying anything to cling to power," he said.

In a surprise move, the Progressive Conservatives announced a significant policy promise, that the party will slow the implementation of the $15 minimum wage increase. The party will increase the minimum wage by 25 cents ever year from 2018 to 2022, when it would reach $15, said PC labour critic John Yakabuski.

"We think it's the responsible thing to do," he said. "If the government believed in this they would be talking about this some time ago. But it's only in the last few months that they've even talked about a $15 minimum wage."

NDP finance critic John Vanthof said the government is out of touch with what people across the province are experiencing in their day-to-day lives.

"They're talking about balancing the budget," he said. "What people are seeing on the ground is not the same rosy picture that the government is talking about."

Business groups have argued that needed offsets for business should have comes months ago.

Canadian Federation of Independent Business vice president Plamen Petkov said the government's planned tax cut and incentives still fall short.

"(The minimum wage hike) will put a crushing burden on Ontario's small businesses and their ability to remain competitive in a global market," he said. "As important as the initiatives announced today are, they won't offset the real impact of this legislation on Ontario's jobs and the economy."

A report released in September from the Keep Ontario Working Coalition, which includes the Ontario Chamber of Commerce, said the risk of job losses due to the minimum wage increase could be significantly reduced if the government extended the policy phase-in period. An economic analysis of the wage increase by the coalition concluded over 185,000 jobs could be impacted by the hike.

"Businesses will have started to increase costs, they will have started to let people go, they will have stopped hiring people that they might have hired because they're planning now under the presumption there is no offset," Karl Bauldauf, spokesman for the coalition, has said.

However, many economists support the government move, saying hiking the minimum wage boosts economic activity and increases people's purchasing power.

Tuesday's economic statement also covers a number of previously announced government programs including its seniors strategy, opening applications for free tuition for post-secondary students early and creating 1,200 new hospital beds across the province.

Sousa also confirms Ontario's 2018 budget will be balanced -- as will budgets over the next two years.