TORONTO - Ontario's government is rejigging its tax system while tabling a $100 billion-plus 2009 budget designed to kickstart the economy -- all while hoping things don't get worse.

The budget forecasts a $56.8-billion deficit over seven years as the province grapples with the global economic downturn.

The provincial Liberal government will be largely harmonizing the provincial retail sales tax with the federal GST, but will spend more than $4 billion to ease the transition.

In addition, it will be bringing in some income tax cuts that will supposedly leave lower and middle-income Ontario families better off, according to the 2009-10 provincial budget tabled Thursday.

But the government is also targeting tax relief to corporations.

The government is expecting to take in $64.8 billion in tax revenue in 2009-10, compared to $65.4 billion in 2008-09.

The biggest single change is the harmonization with the federal five per cent GST in July 2010, which the government says will improve the system's efficiency and be good for business.

However, the new tax will cover many goods and services not previously covered by the eight per cent RST. Those include:

  • Gasoline
  • Home heating oil
  • Fast food under $4
  • Tobacco
  • Haircuts, pedicures
  • Real estate commissions
  • Gym memberships
  • Taxis, newspapers, magazines
  • Movie tickets, internet fees
  • Postage stamps

The province will make the following exemptions:

  • Books
  • Diapers, children's clothing and footwear
  • Child booster seats
  • Feminine hygiene products
  • New homes under $350,000

However, if you are buying a new home for $800,000, that home will cost you an additional $40,000.

Purchasers of new homes worth up to $500,000 will get a rebate on the provincial portion of the new sales tax. "The effect of the housing rebate would be to ensure that, on average, new homes under $400,000 would not be subject to an additional tax burden," the government wrote.

Small businesses will get a one-time sales tax credit worth a total of $400 million.

An estimated 6.5 million individuals and families will get cash payments in 2010 and 2011. The payments will be a maximum of $1,000 for families and $300 for individuals. The payments will total $4.3 billion -- which is the amount Ottawa is giving Queen's Park in transitional funding.

The McGuinty government also promises to deliver broad-based, permanent tax relief to both families and businesses.

For families, individuals and seniors:

  • a permanent, $260 refundable sales tax credit to low and middle-income adults and children
  • a property tax credit of $250 for non-seniors and $625 for seniors
  • $1.1 billion in broad-based income tax cuts by cutting the first bracket rate to 5.05 per cent from 6.05 per cent
  • The government claims 93 per cent of Ontarians will get a tax cut.

For business:

  • cutting the corporate income tax (CIT) rate on manufacturing and processing to 10 per cent from 12 per cent, effective July 1, 2010
  • reducing the general CIT rate to 12 per cent by July 1, 2010 and to 10 per percent by 2013
  • exempting more small and medium-sized businesses from the Corporate Minimum Tax and cutting the rate for large businesses to 2.7 per cent from four per cent effective July 1, 2010

Senior government officials said there are other tax relief and targeted measures for business that are currently taking effect.

Some measures are also being tied into the changes to the sales tax, they said.

Spending, assumptions

Overall, the government plans to spend $32.5 billion on infrastructure spending, plus $700 million on skills development.

With total spending of $108.9 billion (including $9.3 billion on debt interest), the province is expecting a deficit for 2008-09 of $3.9 billion and $14.1 billion for 2009-10. The deficits running to 2014-15 are expected to add up to $56.8 billion.

The province won't return to balanced budgets until 2015-16, the government projects.

Here are some other measures:

  • Shrink the civil service by five per cent through attrition and "other measures"
  • Freeze MPPs' salaries
  • Limit the raises of senior civil servants
  • Make the BuyOntario program mandatory

It also hopes to ferret out $1 billion in savings.

Ontario assumes that the recession will end by mid-year, with economic growth returning after that. The government said its assumption is more conservative than those of private-sector forecasts.

The province assumes that for every lost point in GDP, the government would lose $725 million in revenue.