Proposed Ontario Budget: A New Pension Plan and Other Highlights

Details from the proposed Ontario budget.

The Ontario Liberals have tabled their most recent budget, a $130.4-billion vision for the years to come. Tabled last Thursday, the budget is full of taxpayer goodies, which is no coincidence as the minority Liberals are holding onto power by a thread. With the Liberals falling in the polls, the NDP wasted no time in announcing they will no longer support the Liberals, setting the stage for a spring election on June 12.

Ontario: How the Mighty Have Fallen

Ontario, once the driver of economic growth in Canada, has fallen on tough times in recent years. During the Liberals’ decade in power, the province has become a recipient of transfer payments from the federal government. Despite facing a budget shortfall of over $1 billion, the Liberals are still adamant the budget will be balanced by 2017-18. The Conservatives, meanwhile, say that’s a pipe dream.

Buying a home in Ontario? Click here to see the best mortgage rates>

Ontario to Introduce its Own Pension Plan

The big budget news was the announcement of an Ontario pension plan. With a CPP expansion off the table, the Ontario Liberals plan to go ahead with their own provincial pension plan. The new Ontario Retirement Pension Plan (ORPP) is targeted at the two-third of Ontarians without a workplace pension.

Despite voluntary savings vehicles like RRSPs and TFSAs, Ontarians just aren’t saving enough for their retirement. Without the ORPP, a senior relying solely on government benefits – CPP, OAS, and GIS – can expect a significant drop in their standard of living in their golden years. ORPP is designed to bridge the gap by forcing Ontarians to save for their retirement.

Similar to the CPP, employers and employees will both be required to contribute. Under the ORPP, both parties would be required to contribute a combined 3.8 per cent on earnings up to $90,000. The goal is supplement other government benefits by providing a 15 per cent income replacement ratio. Combined with the CPP, a retiree could expect to receive an income replacement ratio of 30 per cent, or $25,725 per year in today’s dollars.

ORPP Pros and Cons

But the ORPP isn’t a cure-all solution. Set to launch in 2017, it will initially cover only three millions Ontarians. Those exempt from the ORPP include the one third with workplace pension plans, federally-regulated employees, low-wage workers below a not-yet-announced income threshold, and self-employed individuals.

While the Conservatives say the ORPP is a payroll tax, businesses simply can’t afford at a time of slow economic health; the Liberals says it’s necessary with CPP expansion no longer a possibility.

Other Budget Goodies

Targeting the One Per Cent: Ontario’s highest earners will dole out more money to the taxman; those earning between $150,000 and $220,000 will pay $450 more in provincial income tax, while those earning above $220,000 will pay $5,500 more annually. Although this sounds good for workers earning an average wage, it remains to be seen how effective taxing the rice will be; high-earning individuals most likely will allocate more of their income to investments to avoid the full brunt of the tax increase.

Lighting Up Just Got More Expensive: Smokers will see the tax rate jump from 12.35 per cent up to 13.97 per cent on cigarettes. On a 200 carton, that would amount to an increase of $3.25.

The Working Poor: Minimum wage will increase to $11 an hour and be indexed to inflation going forward.

Public Transit and Infrastructure: $29 billion will be spent over the next decade on public transit, roads, bridges, and infrastructure.

Education: $11 billion will be earmarked towards constructing new elementary and secondary schools in urban areas, such as Brampton, Milton and Ancaster.

Job Growth: A new 10-year $2.5 billion fund will offer businesses grants for investing in Ontario, leading to job growth.

These are just some of the proposed changes Ontarians can expect. It will be up to voters if the Liberals deserve another mandate or if a change in government is in order. We’ll find out come Election Day on June 12.

Related Topics

Economic News / Saving For Retirement / Savings / Savings News

Leave a Reply