Ontario Hits Up Hollywood for Tax Cash as Austerity Ramps Up

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Ontario’s government is ending tax breaks to film producers and other businesses as it looks to double savings to meet its target for a balanced budget in two years.

Premier Kathleen Wynne’s Liberals project C$545 million in extra revenue over the next three years as they cut or eliminate a slew of business tax credits on everything from apprenticeship training to resource extraction. The government also plans to wring C$500 million in savings from its own operations this year, while keeping program spending flat.

“It will be even more restraint,” said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities, in an interview. “I think they will spread the pain.”

Ontario is forecasting the deficit will shrink by more than C$2.4 billion this year to C$8.5 billion, C$400 million less than its last prediction in September. The province forecasts more revenue this year as a lower currency and economic strength in the province’s largest trading partner, the U.S., spurs its own growth.

Revenue is expected to climb five percent this year to C$124.4 billion as Ontario’s gross domestic product grows 2.7 percent, up from the 2.4 percent forecast in September.

The film industry is one area the government argues the drop in the Canadian dollar is making it ripe for less tax assistance. The Canadian dollar’s 7 percent drop in 2013, the government said, boosted foreign film production in the province 35 percent to C$504 million in 2014. The currency has fallen further since, declining 10 percent the last year to about 82 U.S. cents.

Filming Suits

“A lower Canadian dollar is making Ontario an increasingly attractive location for productions and is increasing foreign investment,” the budget documents say. “As a result there is a reduced need for government support.”

Productions including the television series Suits and the sequel to the 2002 film My Big Fat Greek Wedding, are currently filming in Ontario, according to the Ontario Media Development Corporation.

The province plans to reduce a tax credit for a production’s Ontario based costs to 21.5 percent of expenditures from 25 percent, while also cutting credits for computer animation and special effects, and amend a credit for film and television.

The budget will also reduce a tax credit for businesses with apprentices to 25 percent from 35 percent and eliminate two tax credits on profits from resource extraction and replace them with tax deductions on royalties and mining taxes.

The annual savings from business tax measures will rise to C$240 million by 2017-18 from C$100 million this fiscal year.

Beer Tax

The changes to these targeted tax cuts comes as the government says it found C$250 million in savings in government operations last year, and aims to double what it can find next year. Among those are changes to the operations of the Ontario Drug Benefit program with the aim of saving C$200 million per year by 2017.

The government also plans to raise C$100 million over four years with a tax on beer that will be phased in until reaching about 25 cents per 24-pack of beer annually or about a cent a beer.

Amid it all is a pledge to continue with a plan started two years ago to keep program spending increases at an annual average on 0.9 percent until the fiscal year ending 2018. The government reiterated in its budget a pledge that negotiated agreements with the province’s labor unions would not allow for compensation increases unless offset by other concessions.

Since July 2012, wage increases for Ontario public servants have averaged 0.6 percent, below the 2 percent for the private sector, the budget said.

“This is going to be a hard year for labor negotiations,” said Mary Webb, a senior economist at Bank of Nova Scotia, in an interview.

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