It could have been worse is about the best you can say about the 2026 Ontario budget released this week. Overall spending increased by about the rate of inflation, which is an improvement on previous budgets. However, at some point all of our governments are going to have to actually reduce their spending to get things back on a sustainable fiscal track. Bond rating agencies just downgraded British Columbia for the second time in two years, so hopefully that will be a wake-up call to other provincial governments that their spending spree can’t be endless. Credit downgrades mean that higher interest rates must be paid on debt, which is hardly good news for our highly indebted governments.
This week’s Ontario budget didn’t contain much to encourage small- and medium-sized (SMEs) businesses, who have been leaving the province in droves in recent years, to stick around. Businesses of all sizes have been moving out of Ontario, primarily to the U.S., for a while now and long before the Trump tariffs were a factor. The main reasons for this are high taxes, more intrusive and costly government red tape, and growing government size and cost. The Trump tariffs did worsen the situation, adding to an already bleak outlook for Ontario’s businesses.
The Ontario budget fiddles around the edges somewhat, with some HST relief for new homebuyers and a welcome reduction of one percentage point in the small business corporate income tax rate. Reductions in business taxes are always welcome, but corporate income taxes are likely the least problematic tax as a business has to be making money to pay them. Taxes that are insensitive to profit – such as payroll taxes, the Ontario health tax, WSIB premiums and property taxes, are more punitive as they are levied whether a business is making money or not.
The budget also contained an unwelcome focus on government top-down economic development policy in the $4-billion allocation for the “Protect Ontario Investment Fund.” This fund will apparently be overseen by a private sector investment manager, but it will still be subject to government control. It would be much more beneficial to devote this $4 billion to further tax reduction for all businesses, instead of maintaining a government fund to subjectively cherry-pick investments, a process that has never been successful in the past and tends to reward political affiliations rather than true economic potential.
Over the past few years, all Canadian tax experts have agreed that the federal and Ontario provincial governments’ increases in taxes on businesses and individuals have priced us out of the market for business investment and attracting skilled professionals. Without some major reductions in the size of government, the tax burden and regulatory overload, Ontario will remain uncompetitive and entrepreneurs will continue to flee the province. In the budget documents, the Ford government boasts that the budget will make Ontario the “most competitive, resilient and self-reliant” economy in the G7. It won’t. That outcome will not be achieved by this timid budget that continues past practices of increasing total spending, deficits and minor tinkering with tax changes.
Unfortunately, there is nothing in this budget that will stop manufacturers and other SMEs from leaving Ontario as they have been doing for years. One key element missing from the budget is a substantial decrease in personal income taxes. Personal income taxes in Ontario – and most other provinces for that matter – remain out of sync with the U.S., the EU and other developed countries. The Ontario government claims to want to attract professionals, doctors and entrepreneurs to the province, yet imposes punitively high-income tax rates that are not indexed to inflation. These desirable groups will continue to avoid locating in Ontario unless something changes substantially on the tax front.
Ontario and Canada have been falling behind other countries in terms of economic growth and standard of living, despite the fact all nations have been subject to the same external shocks. As a result of both Ontario and federal government policies, the Ontario economy will likely experience a recession in 2026. Blaming U.S. tariffs or the Iran war provides convenient scapegoats for governments who have only themselves to blame.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
