Ontario Budget 2012 - Infrastructure Investment to Remain Healthy, Despite an Environment of Fiscal Austerity

As expected, the McGuinty government plans to balance Ontario’s budget by 2017-2018. In order to facilitate this, program spending growth will be held to average a mere 1.0% between 2011-2012 and 2014-2015. This implies significantly softer spending growth in key expenditures areas like health care, education, post secondary and training, justice, and children’s and social services.

Impact on Institutional and Engineering Construction:

The government stated that it plans to spend $35 billion on infrastructure over the next three years.  For this fiscal year (i.e. 2012-2013), total infrastructure expenditures are actually projected to increase slightly to $13.9 billion (from $13.8 billion last year), despite an environment of fiscal austerity.  This is the 2^nd highest level in the past 10 years, topped only by spending in FY 2010-2011. The government did not mention any longer-term infrastructure plans in the budget.

Table 1: 2012-2013 Infrastructure Expenditures

¹ Investment in Capital Assets includes interest capitalized during construction of tangible capital assets of $248 million.

² Mainly consists of transfers for capital purpose to municipalities and universities, and expenditures for capital repairs.

³ Other transportation includes highway planning activities, property acquisition, highway service centres and other infrastructure programs (e.g., municipal/local roads, remote airports).

⁴ Includes a one-time adjustment of $248 million in 2011-12 related to last year’s capital grants that is fully offset by revenue recovery from the school board sector.

⁵ Third-party contributions to capital investment in consolidated schools, colleges, hospitals and provincial agencies.

⁶ Mostly federal government transfers for capital investments.

⁷ Total Provincial Infrastructure Expenditure includes Investment in Capital Assets of $10.5 billion for 2011-2012.

The expenditure increase is concentrated in the transportation sector, specifically provincial highways and transit. Spending on the former is expected to jump by 30% while the latter increases by a more modest 4%. This is a clear positive for engineering construction.

Within the transportation sector, the government notes that it will continue its investment in previously approved high-occupancy vehicle (HOV) lanes but will delay further investment in HOV lanes.  This action does not impact commitments to the Windsor-Essex Parkway, the 407 East extension and the new HOV lanes on Highway 417.

All other major infrastructure sectors will see spending declines this year, headlined by a $131 million drop in “other” infrastructure spending.  Meantime, spending on education and hospitals will also be lower. Within the hospital sector, the government announced plans to cancel four previously announced hospital projects and rescope two others. The projects to be cancelled are:

-          the West Lincoln Memorial Hospital redevelopment

-          the hemodialysis unit replacement at Sunnybrook Health Sciences Centre

-          the emergency and ambulatory project at South Bruce Grey Health Sciences Centre and

-          the ambulatory and inpatient project at Wingham and District Hospital

The two projects that will be rescoped are:

-          Phase 2 of the mental health complex at Brockville General Hospital

-          the Emergency, Ambulatory and Mental Health Project at St Thomas Elgin General Hospital

Softening investment in health, education and justice infrastructure suggests declining institutional investment this year.  However, the combined decline in all three sectors is only about $300 million, implying that the level of institutional activity - while lower- will remain healthy.

Support for Apprenticeship:

The government has recognized that while apprenticeship registrations have been on the rise, completion rates have only averaged about 50%. Encouragingly, the government wishes to help apprentices complete their training by:

-          introducing technical literacy and numeracy support to training and expanding exam prep courses

-          redesigning the Ontario Youth Apprenticeship Program and Pre-Apprenticeship Program to improve their effectiveness

-          enhancing connections between apprenticeship and employment services

-          introducing strategies to address barriers to entry for key groups such as youth, Aboriginal Peoples and women

-           reviewing the effectiveness and efficiency of the previously-introduced Ontario Apprenticeship Training Tax Credit

Combating the Underground Economy:

The government experiences tax losses due to the underground economy and is exploring various ways of combating its spread including:

-          measures to mitigate the use of point-of-sale software designed to electronically conceal sales

-          measures to enhance information sharing across Ontario ministries

-          measures to help identify those who facilitate or participate in tax evasion schemes

-           measures that create successful collaborative work among ministries

-          working with the federal government on additional compliance activities

Other Points of Interest:

-          The government is proposing amendments to the Ministry of Infrastructure Act, 2011 to simplify the process of government property transfers.  Additionally, amendments to the Ontario Infrastructure and Lands Corporation Act, 2011 - which are meant to clarify the range of services and advice Infrastructure Ontario can provide - have been proposed.  Finally, the Ministry of Infrastructure plans to use provincial funding to leverage federal funding for priority projects under the federal Building Canada Plan. This tactic will generate about $100 million dollars in savings over the next three years.

-          The government has proposed a ``Healthy Homes Renovation Tax Credit`` to assist seniors renovate their homes.

-          Also of note, the government wants to merge the Ministry of Economic Development and Trade with the Ministry of Research and Innovation.

-          They are forecasting lower-than-expected expenditures on Long-Term Care Facilities in the order of $70 million/year for the next three years while also reducing their investment in government buildings by $94 million over three years. 

-          The government plans to expand its use of Infrastructure Ontario’s expertise and incorporate a wider range of projects and sectors which use the Alternative Financing and Procurement (AFP) model.

-          Transfers to local and municipal governments for infrastructure will decline by $48 million this year.

Concluding remarks:

Overall, the tone of the budget is much more positive for the construction industry than anticipated in the weeks leading up to its release, at least for this fiscal year. For example, the document reveals plans for increased infrastructure investment in FY 2012-2013. Additionally, while expenditures in hospitals and schools and universities will drop, the level of investment in these key components of institutional construction will remain healthy. Furthermore, the government has reiterated its commitment to helping apprentices and combating the underground economy.

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FOR MORE INFORMATION, CONTACT:

Rishi Sondhi

Construction Information Coordinator

Ontario Construction Secretariat (OCS)

940 The East Mall, Suite 120, Etobicoke, ON M9B 6J7

P 416.620.5210 ext. 222

F 416.620.5310

EMAIL: mailto:rishis@iciconstruction.com