One could say that Ontario, under Premier Kathleen Wynne, has had an outsized impact on Canada’s economy.
From electricity rate cuts to minimum wage increases, the province has affected the national consumer psyche, business competitiveness, inflation and even BoC policy, writes Warren Lovely, head of public sector research for National Bank of Canada, in a research note.
The province, he says, has performed with 2.5% real GDP growth per year since 2014, offsetting weakness in Canada’s resource-intensive jurisdictions. Given significant policy changes under the current provincial government — what could be referred to as the “Wynne effect” — it’s time to turn attention to potential “pro-cyclical” fiscal stimulus linked to next year’s provincial election, Lovely says.
Below are some of Wynne’s policy impacts, and what to watch for.
Housing market reforms
Ontario’s “Fair Housing Plan,” announced in April, “keyed a change in market psychology,” Lovely says. Housing resales have fallen in the Toronto area’s 416 and 905 area codes and prices have cooled. Ontario’s measures have come amid additional federal rules intended to slow mortgage lending.
Electricity price relief
“You could write a book on Ontario’s electricity market reforms,” says Lovely.
The provincial government’s bid to cut residential electricity rates by an average of 25% “has left an immediate and indelible mark on CPI,” he writes, comparing the move to a tax cut for residential hydro customers.
All things being the same, he says the hydro savings should flow back into the economy in the form of additional near-term consumer spending.
Minimum wage increase
Ontario’s minimum wage is set to rise from $11.40 per hour to $14 per hour as of January 2018, followed by an additional gain to $15 per hour in January 2019.
Lovely and his colleagues say this “near record increase” in Ontario’s minimum wage could impact 41% of the provincial workforce – that is, the 24% of people earning less than $15 per hour and the 17% who make between $15 and $19.99 per hour.
Financial markets have yet to integrate the short-term impact of this minimum wage increase into the 2018 outlook, he says, which should mean faster growth with higher inflation.
Given what Wynne has done so far, it’s important to consider pre-election policy pledges.
Ontarians head into a provincial election in June 2018, and it’s not hard to foresee “a slate of pre-election goodies, above and beyond what’s already been announced,” Lovely writes.
Revenue from the province’s economic growth could mean additional promises like tax relief, measures for businesses to counter the cost of the minimum wage increase, or further stimulus for consumers.
Writes Lovely: “An Ontario ‘Fair Tax Plan’ has a certain ring to it, don’t you think?”