Ontario Pre Budget Submission
14 February 2023
Coalition of Concerned Manufacturers and Businesses of Canada (CCMBC)
Catherine Swift, President
Introduction
The Coalition of Concerned Manufacturers and Businesses of Canada (CCMBC) is a not-for-profit organization founded in 2018 to give a voice to businesses that did not believe their perspectives were being adequately represented to policy makers at all levels of government. The CCMBC represents over 400 small- and medium-sized manufacturers and businesses and has 4,500 business supporters, located in Ontario and across Canada. Working on behalf of its members, the Coalition focuses on helping manufacturers and businesses compete in the global economy and retain and create good jobs in Canada.
The CCMBC is pleased to provide input to the Ontario government’s pre-budget process for the 2023-2024 fiscal year. Considering that the past three years have been dominated by the Covid-19 pandemic and its many economic, financial, health and other impacts on the wellbeing of Ontarians, the focus of the Coalition is on the best way to repair the damage of the pandemic and support the Ontario economy going forward with an emphasis on the maintenance and creation of good jobs in the province and across Canada.
Affordable Energy Issues Remain a Top Priority
When Coalition members were canvassed regarding their top priority issues, ongoing problems with electricity costs and the complexities of the current system were a leading concern. Although some progress has been made by the current government in recent years in terms of the cost of electricity, businesses continue to find themselves at a competitive disadvantage with other jurisdictions. Furthermore, the ways in which businesses can achieve lower costs are highly complex, add their own costs in terms of such things as paying overtime to employees to run the business on abnormal schedules and require businesses to organize their affairs in a way that is frequently not sensible for their business except to achieve the goal of lower electricity costs. Running a business overnight to achieve lower electricity costs might be workable for a large company but if often impossible for a small- or medium-sized business.
High electricity costs were a key reason the previous Liberal government was voted out of power, and at that time representatives of the current Conservative government were clear in their opposition to the Green Energy Act of 2009 that was responsible for the more than doubling of electricity rates, among other negative impacts. While acknowledging that at present the government is hamstrung by long term contracts that were entered into by the previous government, there are a number of things that can be done to reduce the damage done to businesses and households.
The government should seek to phase out costly and unreliable wind generation when contracts expire and not commission more in future. The current Industrial Conservation Initiative (ICI) should be replaced with a consistent industrial power rate competitive with prevailing US rates and provide small businesses with a flat electricity rate that does not require impractical and often impossible load-shifting to off-peak times. The government should also consider imposing a tax on wind and solar power producers for excess power produced when it is not needed to provide a disincentive to generate excessive expensive electricity. The current high cost of electricity continues to drive businesses out of Ontario and out of Canada. Once these businesses experience the more attractive business climate in other jurisdictions, they are very unlikely to return to Canada.
The government should also consider enacting legislation to limit the length of contracts future governments can enter into so that no government going forward can tie the hands of subsequent governments as these long-term “green” energy contracts have done. The current $6.5 billion per year that goes to subsidize the cost of electrical power for Ontarians to reduce the political backlash from high electricity costs is not sustainable and just kicks the can down the road for this debt to be paid by future generations.
More recently, it seems that the government has reversed its earlier opposition and actually bought into the green agenda with increasing talk by government Ministers about promoting electrification, subsidizing the production and consumption of electric vehicles, phasing out natural gas and other initiatives. The creation of a Clean Energy Credit Registry is a case in point. This appears to be a plan to sell "carbon credits" aligned with electricity generation from non-emitting sources for companies willing to purchase them. The government has stated that the creation of this registry should make investment in the province more attractive to business, but it is difficult to fathom how the addition of more red tape and another complexity to doing business in Ontario will accomplish that. Initiatives such as ESG (environmental, social and governance) are subjective, impractical, expensive and especially harmful to smaller firms. The current approach is a far cry from what the Conservative government was discussing when they were first elected in 2018 and promised to get rid of the many problems caused by “green” energy policy that is costly and accomplishes little if anything for the environment.
What the government should do is focus on practical, achievable and measurable policies which produce benefits for the environment without hobbling business and creating energy poverty. A good example can be found in the plastics industry. Some governments, including the government of Canada, have instituted a ban on plastics and erroneously labelled them “toxic”. This is completely unrealistic considering the essential role of plastic in health care, sanitary food packaging, consumer products, electric vehicles among many other consumer and industrial uses. Instead, the plastics industry has proposed a much more sensible and feasible recycling strategy which promises tangible environmental benefits without compromising the many valuable and irreplaceable uses of plastic in our modern world.
Better systems need to be established to measure the impact of government policies. Proper cost/benefit analyses need to be done for all policies, and notably climate-related policies, since if citizens understood the massive downside of many of these policies for their lives, they would be much less likely to vote for the politicians that are promoting them. Eliminating policies that do not achieve their goals will alleviate red tape and improve efficiency for business and reduce government costs.
As experience with the many problematic aspects of the net zero carbon agenda increases, it is becoming clear that the impacts of these policies are very negative and the upsides negligible. Any reduction in greenhouse gas emissions Canada may achieve will have no impact on global trends. Claims about the creation of “green” jobs have been greatly overstated, and these jobs typically need to be subsidized by government. The current so-called “Just Transition” policy of the federal government will impact all of Canada very negatively, including the many Ontario businesses that are integrated with the oil and gas sector. Growing evidence shows that the electrification of the economy is neither feasible nor affordable at present. Overall, with current technology, the costs to support so-called clean energy far exceed the benefits and net zero policies are lowering the standard of living for most citizens, making our economy uncompetitive and increasing the public debt that future generation will face.
Taxation and Government Spending
Considering the massive debt that has been incurred by all governments during the pandemic, it will be tempting to look at areas to increase taxation in future to restore fiscal balance. However, all credible research shows that the most effective way to reduce deficits and debt is to reduce spending, not increase taxes. Spending reductions tend to endure for years going forward, whereas raising more revenue via tax hikes has a history of encouraging government to spend even more, not pay down debt. Accordingly, the Coalition urges the government to refrain from implementing tax increases of any kind on individuals or corporations. Indeed, tax reductions would be most welcome.
One anomaly that still exists in the Ontario personal income tax system is that the top two tax brackets are not indexed to inflation. Most governments have acted to get rid of so-called “bracket creep” over the last couple of decades, and Ontario should do the same to end this unfair and inequitable practice. This is especially true as inflation has once again been increasing significantly, making the effects of bracket creep even worse. The top two tax brackets include groups like professionals, entrepreneurs and others that we want to encourage to remain in Ontario, and the unfair taxation that results from these two tax brackets not being indexed has the opposite effect.
All governments have been forced to spend a great deal more than they otherwise would have over the last couple of years because of the pandemic, but it is now time to take action to reduce the spending of the Ontario government as the only means of ensuring an effective economic recovery is to reduce the role of the public sector and undertake measures to promote private sector growth. One means of accomplishing this is to downsize the public sector, which has grown during the pandemic. Another action that should be considered is to freeze public sector compensation to bring it more in line with private sector norms. Research has consistently shown that government employees earn anywhere from 15 to 40 per cent more than the same job in the private sector if pensions and other benefits are included. Government workers also work fewer hours per week on average, retire earlier and enjoy greater job security. Public sector pensions have also been underfunded for some time, and the recent increase in inflation will worsen that problem as government pensions are typically fully indexed to inflation. Conversion of expensive defined benefit government pensions to a defined contribution model is long overdue.
During the pandemic, no government worker missed a paycheque while much of the private sector was financially devastated. The true income inequality is that which prevails between the public sector and the private sector businesses and employees that finance government. This situation has existed for decades and a post-pandemic policy framework provides an opportune time to address this unfairness as well as benefit the government’s fiscal position.
Trade Issues
Concerns regarding both internal and external trade are also high priorities of Coalition members. Regarding internal trade, despite the establishment of the Canadian Free Trade Agreement in 2017, far too many exemptions exist to freer trade among Canadian provinces. Remaining interprovincial barriers are due to different rules, regulations, licensing requirements and region-specific programs. These barriers to internal trade are typically a result of provincial legislation intended to protect local interests, but end up producing a complex array of contradictory rules and laws that increase costs for Canadian businesses and consumers.
Given the difficulties Canada has faced in reducing protectionist provincial policies over the years, Western Canadian provinces have had some success with negotiating bilateral and other arrangements with neighbouring provinces. Ontario could also benefit from looking at freer trade arrangements with one or more other provinces, in the hope that ultimately all provinces will be encouraged to lower their trade barriers to other Canadian jurisdictions.
With respect to Canada-US trade, Coalition members are very alarmed by actions of the Biden administration to enhance the already-problematic Buy America policies and other protectionist measures. The creation of the Council on US Trade and Industry Competitiveness was positive but this group has not met since before last year’s provincial election. The post of Ontario’s trade representative in Washington also remains vacant at a time when the US government is implementing policies very detrimental to Ontario. Much of the focus of the province’s trade with the US has been on the auto sector which, although important, sometimes has overshadowed the fact that businesses in many other sectors are also very dependent on trade with the US. The auto sector represents 13 per cent of the GDP of Ontario’s total manufacturing and 20 per cent of our manufacturing exports. There are many Ontario manufacturing companies outside the auto sector which possess world class proprietary technology that have significant export potential and deserve attention.
Some of Biden’s industrial policies intend to give preferential treatment to unionized manufacturers. Given the presence of union officials on the Premier’s trade council, preferential treatment for unionized businesses may be recommended for Ontario as well. Past government procurement and other policies which give preference to unionized businesses end up being much more costly for taxpayers, consumers and the economy in general, as well as being very unfair to the majority of taxpaying businesses that are not unionized. As such, these types of preferential policies should not be considered by the Ontario government.
Canadian businesses face a plethora of costly taxes and regulatory measures that their international competitors do not. Trade dispute resolution measures are expensive and time consuming and even if a Canadian business wins a trade dispute it is too easy for other countries to circumvent the rules. Provincial and national government procurement often favours foreign companies over domestic suppliers. Ontario should do more to ensure they can use domestic suppliers whenever possible and be proactive with the federal government to level the playing field between Canadian companies and their foreign competitors.
Health Care and Education
The recent changes the Ontario government has made to health care policy to permit the entry of more private sector providers into the sector, while still being part of the universal system, is welcome and long overdue. The best universal health care systems in the world combine public and private providers within a single payer system, and achieve better health care outcomes at lower per capita costs than Ontario. Structural change is badly needed and these recent changes represent a good start.
Structural change should also be introduced to Ontario’s public education system. When social justice objectives take priority over basic skills, student achievement declines, universities are forced to offer remedial courses in literacy, numeracy and problem solving, universities themselves discourage free speech, among other issues, something is very wrong. Militant, intransigent, leftist unions appear to be running the education system instead of the government. The most straightforward means of improving the system would be to introduce a voucher system and/or charter schools so that parents who cannot afford additional spending on private schools can have their tax dollars directed to the school of their choice. Just as with health care, a public sector monopoly serves no one well, and introducing more competition into public education will reduce the extent to which teachers’ unions can hold taxpayers hostage, improve education quality and put more influence into the hands of government and parents, where it belongs.
Conclusion
The priority for the Ontario government must be to ensure the province recovers from pandemic losses and lay the foundation for future growth. The only way toward a successful future is to ensure a policy environment is created by government in which the productive sector of the economy – private businesses – can create good jobs and provide the tax revenue to governments to maintain the social services Ontarians expect. The foregoing recommendations represent priorities of Ontario businesses as to how that can be achieved.
To: International Sustainability Standards Board (ISSB)
London
Re: (Draft) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and (Draft) IFRS S2 Climate-related Disclosures
Dear ISSB:
On behalf of our small- and medium-sized business members in manufacturing and other sectors of the Canadian economy, the Coalition of Concerned Manufacturers and Businesses of Canada (CCMBC) would like to express its extreme opposition to the IFRS proposals on ESG standards. Overall, this incredibly complex regime will create a red tape nightmare that will drive up the costs of doing business significantly at a time when inflation is already running rampant, create many unproductive costs and headaches for businesses and the economy generally and make little difference to the climate.
In Canada, about 50 per cent of GDP and the majority of net new job creation is represented by the small- and medium-sized business sector (SMEs). Red tape is a perennial concern for SMEs and the proposed ESG reporting standards represent a monumental increase in red tape for no discernable gain. It is not surprising that these complex standards are being endorsed by professional communities such as accountants, consultants, lawyers and regulatory bodies as this will greatly increase their workload and remuneration at the expense of the productive SME sector. Instead of supporting the ESG thrust, however, these professional communities should be sounding the alarm about how destructive, unworkable and unaffordable it will be to businesses and the economy overall. Estimates of added costs that will be incurred by SMEs for such requirements as scenario analyses, among other subjective items, are likely to put many firms out of business.
The subjectivity and guesswork involved in determining whether or not a given business is sufficiently in conformance with ESG standards is a huge problem in and of itself. We have already heard of differences of opinion from smaller businesses which were attempting to meet demands of large firms they had been supplying with goods and services for years but were suddenly deemed to be unacceptable suppliers as they supposedly were not in ESG compliance. Some small suppliers have effectively been asked to open their books by larger business customers, creating problems with the disclosure of confidential competitive business information and the risk that ESG will be abused to obtain such information.
Internal contradictions within the ESG system proposals also raise questions as to the real objectives of advocates of the system. For example, a business that effectively produces nothing or very little and creates few if any jobs will have a high ESG score, but such a business is economically useless and does not increase prosperity or standards of living. ESG doesn’t factor in vital considerations like geopolitical issues and energy security, serious problems that are now significantly disrupting the global economy. In Canada, the current federal government practices the glaring hypocrisy of imposing standards on domestic business that have a so-called “gender lens” (presumably part of the “S” in ESG), yet Canada continues to import significant amounts of oil from Saudi Arabia which would never remotely pass muster from a “gender” perspective.
The fact that some industries are treated preferentially compared to others under the proposed ESG standards is also unacceptable. When businesses in one industry sector are required to account for all of their emissions, why should a company manufacturing wind turbines be permitted to exclude the majority of their emissions that arise from the concrete portion of the wind turbine’s structure? All emissions have the same impact and should be treated equally. The fact that emissions are treated differently depending on the industry involved suggests that this plan is not about climate at all but rather some political agenda. In addition, if climate was truly the only consideration, why should gross emissions be the metric, not net emissions, and the use of such technologies as carbon capture and storage not be factored in?
The requirement of the ESG regime for every business to be able to document such things as where every single item or service they sell originates, the emissions it generates, emissions it is likely to generate down the road depending on who purchases it and how they use it, is highly speculative and an impossible requirement for a small business. Imagine a small grocer with four employees trying to keep track of the provenance of everything they sell, the respective carbon footprint, emissions when it gets used by someone down the value chain, whether the product came from an area with high water stress, etc etc etc. The so-called Scope 1 emissions are bad enough, but Scope 2 and Scope 3 are ridiculous expectations as the business has absolutely no control over them. It is wholly inappropriate that an accounting standard, which should be based on factual, verifiable information only, is being expected to encompass the subjectivity and guesswork involved in Scope 2 and Scope 3. As a results, this entire system will be impossible to sensibly and economically deal with for a large business, let alone a small one. And about half of all businesses in Canada have fewer than five employees.
Another problem exists with the very legalistic nature of the ESG proposals. Naturally the Environmental Non-government Organizations (ENGOs) are all in favour of this, as they see a means of putting firms they don’t like out of business, potentially on spurious grounds. You can be sure the ever-litigious ENGOs, often funded by tax dollars coming from the targeted businesses themselves, will be keen to sue any scofflaws into bankruptcy. It almost seems that a significant collapse of the SME sector is seen as a feature, not a bug, to the advocates of ESG.
Yet another consideration that undermines the purpose of this plan is that the countries such as China, India, Russia and others, some of the largest polluters on the planet, have no intentions of imposing this foolishness on their own domestic businesses that compete with Canadian businesses.
At a time when the global economy is fragile at best, the imposition of a complex and costly ESG system that is difficult to understand and predict even by experts will add much uncertainty to business conditions that are already precarious, and uncertainty is one of the worst things for any business. It is refreshing to see some governments begin to push back against ESG plans by, for example, imposing punitive measures on banks that use ESG-related grounds to deny financing to businesses.
The notion that businesses must conform to some rigid set of top-down standards to be responsible corporate citizens is a false premise. Virtually all SMEs engage in responsible business practices as they are typically closely tied in with their local communities, customers and suppliers. “Bad actors” are usually weeded out by the marketplace and existing sets of laws and regulations around proper, responsible conduct. The notion that some immense regulatory mechanism with an enormous and expensive bureaucracy to administer it is needed to ensure SMEs are adhering to reputable environmental, social and governance behaviours is more likely to provide an incentive to game the system and find ways to avoid this costly complexity rather than achieve the supposed ESG goals.
The vast majority of Canadian SMEs, and those in other countries as well, have no idea what is in store for them with these new requirements. It is likely the entire ESG regime will collapse under its own weight when businesses small and large, as well as consumers, understand the costs and complexities that will be required. However, much damage and wealth destruction will happen in the meantime if the ESG standards proceed. Geopolitical and economic realities in Europe and the abject failure of past policies favouring wind and solar power generation over reliable and low-cost fossil fuels and nuclear have already wreaked havoc with energy security and inflation in the price of basic commodities, imposing harsh realities on populations that previously bought into the fantasy that the transition to more “green” energy sources would be pleasant and painless. A looming global recession will worsen these pressures. The best course of action would be to abandon the current plans for a complex and costly ESG regime and pursue more manageable and practical means of achieving measurable, tangible and objective climate remedies.
Sincerely,
Catherine Swift, President
CCMBC
416 816 7248 [email protected]
Do you like this page?