It's budget day in Ontario

New fines for contraband tobacco and more: Here's what the budget means for the convenience and gas sector.
Michelle Warren smiles
Realistic flag of Ontario on the wavy surface of fabric

The Ontario government tabled a budget Tuesday that forecast a ballooning deficit, investments in the home and community care sector, and support for a first-of-its-kind medical school. However, of specific interest to the convenience sector, the government vowed to crackdown on those facilitating contraband tobacco by strengthening fines as part of a modernization of provincial tobacco laws.

In a statement, the Convenience Industry Council of Canada commended the government for accepting its recommendations and taking what it calls “a first step against the growing contraband tobacco market.”

CICC has long pointed out that the sale of contraband tobacco is an illegal activity finances organized crime and threatens community safety, while undermining tobacco cessation and control efforts. 

A recent EY Canada report commissioned by CICC found that contraband accounts for half of the tobacco market in Ontario and tax revenue losses of up to $1.7 billion. 

“This multi-billion-dollar industry jeopardizes the safety of communities, minimizes government revenues, and threatens the viability of local convenience stores. To make matters worse, organized crime and criminal gangs are using the proceeds to further the sale of other illicit products – that means more drugs, guns and gangs in Ontario communities,” says CICC president and CEO Anne Kothawala. “While today’s measures are an important foundational step for cracking down on the illicit tobacco trade, we need more tangible actions. Contraband is so lucrative—eight times more profitable than the sale of illicit drugs like cocaine and fentanyl— that fines must be high enough to serve as a deterrent rather than a cost of doing business. Until the risk outweighs the reward, organized crime will continue to exploit this illegal market.”

CICC is also calling on the government to crack down on the illegal online platforms that are facilitating the sale of untaxed and illicit nicotine products, specifically tobacco and vaping items, to Ontario’s youth. 

“Ontario’s 7,600 convenience retailers remain steadfast in our advocacy for enhanced fines and penalties and additional investigative powers for law enforcement,” says Kothawala, adding members welcome the government’s “commitment to take ongoing action to address the rampant illicit market in Ontario.”

As this battle continues, the budget forecasts a $56 million drop in tobacco tax revenue in 2024-2025 to $771 million, signalling an ongoing spiral: In 2021-2022, tobacco tax revenue was $927 million. 

Alcohol, gas and lottery revenues

The province expects alcohol-related taxes to decline to $576 million, from $599 million last year, as people reign in discretionary spending.

In addition, the Ontario government announced earlier this week its commitment to continue the 5.7-cent-per-litre gas discount until the end of 2024. Introduced in 2022, it was to expire in June. Despite the tax hold, the provincial budget estimates a $289-million rise in gas tax revenue to $1.95 billion and a jump and a $124-million jump in fuel taxes to $623 million. Still, the budget shows that move is costing the treasury $620 million.

Convenience stores continue to prove their worth as revenue collectors for governments. The budget outlined an expected rise in gambling—the Ontario Lottery and Gaming (OLG), which oversees lotteries and casinos, is expected to make an extra $272 million this year to reach $2.62 billion.

A larger perspective

Overall, Ontario is delaying its path to balance as lethargic economic growth drags the province's books further into the red, with a $9.8-billion budget deficit projected for the coming fiscal year.

Finance Minister Peter Bethlenfalvy acknowledged the challenging economic times Tuesday, saying life has rarely been this expensive, though his budget contains few new affordability measures.

"The pressure of managing a government budget pales in comparison to the pressures many families are facing as they manage their family budget in a time when everything is costing more," Bethlenfalvy told the legislature.

"These are the real challenges and real problems of real life and real people, of making rent, of paying the bills, of affording groceries. And the best way to help people is by getting the big decisions right. Making smart investments. Watching the expense line. And most of all, keeping costs on people low."

The deficit for 2024-25 is almost double what the province projected in the fall economic update. That document had also eyed a return to surplus the following year, which was already delayed a year from the 2023 budget. Bethlenfalvy now projects that a small surplus will not happen until 2026-27. In 2025-26, the deficit is forecast to be $4.6 billion.

The $214.5-billion budget forecasts real GDP growth of just 0.3% in 2024, and Bethlenfalvy said he has made a choice to increase the deficit rather than cutting spending or raising taxes or fees on Ontarians.

"We are going to follow through on a plan that is working—knowing that the higher deficits, compared to what we projected last year, will be time limited while the return on investment will be felt for decades," he said.

New money in the budget includes an additional $2 billion over three years for home and community care–which sees care provided at home or in a community setting by nurses, personal support workers and others–an additional $965 million for hospitals, a $200-million community sport and recreation infrastructure fund and $120 million more for autism therapies.

The Progressive Conservative government is also putting $100 million more into its Skills Development Fund as it hopes to flood the labour market with increasing numbers of skilled trades professionals.

As well, the province is planning auto insurance reforms, putting money toward four police helicopters for Greater Toronto Area forces, supporting a new York University medical school focused on training family doctors, and increasing the eligibility threshold for a program that helps families with the cost of electricity.

NDP Leader Marit Stiles said there are many gaps in the budget, which she said doesn't put enough toward affordable housing or boosting primary health care.

"I see nothing here that's going to support Ontarians in their day-to-day lives," she said.

In addition to the sluggish economy, the budget document also cites higher public sector salaries, increased infrastructure spending and gas tax relief as reasons for the deficit figures.

The government is spending billions more on broader public sector compensation, particularly in health and education, after its wage restraint law was declared unconstitutional last month. The province has mostly relied on large, multi-billion-dollar contingency funds to pay for retroactive payments it has had to make, but going forward the contingency fund is set at a more standard level of $1.5 billion.

Ontario's finances on the revenues side have also deteriorated since the last budget, Tuesday's document reports, saying they have decreased by $7.3 billion for the upcoming fiscal year, due to both slower growth and lower tax assessment information from the federal government.

As well, a recent federal announcement of a two-year cap on international student study permits will negatively affect the province's books since colleges' finances are consolidated into the province's financial statements.

Colleges have increasingly relied on the much higher tuition fees paid by international students to bolster their finances in the face of low operating funding from the province and a multi-year domestic tuition freeze.

The budget shows the province's net debt rising above $439 billion in the upcoming year.

Liberal finance critic Stephanie Bowman noted that the Progressive Conservatives have added $100 billion in net debt since coming to power in 2018, and criticized the government for managing to both pile on debt while also underspending on services such as health care.

"There are lots of things this government is choosing not to do to fix the crisis in front of them because they like projects," she said.

"They like building things that are adding billions of dollars of debt and yet we have crises after crises in every file in this province. I would actually challenge people to name a file that is not on fire here."

For this fiscal year, the province is expected to end 2023-24 with a $3-billion deficit, an improvement from the $4.5 billion expectation Bethlenfalvy had just a month ago when he presented the third quarter finances.

-With files from The Canadian Press

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