Tax incentive zone proposal a Catch 22.

The Eves government's announcement last spring that all of Northern Ontario would be designated a tax incentive zone seems to have resonated well with many business groups that have led the push for such change for many years.

However, concerns from different levels, including municipalities, have prompted the new Liberal government to delay its implementation while engaging in additional consultations.

As it stands now, the whole proposal would seem like a Catch 22. Tax incentive zones are supposed to attract new and growing businesses to Ontario and lead to a stronger economy in smaller, rural and northern communities, but the municipalities would have to participate through a deferral of new property taxes; not an attractive option at times of declining taxable assessment. This tax incentive zone will include all territory in the Districts of Muskoka, Parry Sound, Nipissing, Timiskaming, Cochrane, Manitoulin, Greater Sudbury, Algoma, Thunder Bay, Kenora and Rainy River.

Under the plan, eligible businesses locating in a tax incentive zone would not be required to pay the provincial business education tax, capital tax or employer health tax. Municipalities would be required to contribute to the program by providing full municipal property tax relief for all eligible businesses, as well as case-by-case assistance on municipal charges and fees.

The province, together with municipalities, would focus on attracting new value-added businesses.

Eligible businesses would enter into a tax-incentive agreement with the municipality and the province. Eligible businesses must prove that existing businesses will not be disadvantaged by the incentive. Businesses would not be eligible unless they can ensure that potential new investments contribute to the local economy without harming existing businesses. This in itself will not be easy to determine and may prove to be a sore point for non-qualifying businesses who may perceive that their tax dollars are being used to subsidize a potential competitor.

Eligible businesses already located in tax incentive zones would be eligible for tax incentives only on the incremental portion of their investment when they expand. This should stimulate expansion and retention of existing businesses who usually contribute the most to local employment (up to 80%).

Certain businesses from outside Ontario that relocate to a tax incentive zone would also be eligible. However, businesses that relocate from within Ontario to a tax incentive zone would not be eligible. This last criterion was put in place as not to create a situation whereby eligible businesses within Ontario will move to tax incentive zones to take advantage of subsidies and then leave. At least that was the original plan. This portion is being reevaluated in light of a growing understanding on the part of the provincial government about the need for more innovative programs to help diversify the economy of Northern Ontario.

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Under Mike Harris, the Ontario provincial government resisted any kind of subsidy as a matter of principle. The thinking was that it amounted to a form of corporate welfare. However, business incentives or subsidies are used extensively in the US and more frequently in certain Canadian provinces like Quebec, New Brunswick, and Newfoundland. The Smart Growth panel was looking at creating a more level economic playing field for Northern Ontario and has made a good business case that we have unique challenges requiring made in the north solutions.

Making the whole of Northern Ontario a tax incentive zone should provide more opportunities to attract and retain investments in the region. Broadening the qualifying criteria to include "new economy" companies (biotech, information technology, aviation clusters to name a few) as well as providing income tax incentives (Newfoundland exempts all qualifying businesses from 100% of provincial corporate taxes) will greatly expand such opportunities. Finally, having an "Open for Business" attitude will go a long way in ensuring that the North and especially northwestern Ontario can reap the benefits of these new opportunities.

Frank Pullia is the Principal of Pullia Consulting and a former city councillor. ([e-mail])