Hot! In Ontario, everyone’s a taxman

NationalPost.com – FinancialPost/FPComment – Ontario’s political culture has hiked taxation, whatever party is in power
Sep. 14, 2011.   By Livio Di Matteo, Special to Financial Post

Is Ontario Premier Dalton McGuinty “The Taxman,” as Progressive Conservative leader Tim Hudak has been claiming in his bid to become the next premier of Ontario? Hudak has pointed to Ontario’s Health Care Premium and the eco-fee fiasco, as well as the HST. This begs the following question: Has the McGuinty government raised Ontario’s tax burden? Is he “The Taxman”?

As always, public finance issues, especially with respect to taxation, are complex. But data from the federal Fiscal Reference Tables can be used to shed some light on this question.

However, rather than taxes, the term “own-source revenue” is probably a better descriptor because the Ontario provincial government raises revenue not just from income and sales taxes, but also from assorted fees, gambling revenues, liquor sales and natural resource rents. These, in essence, all represent a transfer from the private to the public sector and thus constitute “taxation.” In addition, one needs to look at these revenues not in absolute values but in inflation-adjusted dollars per capita, as well as a share of the province’s output.

Real per-capita own-source Ontario provincial government revenue (in 1997 dollars) rose from $3,261 per person in 1986-87 to $4,116 by 2009-10. It is, of course, subject to ebbs and flows as a result of business-cycle fluctuations and has dropped substantially over the last couple of years, due to the recession. However, it peaked in 2007-08, during Premier McGuinty’s tenure, at $5,052.

Yet, one also needs to be aware that it has trended upward over a time span that includes the governments of David Peterson, Bob Rae, Mike Harris and Ernie Eves, as well as Dalton McGuinty. All of these premiers saw years with some substantial increases in real per-capita own-source revenues, as well as years with declines. These declines were mainly due to economic slowdowns rather than explicit tax relief, especially during the Rae era. Meanwhile, the increases in own-source revenue, particularly in the Harris years, were also a function of the expanding tax base due to a booming economy.

The ratio of own-source revenue to GDP represents the burden of revenue raising on the economy as a whole and probably better reflects business-cycle fluctuations, as both GDP and government revenues move in conjunction with the business cycle. Here, the trend is also upward over time. Whereas in 1986-87 provincial own-source revenues accounted for 10.5% of the province’s GDP, by 2009-10 it had climbed to 12.7%. This ratio also peaks just before the recession in 2007-08, during Premier McGuinty’s tenure, at 14.8%. During the recent recession, Ontario government own-source revenues have actually plummeted even faster than GDP.

On the face of it, the McGuinty government is associated with some of the highest values of both real per-capita own-source government revenues and the share of GDP accounted for by those revenues. Does that make Mr. McGuinty the taxman? It does for the time being, but history suggests the title can be a fleeting one. Average annual real per-capita own-source revenues were $3,605 under David Peterson, $3,535 under Bob Rae, $4,398 under Mike Harris/Ernie Eves and $4,663 under Dalton McGuinty.

The average value of the own-source revenue to GDP ratio was 11.7% under David Peterson, 12.1% under Bob Rae, 12.9% during the Harris-Eves era and 13.6% during the McGuinty era. The trend ­toward greater taxation and revenue appropriation by Ontario’s government is not a recent phenomenon but an upward trend over the last 20 years, no matter who has been in power.

Dalton McGuinty has indeed presided over an era where the provincial own-source revenue to GDP ratio has reached its greatest height, but he has been able to do so by building on the work of his predecessors. Ontario’s politicians have all been part of a ­provincial political culture that has expanded the role of ­government and supported it with ever-greater tax revenues. They have all been ­“taxmen.”

< http://opinion.financialpost.com/2011/09/14/in-ontario-everyone’s-a-taxman/ >

1 Comment

  1. In my opinion, labelling Dalton McGuinty as “the taxman” is an accurate portrayal of the Ontario Premier. By making comparisons to previous politicians and focusing on the per-capita revenue increase, this article attempts to save McGuinty’s reputation and mask the true problems that come with raising taxes. With the McGuinty government, tax payers have seen the introduction to the Ontario Health Care Premium along with an HST that has expanded the tax base to more things such as hydro. This text works to make McGunty’s spending based government seem less extreme and consequential by saying that other politicians have done the same. The problem with this is is that those other politicians have not created a substantial budget deficit.

    With McGuinty there may have been the highest values of government revenues, as suggested by this article, but what needs to be considered is that these values cannot compensate for the drastic debt now in place. The lack of revenue must be borrowed to run the government and will eventually become future taxation. This will influence the amount of funding going in to social programs necessary for many to survive because cuts will have to be made. This is the main issue that will show itself if taxes continue to be raised. Therefore, I believe that “not” everyone in Ontario is indeed a taxman.

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