Key Points

In 2017, the Ontario provincial government received $10,415 in total revenue per person[1], the lowest in the country. Despite the lowest total revenue per person, Ontario’s per capita tax revenue is above the average of other provinces, owing to a strong economic base.[2] However, offsetting Ontario’s relatively high tax revenues are lower revenues from other sources. Compared to other provinces, Ontario generates a relatively modest level of resource revenues and receives a relatively low amount of transfers from the federal government.



per person[1], the in the country. Ontario’s low per capita revenue is matched by similarly low government spending relative to other provinces. In 2017, Ontario spent $9,829 per person on programs, also the lowest among provinces. Ontario’s per capita program spending is more than $2,000 below the rest of Canada average, a gap that has widened since 2011. In particular, Ontario spends $3,903 per person on health care, the lowest in Canada and $487 per person lower than the rest of Canada average.

among provinces.

Ontario’s net operating deficit was $3.8 billion in 2017[3], down from a deficit of $5.3 billion in 2016. On a per capita basis, Ontario’s deficit was $271 per person in 2017, below the average of other provinces. However, Ontario program spending is projected to jump by nearly 5 per cent in 2018 while overall revenues are expected to decline.[4] As a result, Ontario’s deficit is expected to more than triple to $868 per person in 2018, based on the FAO’s projections.



Despite a relatively low per capita deficit in 2017, Ontario had the second highest debt load per person in Canada, behind only Newfoundland and Labrador. Going forward, larger deficits would further deteriorate Ontario’s fiscal position relative to other provinces.



The Ontario government has announced its intention to balance the budget while committing to not raise taxes. Given that Ontario’s per capita program spending is already the lowest in Canada, opportunities to restrain or reduce spending further may be limited.

Overview

This commentary provides an updated comparison of Ontario government revenue, spending, deficit and net debt with that of other provinces based on Statistics Canada’s Government Finance Statistics.[5]

Ontario receives lowest total revenue per capita in Canada

Canadian provinces receive revenue from taxation, resource royalties, transfers from the federal government and other sources including profits from government business enterprises and user fees. In 2017, these sources generated $10,415 in total revenue per person in Ontario, the lowest in Canada.

Figure 1: Ontario total revenue per capita lowest in Canada

Source: Statistics Canada and FAO.

Accessible version

Tax revenue

Despite receiving the lowest total revenue per capita in Canada, Ontario’s tax revenue is above the average of other provinces. In 2017-18, Ontario generated $7,936 in tax revenue per person, below that of only Quebec and Newfoundland and Labrador.

Figure 2: Ontario generated relatively high per capita tax revenues

Source: Statistics Canada and FAO.

Accessible version Figure 3: Ontario tax burdens compared with the rest of Canada, 2017

Ontario Rest of Canada Personal Income Tax

(% of labour income) 9.9 11.7 Corporate Income Tax*

(% of corporate profits) 11.8 12.2 Sales Tax

(% of household spending) 5.9 5.7 Other Tax Revenue

(% of GDP) 4.1 4.2

Note: Labour income refers to compensation of employees, corporate profits refer to corporate net operating surplus and household spending refers to household consumption expenditures. Alberta (which does not impose a sales tax) is excluded from the calculation of sales tax in the rest of Canada average.

*The ratio for corporate income tax is presented as an average over 2015 to 2017 to smooth out volatility.

Source: Statistics Canada and FAO. However, Ontario’s relatively higher per capita tax receipts are largely a reflection of the province’s stronger economic base -- Ontario benefits from both a robust business sector and relatively prosperous households. When Ontario’s tax revenues are compared to their economic bases, which account for the province’s stronger economy, Ontario’s relative tax burdens are generally lower than the rest of Canada (See Figure 3). Ontario’s personal income tax revenue is equivalent to 9.9 per cent of labour income, significantly below the 11.7 per cent share in the rest of Canada. Similarly, corporate income tax revenue as a share of corporate profits is 11.8 per cent in Ontario, below the 12.2 per cent ratio in the rest of Canada. However, Ontario’s sales tax revenue is equal to 5.9 per cent of household spending, slightly above the rest of Canada average of 5.7 per cent.[6]

Other revenue sources

Ontario’s relatively higher per capita tax revenue is offset by lower revenues from resource royalties, federal transfers as well as ‘other revenues’ when compared to other provinces.

In Canada, provinces that generate high resource royalties, such as Alberta, Saskatchewan and British Columbia, typically receive lower federal transfers due to lower (or zero) payments from the Equalization program. At the same time, provinces that have lower resource royalties, such as Prince Edward Island, Nova Scotia and New Brunswick, typically receive higher federal transfers.

Figure 4: Ontario ranked close to bottom for resource royalties and federal transfers

Source: Statistics Canada, Canadian Government Finance Statistics. Accessible version However, Ontario is unique among the provinces, with both relatively low resource revenues and federal transfers. Ontario’s strong tax bases limit the federal transfers it receives, most importantly from Equalization[7]. As a result, Ontario receives the second lowest per capita level of transfers from the federal government, while also generating the third lowest level of resource revenues per capita.

Ontario’s program spending lowest in Canada

Ontario’s low per capita revenue is matched by a similarly low level of per capita spending. In 2017, Ontario program spending was the lowest in Canada.

Figure 5: Ontario program spending lowest among provinces

Source: Statistics Canada, Canadian Government Finance Statistics.

Accessible version At $9,829, Ontario spends about $2,000 less per person on provincial programs than the average of other provinces.[8] Since 2011, Ontario program spending per capita has grown by 0.7 per cent per year on average – or by less than half the pace of growth in the rest of Canada. Ontario program spending has grown at less than half the rate of other provinces

Note: Figures represents values for provincial governments.

Source: Statistics Canada and FAO. Accessible version Ontario’s lower program spending per capita largely reflects the province’s relatively lower expenditures on health care and social protection[9]. Ontario spent $3,903 per person on health care in 2017 – lowest among provinces and about $490 below the average for other provinces. Similarly, Ontario spent $1,606 per capita on social protection, below the rest of Canada average of $1,942. For education, Ontario’s per capita spending was roughly in-line with average spending in the rest of Canada.

Figure 6: Ontario healthcare spending lowest in Canada

Source: Statistics Canada and FAO.

Accessible version

Ontario’s relatively lower level of spending may be the result of a combination of factors, including lower need or demand for services[10], lower cost of delivering public services[11], or lower quality of services.

Ontario also compares favourably to other provinces on interest on debt spending, despite a relatively higher debt load. In 2017, the Province’s interest on debt spending per capita was $858, more than $180 below the rest of Canada average, primarily the result of lower borrowing rates.[12] However, Ontario’s debt is expected to continue rising over the outlook, leading to increases in Ontario’s debt payments going forward.

Figure 7: Interest on debt spending in Ontario lower than most provinces

Source: Statistics Canada, Canadian Government Finance Statistics and FAO.

Accessible version

Comparing Ontario’s operating deficit and debt burden

Ontario’s net operating deficit was $3.8 billion in 2017,[13] down from a deficit of $5.3 billion in 2016. On a per capita basis, Ontario’s deficit amounted to $271 per person in 2017, below the provincial average of $530. However, Ontario’s deficit is projected to more than triple to $868 per person in 2018, due to a sharp increase in spending and a decline in overall revenue.

Figure 8: Ontario’s operating deficit below provincial average

Source: Statistics Canada, Canadian Government Finance Statistics.

Accessible version

Despite a relatively modest per capita deficit last year, Ontario’s per capita debt was $18,866 in 2017[14], the second highest in Canada – behind only Newfoundland and Labrador.[15] On-going deficits will further add to this debt load over the outlook.

Figure 9: Ontario had second highest net financial debt per capita

Source: Statistics Canada, Canadian Government Finance Statistics and FAO. Accessible version The Ontario government has committed to balancing the budget over a “reasonable and pragmatic” timeframe while not raising taxes.[16] Given these commitments, the burden of eliminating the deficit falls mainly on reducing program spending. However, since Ontario’s program spending is already the lowest in Canada, opportunities for achieving additional spending restraint or reductions may be limited. Luan Ngo

Director

lngo@fao-on.org Jessica Kelly

Economic Coop David West

Chief Economist

dwest@fao-on.org The analysis in this commentary is based on information available to January 21, 2019.



Financial Accountability Office of Ontario

2 Bloor Street West, Suite 900

Toronto, Ontario M4W 3E2 Media queries, contact: Kismet Baun, 416.254.9232 or email kbaun@fao-on.org. About the FAO

Established by the Financial Accountability Officer Act, 2013, the Financial Accountability Office (FAO) provides independent analysis on the state of the Province’s finances, trends in the provincial economy and related matters important to the Legislative Assembly of Ontario. Visit our website at http://www.fao-on.org/en/ and follow us on Twitter at https://twitter.com/InfoFAO.

Appendix

Provincial Government Finance Statistics ($ Per Capita)

NL PE NS NB QC ON MB SK AB BC Canada-Wide Avg. Rest of Canada Avg. Net Financial Debt -20,211 -12,696 -13,208 -14,634 -14,645 -18,866 -17,224 -8,047 -2,475 -4,756 -13,474 -10,056 Net Operating Balance -2,891 -118 96 -740 610 -271 -599 -922 -3,187 115 -430 -530 Total Revenue 13,386 12,479 12,086 12,495 14,270 10,415 12,192 12,584 10,534 10,624 11,613 12,373 Taxes 8,027 6,940 6,632 6,703 8,925 7,936 7,539 7,404 5,671 7,190 7,706 7,559 Grants 3,080 4,651 4,122 4,190 2,704 1,718 3,008 2,114 1,688 1,780 2,155 2,431 Social Contributions 314 86 345 328 568 343 182 236 167 321 360 371 Other Revenue (Including Royalties) 1,965 803 987 1,274 2,073 418 1,463 2,829 3,007 1,334 1,393 2,011 Program Expense 14,996 11,702 11,043 12,142 11,975 9,829 11,508 12,888 13,325 9,995 11,073 11,862 Health 5,834 4,342 4,439 4,194 4,274 3,903 4,601 4,554 4,703 4,078 4,201 4,390 Education 2,738 2,315 1,830 2,375 2,363 2,449 2,609 2,813 2,843 1,891 2,406 2,378 Social Protection 1,394 1,151 1,560 1,565 2,302 1,606 1,776 2,321 1,751 1,658 1,812 1,942 Other 5,030 3,894 3,214 4,008 3,035 1,871 2,523 3,201 4,028 2,368 2,656 3,153 Interest Expense 1,282 895 946 1,093 1,685 858 1,282 618 395 514 969 1,040

Source: Statistics Canada and FAO.

Provincial Government Finance Statistics (Per Cent of GDP)

NL PE NS NB QC ON MB SK AB BC Canada-Wide Avg. Rest of Canada Avg. Net Financial Debt -32.3 -29.0 -29.5 -30.8 -29.5 -32.4 -32.5 -11.8 -3.2 -8.1 -23.2 -17.3 Net Operating Balance -4.6 -0.3 0.2 -1.6 1.2 -0.5 -1.1 -1.3 -4.1 0.2 -0.7 -0.9 Total Revenue 21.4 28.5 27.0 26.3 28.7 17.9 23.0 18.4 13.6 18.1 20.0 21.3 Taxes* 12.8 15.9 14.8 14.1 18.0 13.6 14.2 10.8 7.3 12.3 13.3* 13.0* Grants 4.9 10.6 9.2 8.8 5.4 3.0 5.7 3.1 2.2 3.0 3.7 4.2 Social Contributions 0.5 0.2 0.8 0.7 1.1 0.6 0.3 0.3 0.2 0.5 0.6 0.6 Other Revenue (Including Royalties) 3.1 1.8 2.2 2.7 4.2 0.7 2.8 4.1 3.9 2.3 2.4 3.5 Program Expense 24.0 26.7 24.7 25.6 24.1 16.9 21.7 18.9 17.2 17.1 19.1 20.4 Health 9.3 9.9 9.9 8.8 8.6 6.7 8.7 6.7 6.1 7.0 7.2 7.6 Education 4.4 5.3 4.1 5.0 4.8 4.2 4.9 4.1 3.7 3.2 4.1 4.1 Social Protection 2.2 2.6 3.5 3.3 4.6 2.8 3.3 3.4 2.3 2.8 3.1 3.3 Other 8.0 8.9 7.2 8.4 6.1 3.2 4.8 4.7 5.2 4.0 4.6 5.4 Interest Expense 2.0 2.0 2.1 2.3 3.4 1.5 2.4 0.9 0.5 0.9 1.7 1.8

Source: Statistics Canada and FAO.

* Note: Average tax revenue as a per cent of GDP for Canada and the ‘Rest of Canada’ are lower than Ontario because the national and Rest of Canada values include Alberta, which does not levy a sales tax. If Alberta did levy a sales tax at the average national rate, average tax revenue as a per cent of GDP for both Canada and Rest of Canada would be 13.7 per cent.