2010 Ontario Budget: Chapter II: Ontario's Economic Outlook and Fiscal Plan
Section D: Ontario's Revenue Outlook

Introduction

Ontario government revenues have stabilized and are beginning to recover. However, the pace of recovery is moderate and the impact of the global financial crisis was substantial. Taxation revenues in 2009–10 are estimated at $65.8 billion, 12.2 per cent below their level two years ago. Taxation revenues are not expected to recover to their 2007–08 level until 2011–12.

Chart 17: Line Graph: Lower Taxation Revenues due to Global Recession

Just as Ontario’s economy has been hard hit by the global economic recession relative to other provinces, so too have Ontario government revenues. This is especially true of Corporations Tax revenues, which declined by $6.2 billion (48 per cent) in 2008–09 in Ontario. Further declines in 2009–10 have resulted in revenues $7.6 billion (59 per cent) below the 2007–08 level. Based on the latest estimates available from other jurisdictions as of March 12, 2010, no other jurisdiction in Canada has seen a decline as severe as Ontario’s over the 2007–08 to 2009–10 period.

Chart 18: Bar Graph: Ontario Corporations Tax Revenue Decline Largest

Medium-Term Revenue Forecast

Table 13
Summary of Medium-Term Outlook
($ Billions)
Revenue Interim
2009–10
Plan
2010–11
Outlook
2011–12 2012–13
Taxation Revenue 65.8 71.6 74.9 79.3
Personal Income Tax 24.0 25.9 26.7 28.3
Sales Tax 17.4 19.1 20.3 21.4
Corporations Tax 5.4 7.4 8.0 9.4
Education Property Tax 5.7 5.3 5.3 5.2
Ontario Health Premium 2.7 2.9 3.0 3.2
All Other Taxes 10.5 10.9 11.6 11.9
Government of Canada 18.6 23.7 21.5 21.1
Income from Government Business Enterprises 4.1 4.2 4.4 4.6
Other Non-Tax Revenue 8.0 7.4 7.0 7.0
Total Revenue 96.4 106.9 107.7 112.0
  • Note: Numbers may not add due to rounding.
  • Source: Ontario Ministry of Finance.

The medium-term revenue forecast is based on the Ministry of Finance economic outlook and reflects the estimated impacts of government policy decisions. Revenues are projected to increase at an annual average rate of 5.1 per cent between 2009–10 and 2012–13. This is consistent with the economic outlook (see Section C of this chapter) for nominal gross domestic product (GDP) growth, averaging 4.9 per cent over the 2010 to 2012 period.

Tax Plan for Jobs and Growth

The Tax Plan for Jobs and Growth reduces Ontario revenue by more than $4 billion over the first three years, net of federal assistance of $4.3 billion.

Transparency in Reporting: Education Property Tax and Tax Credits

Starting with this Budget, a number of items will be presented differently for improved transparency in reporting. These presentation changes do not affect the Province’s annual surplus/deficit results. Tax revenues affected are Education Property Tax, Personal Income Tax and Sales Tax. For a detailed discussion of these changes, see the Addendum to the 2010 Ontario Budget: Ontario’s Plan to Enhance Accountability, Transparency and Financial Management.

Table 14
Personal Income Tax Revenue Outlook
($ Billions)
  Interim
2009–10
Plan
2010–11
Outlook
2011–12 2012–13
Total Projected Revenue 24.0 25.9 26.7 28.3
Measures Included in Total ­– (0.9) (1.0) (1.1)
Other Adjustments (1.5) 0.4
Base Revenue 25.6 26.5 27.7 29.3
Base Revenue Growth (Per Cent) 3.5 4.8 5.8
Wages and Salaries Growth (Per Cent) 2.7 4.6 5.2
  • Note: Numbers may not add due to rounding.

The Personal Income Tax (PIT) revenue forecast is consistent with the economic outlook for incomes. Wages and salaries growth is the most important component of this. The forecast reflects previously announced tax measures, such as 2009 Budget PIT cuts, as well as measures proposed in this Budget. In Tables 14, 15 and 16, Measures Included in Total represents the incremental revenue impact of all tax measures announced previously and in this Budget relative to their impact on revenue in 2009–10. The latter are discussed in Chapter III: Tax and Pension Systems for Ontario’s Future. The forecast also includes impacts of tax measures announced by the federal government in its 2010 budget that Ontario is obliged to parallel under the current tax collection agreement. Other Adjustments include amounts for overestimating revenues in prior years’ Public Accounts and the effect in 2009–10 of the global financial crisis on taxes related to capital gains and losses. Some recovery in capital gains is expected to boost revenues in 2010–11. The revenue base, which reflects the impact of macroeconomic factors, is projected to grow at an average annual rate of 4.7 per cent over the forecast period. The PIT revenue base tends to grow at a faster rate than incomes due to the progressive structure of the tax system.

Table 15
Sales Tax Revenue Outlook
($ Billions)
  Interim
2009–10
Plan
2010–11
Outlook
2011–12 2012–13
Total Projected Sales Tax Revenue 17.4 19.1 20.3 21.4
Measures Included in Total
Conversion of RST Base to HST Base 1.2 2.0 2.2
Sales Tax Credit Enhancement (0.6) (0.9) (0.9)
Temporary Restriction of Input Tax Credits for Businesses 0.7 1.0 1.0
Other Adjustments 0.4 0.3
Sales Tax Base Revenue 17.0 17.5 18.2 19.1
Base Revenue Growth (Per Cent) 3.0 3.8 5.1
Nominal Consumption Growth (Per Cent) 3.9 4.6 4.7
  • Note: Numbers may not add due to rounding.

After adjusting for measures, total Sales Tax revenue base growth is consistent with the underlying growth in consumer spending. The Sales Tax forecast reflects the introduction of the Harmonized Sales Tax (HST) on July 1, 2010 as announced in the 2009 Budget. Tax reform measures related to the introduction of the HST are summarized in Chapter III: Tax and Pension Systems for Ontario’s Future. Other adjustments include accrued revenues related to the future receipt of retail sales taxes that are being wound down as of July 1, 2010.

Table 16
Corporations Tax Revenue Outlook
($ Billions)
  Interim
2009–10
Plan
2010–11
Outlook
2011–12 2012–13
Total Projected Revenue 5.4 7.4 8.0 9.4
Measures Included in Total (1.1) (2.2) (2.5)
Adjustments for Prior Years (1.5)
Other Adjustments (0.5) (1.0) (0.2) 0.5
Base Revenue 7.4 9.4 10.4 11.3
Base Revenue Growth (Per Cent) 27.6 10.0 9.4
Corporate Profit Growth (Per Cent)
31.0 10.5 9.0
  • Note: Numbers may not add due to rounding.

Corporations Tax (CT) revenues are projected to increase over the medium term due to a projected rebound in corporate profits. Growth is moderated by the impact of previously announced tax measures, including tax measures for business announced in the 2009 Budget. The forecast also includes impacts of tax measures announced by the federal government in its 2010 budget that Ontario is obliged to parallel under the current tax collection agreement. There is a one-time downward adjustment of $1.5 billion in 2009–10 as a result of overestimating CT revenues in prior years’ Public Accounts. Other adjustments are largely due to the two-year lag in the provincial allocation of Canada-wide corporate income taxes now under federal administration.

Education Property Tax (EPT) revenue is now included in Ontario revenues consistent with fiscally neutral presentation changes to improve transparency and accountability. These presentation changes are outlined in more detail in the Addendum to the 2010 Ontario Budget: Ontario’s Plan to Enhance Accountability, Transparency and Financial Management. Education Property Tax revenue decreases by an average annual rate of 2.8 per cent over the forecast period. This decrease is due to the impact of policy measures, including plans announced in the 2007 Budget to reduce high business education tax rates. The decrease in EPT revenue also reflects the enhancement for the property tax credit announced in the 2009 Budget.

The Ontario Health Premium forecast is based on the outlook for employment and personal income growth. Ontario Health Premium revenues are projected to increase by an annual average of 5.2 per cent over the forecast period, consistent with the outlook for personal income growth.

The forecast for All Other Taxes is projected to increase by an annual average of 4.2 per cent between 2009–10 and 2012–13, reflecting the economic outlook discussed in Section C of this chapter. The forecast is developed on an item-by-item basis. For example, the forecast for Gasoline and Fuel Taxes is based on the outlook for gasoline and diesel pump prices, disposable income and real GDP growth. The forecast reflects estimated impacts of all previously announced measures.

The forecast for Government of Canada transfers is based on existing federal–provincial funding arrangements. The decline in transfers over the forecast period is mainly due to the ending of federal–provincial infrastructure stimulus programs after 2010–11, and the ending of HST transition payments after 2011–12.

The forecast for Income from Government Business Enterprises is based on information provided by each of these enterprises. Revenues from government enterprises are projected to increase by $0.5 billion, or at an annual average rate of 3.9 per cent, between 2009–10 and 2012–13.

The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies. Between 2009–10 and 2012–13, other non-tax revenues are projected to decline by $1.0 billion. Reimbursements from municipalities decline by $0.5 billion over this period due to the government’s previously announced decision to upload the municipal share of the Ontario Disability Support Program costs. Most of the remaining decline is due to the previously announced replacement of certain alcohol charges, including Beer and Wine Fees, with taxes beginning on July 1, 2010. This change is revenue neutral to the government. Additional information on this change can be found in Ontario’s Tax Plan for Jobs and Growth available at ontario.ca/taxchange.

Changes since the Fall 2009 Ontario Economic Outlook and Fiscal Review

Table 17
Summary of Medium-Term Revenue Changes since
Fall 2009 Ontario Economic Outlook and Fiscal Review
($ Billions)
  Interim
2009–10
Plan
2010–11
Outlook
2011–12
Stronger Economic Growth 0.2 0.6 0.7
Tax Measures 0.0 (0.2) (0.3)
Federal Payments (0.7) 0.7 1.0
Government Enterprises (0.2) (0.3) (0.4)
Power Sales (Fiscally Neutral) 0.5 0.4 0.4
All Other (0.1) (0.1) (0.2)
Total Revenue Changes (0.2) 1.0 1.2
  • Note: Numbers may not add due to rounding.

The medium-term forecast for total revenues is slightly lower in 2009–10 but higher in 2010–11 and 2011–12 compared to the Fall 2009 Ontario Economic Outlook and Fiscal Review.

Stronger Economic Growth projections (see Section C of this chapter) have increased the outlook for taxation revenues.

Tax Measures announced since the Fall 2009 Ontario Economic Outlook and Fiscal Review have resulted in a modest decrease in projected revenues. These include measures announced in this Budget; additional point-of-sale exemptions for the provincial component of the HST for qualifying prepared food and beverages sold for $4.00 or less and print newspapers; and the impact of paralleling measures announced in the 2010 federal budget. For details on measures announced in this Budget, see Chapter III: Tax and Pension Systems for Ontario’s Future.

The forecast for Federal Payments has changed due to revised timelines for capital projects funded through federal–provincial infrastructure stimulus programs, and reflects the outlook for existing federal–provincial funding arrangements, based on current demographic, economic and fiscal information.

Net income from Government Business Enterprises is lower over the forecast period. The outlook for the combined net incomes of Hydro One Inc. and Ontario Power Generation Inc. (OPG) has decreased in each year over the medium term primarily due to lower OPG earnings as a result of lower projected market electricity prices for its unregulated and non-contracted generation. Ontario Lottery and Gaming Corporation net income is lower over the forecast period, largely due to the projected impact of a strong Canadian dollar and an unfavourable economic outlook for U.S. border states. These decreases are partially offset by a higher net income outlook for the Liquor Control Board of Ontario.

Revenues recorded under Power Sales are higher over the forecast period due to the Lambton and Nanticoke support contract between the Ontario Electricity Financial Corporation (OEFC) and OPG. The increase in Power Purchase expense for the Lambton and Nanticoke contract is fully offset by the increase in revenues recovered from electricity ratepayers under Power Sales.

Other revenue changes largely reflect lower revenue from the Electricity Debt Retirement Charge, Vehicle and Driver Registration Fees, Crown Stumpage Royalties, and Other Fees, Licences and Permits, partially offset by higher Reimbursements and Sales and Rentals revenue.

Improved Transparency in Financial Reporting — Impacts on Ontario’s Fiscal Plan

As stated earlier, starting with this Budget, a number of items will be presented differently for improved transparency in reporting. These changes are being made to comply with recently revised Public Sector Accounting Board standards. These presentation changes do not impact the Province’s annual surplus/deficit results.

The principal change is the treatment of Education Property Tax. Previously, Education Property Taxes collected by municipalities for local school boards were netted against (i.e., subtracted from) Education expenses. Under the new presentation, Education Property Taxes are included in Provincial Revenue and are no longer netted against Education expenses. In addition, property tax credits are now netted against Education Property Tax revenue rather than Personal Income Tax revenue as was done previously, and sales tax credits are now netted against Sales Tax revenue rather than Personal Income Tax revenue as was done previously.

For each of the 2009 Budget and Fall 2009 Ontario Economic Outlook and Fiscal Review, the following tables show:

  • the revenue forecast as originally presented in those Budgets;
  • restated revenues consistent with presentation changes for improved transparency; and
  • the change in revenues resulting from this restatement.

See Addendum to the 2010 Ontario Budget: Ontario’s Plan to Enhance Accountability, Transparency and Financial Management for further information.

Revised Presentation of 2009 Budget Forecast

Table 18
Summary of Medium-Term Outlook as of 2009 Budget
($ Billions)
As Published Interim
2008–09
Plan
2009–10
Outlook
2010–11 2011–12
Taxation Revenue 65.4 64.9 68.6 71.8
Personal Income Tax 25.6 25.2 25.0 26.1
Sales Tax 17.5 17.6 21.0 22.9
Corporations Tax 8.6 8.5 8.8 8.4
Education Property Tax
Ontario Health Premium 2.8 2.8 2.9 3.1
All Other Taxes 11.0 10.7 11.0 11.4
Government of Canada 16.6 19.2 23.0 20.5
Income from Government Business Enterprises 3.9 4.3 4.5 4.8
Other Non-Tax Revenue 7.5 7.6 7.6 7.4
Total Revenue 93.4 96.0 103.6 104.4
Revised Presentation
Taxation Revenue 71.9 71.3 75.2 78.4
Personal Income Tax 26.5 26.1 26.7 28.2
Sales Tax 17.2 17.4 20.3 21.9
Corporations Tax 8.6 8.5 8.8 8.4
Education Property Tax 5.7 5.7 5.5 5.5
Ontario Health Premium 2.8 2.8 2.9 3.1
All Other Taxes 11.0 10.7 11.0 11.4
Government of Canada 16.6 19.2 23.0 20.5
Income from Government Business Enterprises 3.9 4.3 4.5 4.8
Other Non-Tax Revenue 7.5 7.6 7.6 7.4
Total Revenue 99.9 102.4 110.2 111.0
Change Due to Revised Presentation
Taxation Revenue 6.4 6.5 6.5 6.6
Personal Income Tax 1.0 0.9 1.7 2.1
Sales Tax (0.2) (0.2) (0.7) (1.0)
Corporations Tax
Education Property Tax 5.7 5.7 5.5 5.5
Ontario Health Premium
All Other Taxes
Government of Canada
Income from Government Business Enterprises
Other Non-Tax Revenue
Total Revenue Change Due to Revised Presentation 6.4 6.5 6.5 6.6
Total Expense Change Due to Revised Presentation (6.4) (6.5) (6.5) (6.6)
Net Fiscal Impact

Revised Presentation of Fall 2009 Ontario Economic and Fiscal Review Forecast

Table 19
Summary of Medium-Term Outlook as of Fall 2009 Ontario Economic Outlook and Fiscal Review
($ Billions)
As Published Actual
2008–09
Plan
2009–10
Outlook 
2010–11 2011–12
Taxation Revenue 62.4 59.1 64.3 67.4
Personal Income Tax 24.7 22.7 22.8 23.8
Sales Tax 17.3 17.1 20.2 21.8
Corporations Tax 6.7 5.9 7.6 7.6
Education Property Tax
Ontario Health Premium 2.8 2.7 2.8 3.0
All Other Taxes 10.9 10.6 10.8 11.2
Government of Canada 16.6 19.2 23.0 20.5
Income from Government Business Enterprises 4.0 4.3 4.5 4.8
Other Non-Tax Revenue 7.5 7.6 7.6 7.4
Total Revenue 90.5 90.2 99.3 100.0
Revised Presentation
Taxation Revenue 68.9 65.5 70.8 73.9
Personal Income Tax 25.7 23.7 24.5 25.9
Sales Tax 17.0 16.9 19.6 20.8
Corporations Tax 6.7 5.9 7.6 7.6
Education Property Tax 5.7 5.7 5.5 5.5
Ontario Health Premium 2.8 2.7 2.8 3.0
All Other Taxes 10.9 10.6 10.8 11.2
Government of Canada 16.6 19.2 23.0 20.5
Income from Government Business Enterprises 4.0 4.3 4.5 4.8
Other Non-Tax Revenue 7.5 7.6 7.6 7.4
Total Revenue 96.9 96.6 105.8 106.6
Change Due to Revised Presentation
Taxation Revenue 6.5 6.5 6.5 6.6
Personal Income Tax 1.0 0.9 1.7 2.1
Sales Tax (0.2) (0.2) (0.7) (1.0)
Corporations Tax
Education Property Tax 5.7 5.7 5.5 5.5
Ontario Health Premium
All Other Taxes
Government of Canada
Income from Government Business Enterprises
Other Non-Tax Revenue
Total Revenue Change Due to Revised Presentation 6.5 6.5 6.5 6.6
Total Expense Change Due to Revised Presentation (6.5) (6.5) (6.5) (6.6)
Net Fiscal Impact

Risks to the Revenue Outlook

Ontario’s revenue outlook is built on reasonable assumptions about the pace and strength of Ontario’s rebound from recession. This section highlights some of the key sensitivities and risks to the fiscal plan that could arise from unexpected changes in economic conditions. These estimates are only guidelines and actual results can vary depending on the composition and interaction of the various factors. The risks are those that could have the most material impact on the largest revenue sources. There is uncertainty regarding both the speed and robustness of the global economic recovery. If, for example, economic recovery in the United States were to falter, Ontario’s economy and revenues would be affected.

There is a broader range of additional risks that are not included because they are either not as material or are difficult to quantify. For example, there are risks due to the application of losses arising from the global financial crisis against future corporate income taxes. While the forecast attempts to take into account a reasonably prudent estimate of these losses, realized losses could be significantly different. Likewise, income from Government Enterprises, representing roughly four per cent of total revenues, could be affected by changes in each business’s particular market. The outlook for Government of Canada transfers is subject to those factors that affect federal funding formulas as well as future decisions by the federal government.

Table 20
Selected Economic and Revenue Risks and Sensitivities
Item/Key Components 2010–11 Assumption 2010–11 Sensitivities
Total Revenues
– Real GDP 2.7 per cent growth in 2010 $750 million revenue change for each percentage point change in real GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
GDP Deflator 1.7 per cent growth in 2010
Total Taxation Revenues
– Revenue Base1 5.6 per cent growth in 2010–11 $530 million revenue change for each percentage point change in nominal GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
– Nominal GDP 4.4 per cent growth in 2010
Personal Income Tax (PIT) Revenues
– Revenue Base 3.5 per cent growth in 2010–11  
Key Economic Assumptions
– Wages and Salaries 2.7 per cent growth in 2010 $327 million revenue change for each percentage point change in wages and salaries growth.
– Employment 1.1 per cent growth in 2010  
– Unincorporated Business Income 4.1 per cent growth in 2010 $33 million revenue change for each percentage point change in unincorporated business income growth.
Key Revenue Assumptions
– Net Capital Gains Income 29.4 per cent growth in 2010 $8 million revenue change for each percentage point change in net capital gains income growth.
– RRSP Deductions 3.3 per cent growth in 2010 $18 million revenue change in the opposite direction for each percentage point change in RRSP deductions growth.
– 2009 Tax-Year Assessments2 $23.6 billion $236 million revenue change for each percentage point change in 2009 PIT assessments.3
– 2008 Tax-Year and Prior Assessments2 $1.3 billion $13 million revenue change for each percentage point change in 2008 and prior PIT assessments.3
Sales Tax Revenues
– Revenue Base 3.0 per cent growth in 2010–11  
Key Economic Assumptions
– Nominal Consumption Expenditure 3.9 per cent growth in 2010 $175 million revenue change for each percentage point change in nominal consumption expenditure growth.
Corporations Tax Revenues
– Revenue Base 27.6 per cent growth in 2010–11  
– 2009 Tax Assessments2 $7.7 billion $77 million revenue change for each percentage point change in 2009 Tax Assessments.
– Corporate Profits 31.0 per cent growth in 2010 $51 million revenue change for each percentage point change in pre-tax corporate profit growth.4
– 2010 Canada Corporate Taxable Income $170 billion $90 million revenue change for each percentage point change in the federal estimate of 2010 Canada Corporate Taxable income, assuming Ontario's 2010 share of taxable income remains at 35.6 per cent.
– 2011 Canada Corporate Taxable Income $194 billion $21 million revenue change for each percentage point change in 2011 Canada Corporate Taxable income or Ontario share of 2011 Corporate Taxable Income.5
– Ontario Share of 2011 Corporate Taxable Income 36.2 per cent
Employer Health Tax Revenues
– Revenue Base 3.3 per cent growth in 2010–11  
– Wages and Salaries 2.7 per cent growth in 2010 $47 million revenue change for each percentage point change in wages and salaries growth.
Ontario Health Premium (OHP) Revenues
– Revenue Base 3.9 per cent growth in 2010–11  
– Personal Income 3.3 per cent growth in 2010 $27 million revenue change for each percentage point change in personal income growth.
– 2009 Tax-Year Assessments $2.6 billion $26 million revenue change for each percentage point change in 2009 OHP assessments.
Gasoline Tax Revenues
– Revenue Base No growth in 2010–11  
– Gasoline Pump Prices 104.0 cents per litre in 2010 $2 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.
Fuel Tax Revenues
– Revenue Base 0.9 per cent growth in 2010–11  
– Real GDP 2.7 per cent growth in 2010 $7 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenues
– Revenue Base 0.1 per cent growth in 2010–11  
– Housing Resales 7.9 per cent decrease in 2010–11 $11 million revenue change for each percentage point change in both the number and prices of housing resales.
– Resale Prices 1.6 per cent growth in 2010–11  
Canada Health Transfer6
– Ontario Population Share 38.7 per cent in 2010–11 $37 million revenue change for each tenth of a percentage point change in population share.
– Ontario Basic Federal Tax Share 40.5 per cent in 2010–11 $9 million revenue change in the opposite direction for each tenth of a percentage point change in Ontario's Basic Federal Tax share.
Canada Social Transfer
– Ontario Population Share 38.7 per cent in 2010–11 $11 million revenue change for each tenth of a percentage point change in population share.
  • 1 Revenue base is revenue excluding the impact of measures, adjustments for past Public Accounts estimate variances and other one-time factors.
  • 2 Ontario 2009 Personal Income Tax (PIT) and Corporate Income tax (CIT) are forecast estimates because 2009 tax returns are yet to be assessed by the Canada Revenue Agency. Some tax amounts for 2008 and prior years are also yet to be assessed in 2010, and estimates of these amounts are included in the revenue outlook.
  • 3 Any changes in the 2009 or prior-year PIT or CIT) assessments will have an effect on 2010–11 revenues through a change in the revenue base upon which that year’s growth is applied.
  • 4 Revenue impact would be realized in the current year if reflected in federal instalment payments. Otherwise, it would be recognized in future years.
  • 5 The provincial allocation of 2011 Canada Corporate Taxable Income will be based on shares from the 2009 tax returns to be assessed during 2010.
  • 6 Excludes impact on additional federal payments to Ontario to ensure it receives the same per-capita cash support as other receiving provinces.