2011 Ontario Budget: Chapter II: Ontario's Economic Outlook and Fiscal Plan
Section D: Ontario's Revenue Outlook

Ontario government revenues are recovering, following the global recession. Taxation revenues are projected to surpass their 2007–08 pre-recession level in 2011–12, with growth of 5.6 per cent over the previous year.

TABLE 11. Summary of Medium-Term Outlook
($ Billions)
Revenue Interim
2010–11
Plan
2011–12
Outlook
2012–13 2013–14
Taxation Revenue 71.3 75.3 78.3 81.7
Personal Income Tax 23.8 25.5 26.9 28.5
Sales Tax 19.0 20.1 21.1 22.2
Corporations Tax 8.3 8.9 9.1 9.4
Ontario Health Premium 3.0 3.1 3.2 3.4
Education Property Tax 5.8 5.7 5.7 5.6
All Other Taxes 11.5 12.0 12.2 12.6
Government of Canada 23.0 21.7 21.8 23.1
Income from Government Business Enterprises 4.4 4.5 4.8 5.2
Other Non-Tax Revenue 7.5 6.9 6.9 7.0
Total Revenue 106.2 108.5 111.8 117.0
Note: Numbers may not add due to rounding.

The medium-term revenue forecast is based on the Ministry of Finance economic outlook (see Section C of this chapter) and reflects government policy decisions to date. Revenues are projected to increase at an annual average rate of 3.3 per cent between 2010–11 and 2013–14.

TABLE 12. Personal Income Tax Revenue Outlook
($ Billions)
  Interim
2010–11
Plan
2011–12
Outlook
  2012–13 2013–14
Total Projected Revenue 23.8 25.5 26.9 28.5
Adjustments for Prior Years (0.5)
Base Revenue1 24.2 25.5 26.9 28.5
Base Revenue Growth (Per Cent) 5.2 5.5 6.1
Wages and Salaries Growth (Per Cent) 4.3 4.7 4.8
1 "Total projected revenue" less the impact of tax measures or other one-time factors such as prior-year adjustments. Base revenue reflects the impact of underlying macroeconomic factors.
Note: Numbers may not add due to rounding.

The forecast for Personal Income Tax (PIT) revenue is consistent with the economic outlook for wages and salaries growth. The forecast reflects previously announced tax measures such as the 2009 Budget reduction of the tax rate on the first bracket from 6.05 per cent to 5.05 per cent. For PIT, previous tax measures are fully mature as of 2010–11 and have no incremental impact going forward. Adjustments for Prior Years captures the overestimation of PIT revenues in prior years’ Public Accounts. After accounting for adjustments, the PIT revenue base grows at an annual average rate of 5.6 per cent over the forecast period. This compares to average annual growth of 4.6 per cent in wages and salaries over this period. The PIT revenue base tends to grow at a faster rate than incomes due to the progressive structure of the tax system.

TABLE 13. Sales Tax Revenue Outlook
($ Billions)
  Interim
2010–11
Plan
2011–12
Outlook
2012–13 2013–14
Total Projected Sales Tax Revenue1 19.0 20.1 21.1 22.2
Measures Included in Total2 (0.4) (0.5) (0.4)
Adjustment to Pro-Rate to Full-Year Basis (0.5)
Sales Tax Base Revenue3 19.6 20.5 21.6 22.6
Sales Tax Revenue Growth (Per Cent) 4.9 5.1 4.7
Nominal Consumption Growth (Per Cent) 4.9 4.6 4.9
1 Sales Tax Revenue is reported net of both the Ontario Sales Tax Credit and the energy component of the Ontario Energy and Property Tax Credit.
2 Represents the incremental revenue impact of all tax measures, announced previously and in this update, relative to their impact on revenue in 2010–11.
3 "Total projected revenue" less the impact of tax measures or other one-time factors such as prior-year adjustments. Base revenue reflects the impact of underlying macroeconomic factors.
Note: Numbers may not add due to rounding.

Sales Tax revenues, after adjustments, are projected to grow in line with growth in consumer spending. In Tables 13 and 14, Measures Included in Total represents the incremental revenue impact of all tax measures relative to their impact on revenue in 2010–11. Measures largely reflect the impact of enhanced sales tax credits, including the energy component of the Ontario Energy and Property Tax Credit. The Adjustment to Pro-Rate to Full-Year Basis arises from the mid-year introduction of the Harmonized Sales Tax (HST).

TABLE 14. Corporations Tax Revenue Outlook
($ Billions)
  Interim
2010–11
Plan
2011–12
Outlook
2012–13 2013–14
Total Projected Revenue 8.3 8.9 9.1 9.4
Measures Included in Total1 (0.9) (1.1) (1.9)
Net Payment Timing Adjustments (0.3) 0.3
Base Revenue2 8.5 9.5 10.3 11.3
Base Revenue Growth (Per Cent) 11.7 7.9 10.3
Corporate Profit Growth (Per Cent) 12.2 9.2 5.9
1 Represents the incremental revenue impact of all tax measures, announced previously and in this update, relative to their impact on revenue in 2010–11.
2 "Total projected revenue" less the impact of tax measures or other one-time factors such as prior-year adjustments. Base revenue reflects the impact of underlying macroeconomic factors.
Note: Numbers may not add due to rounding.

Corporations Tax (CT) revenues are projected to increase over the medium term due to growth in corporate profits. The forecast incorporates the impact of previously announced measures, including tax cuts announced in the 2009 Budget and full elimination of the capital tax on July 1, 2010. Net Payment Timing Adjustments were minimal as federal repayments with respect to 2009 taxes were roughly offset by refunds that were mainly due to losses carried back to 2008 and prior years. After adjustments, CT Base Revenue Growth reflects growth in underlying corporate profits.

The Ontario Health Premium (OHP) forecast is based on the outlook for employment and personal income growth. In 2010–11, OHP revenues include a small $39 million adjustment for underestimating OHP revenue in the 2009–10 Public Accounts. After accounting for this, OHP base revenues are projected to increase by an annual average of 5.2 per cent over the forecast period, compared to 4.4 per cent growth for personal incomes.

Education Property Tax revenue decreases by an annual average rate of about 0.9 per cent over the forecast period. This is due to the continuing impact of business education tax reductions announced in the 2007 Budget and enhancements to the property tax credit announced in the 2009 Budget.

The forecast for All Other Taxes is projected to increase at an annual average rate of 3.1 per cent between 2010–11 and 2013–14. The forecast is developed on an item-by-item basis. For example, the forecast for Employer Health Tax is based on the outlook for wages and salaries growth.

The forecast for Government of Canada Transfers is based on existing federal–provincial funding arrangements. Projected revenues are expected to decline in 2011–12 due to lower HST transition payments and a decline in infrastructure funding as stimulus spending ends. Revenue related to ongoing federal funding programs such as the Canada Health Transfer and Canada Social Transfer is projected to increase in the medium term based on existing federal–provincial funding agreements and formulas.

The forecast for Income from Government Business Enterprises is based on information provided by the individual enterprises, including Ontario Lottery and Gaming Corporation (OLG), Liquor Control Board of Ontario (LCBO), Hydro One Inc. and Ontario Power Generation Inc. (OPG). Revenues from government enterprises are projected to increase by $0.8 billion, or at an annual average rate of 5.8 per cent, between 2010–11 and 2013–14. The forecast for government business enterprises includes $200 million in efficiencies by 2013–14 that the government will instruct its major agencies to deliver. See Chapter I, Section B: Managing Responsibly.

The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies.

The decrease in other non-tax revenues between 2010–11 and 2011–12 reflects one-time revenues in 2010–11 related to the sale of a portion of the Province’s General Motors shares and the Province’s share of civil settlement agreements with certain tobacco manufacturers related to the movement of contraband tobacco in the early 1990s. The year-over-year revenue decline also reflects the government’s previously announced decision to upload the municipal share of Ontario Disability Support Program costs and the full-year impact of the replacement of certain alcohol charges, including Beer and Wine Fees, with taxes beginning on July 1, 2010. Over the forecast period, these sources of revenue as a whole are expected to be relatively stable.

TABLE 15. Summary of Medium-Term Revenue Changes Since 2010 Budget
($ Billions)
  Interim
2010–11
Plan
2011–12
Plan
2012–13
2010–11 Taxation Revenue Performance 1.0 1.0 1.0
Revised Taxation Revenue Outlook 0.2 (0.5)
Past-Year Tax Return Processing — Ongoing (0.7) (0.7) (0.8)
Past-Year Tax Return Processing — One Time (0.4)
Corporations Tax Timing of Payments 0.2 (0.5)
Government of Canada Transfers (0.7) 0.2 0.7
All Other Revenue Changes 0.2 (0.1) (0.1)
Total Revenue Changes (0.7) 0.7 (0.1)
Note: Numbers may not add due to rounding.

The medium-term revenue forecast is within one per cent of the 2010 Budget outlook in each year of the forecast.

Higher 2010–11 Taxation Revenue, primarily due to stronger-than-expected economic growth, raises the base upon which growth is applied, increasing the forecast for 2011–12 and 2012–13. For more information, see Section B of this chapter.

Revisions to the Taxation Revenue Outlook, since the 2010 Budget, notably related to changes in the economic growth outlook, lower taxation revenues in 2012–13. See Section C of this chapter for changes in Ontario’s economic growth outlook.

Since the 2010 Budget, processing of past-year PIT and CT tax returns has, on a net basis, lowered the 2009–10 base upon which growth is applied for 2010–11 and onwards. In addition, there is a net one-time decrease in 2010–11 revenues as adjustments from past years are reflected in the current year.

Changes in federal payments or repayments of Corporations Tax lead to a revenue increase in 2011–12 and a decrease in 2012–13.

The change in the forecast for Government of Canada Transfers is largely due to revised timelines for capital projects funded through federal–provincial infrastructure programs and also reflects revisions to data underlying existing federal–provincial funding agreements.

All Other Revenue Changes combined increase the outlook in 2010–11 and lower the outlook in 2011–12 and 2012–13. Revenue changes in 2010–11 are discussed in Section B of this chapter. In 2011–12 and 2012–13, higher net income from government business enterprises is more than offset by lower electricity payments-in-lieu of taxes, lower other non-tax revenues, and lower power supply contract recoveries (the latter is fiscally neutral as it is fully reflected in lower power supply contract costs).

Risks to the Revenue Outlook

Ontario’s revenue outlook is based on reasonable assumptions about the pace and strength of Ontario’s recovery from the global recession. There are, however, still risks to Ontario’s continued recovery related to the robustness of the economic recovery in the United States and the rest of the world. These risks are discussed in Section C of this chapter. 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. A broader range of additional risks are not included because they are either less material or difficult to quantify. For example, Income from Government Enterprises, representing roughly four per cent of total revenues, could be affected by changes in each business’s particular market. Likewise, 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 16. Selected Economic and Revenue Risks and Sensitivities
Item/Key Components 2011–12 Assumption 2011–12 Sensitivities
Total Revenues
– Real GDP 2.4 per cent growth in 2011 $790 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 2.1 per cent growth in 2011
Total Taxation Revenues  
– Revenue Base1 5.4 per cent growth in 2011–12 $545 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 4.6 per cent growth in 2011
Personal Income Tax (PIT) Revenues 
– Revenue Base 5.2 per cent growth in 2011–12  
Key Economic Assumptions
– Wages and Salaries 4.3 per cent growth in 2011 $333 million revenue change for each percentage point change in wages and salaries growth.
– Employment 1.7 per cent growth in 2011  
– Unincorporated Business Income 5.9 per cent growth in 2011 $34 million revenue change for each percentage point change in unincorporated business income growth.
Key Revenue Assumptions
– Net Capital Gains Income 4.7 per cent growth in 2011 $6 million revenue change for each percentage point change in net capital gains income growth.
– RRSP Deductions 4.2 per cent growth in 2011 $17 million revenue change in the opposite direction for each percentage point change in RRSP deductions growth.
– 2010 Tax-Year Assessments2 $22.9 billion $229 million revenue change for each percentage point change in 2010 PIT assessments.2
– 2009 Tax-Year and Prior Assessments2 $1.2 billion $12 million revenue change for each percentage point change in 2009 and prior PIT assessments.2
Sales Tax Revenues 
– Revenue Base 4.9 per cent growth in 2011–12  
– Nominal Consumption Expenditure 4.9 per cent growth in 2011 $210 million revenue change for each percentage point change in nominal consumption expenditure growth.
– 2010 Gross Revenue Pool3 $10.9 billion $109 million revenue change for each percentage point change in 2010 gross revenue pool.
– 2011 Gross Revenue Pool4 $22.5 billion $225 million revenue change for each percentage point change in 2011 gross revenue pool.
– Provincial HST Rate 8 per cent About $3 billion of revenue for every one percentage point of the Province's HST rate.
Corporations Tax Revenues 
– 2010 Tax Assessments $7.0 billion $70 million change in revenue for each percentage point change in 2010 Tax Assessments.
– 2011 Canada Corporate Taxable Income $229.1 billion $94 million change in revenue for each percentage point change in the federal estimate of 2011 Canada Corporate Taxable Income.
– 2012 Canada Corporate Taxable Income $249.7 billion $97 million change in revenue for each percentage point change in 2012 Canada Corporate Taxable Income or each one per cent change in Ontario Share of 2012 Corporate Taxable Income.5
– Ontario Share of 2012 Corporate Taxable Income 34.24 per cent
– 2011 Ontario Corporate Profit Growth 12.2 per cent $63 million change in revenue for each percentage point change in 2011 Ontario Corporate Profit Growth.6
Employer Health Tax Revenues 
– Revenue Base 4.0 per cent growth in 2011–12  
– Wages and Salaries 4.3 per cent growth in 2011 $50 million revenue change for each percentage point change in wages and salaries growth.
Ontario Health Premium (OHP) Revenues  
– Revenue Base 5.0 per cent growth in 2011–12  
– Personal Income 4.2 per cent growth in 2011 $27 million revenue change for each percentage point change in personal income growth.
– 2010 Tax-Year Assessments $2.7 billion $27 million revenue change for each percentage point change in 2010 OHP assessments.
Gasoline Tax Revenues  
– Revenue Base 0.2 per cent growth in 2011–12  
– Gasoline Pump Prices 118.0 cents per litre in 2011 $3 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.
Fuel Tax Revenues  
– Revenue Base 1.4 per cent growth in 2011–12  
– Real GDP 2.4 per cent growth in 2011 $11 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenues  
– Revenue Base No change in 2011–12  
– Housing Resales 4.5 per cent decline in 2011 $13 million revenue change for each percentage point change in both the number and prices of housing resales.
– Resale Prices 0.5 per cent growth in 2011  
Canada Health Transfer  
– Ontario Population Share 38.7 per cent in 2011–12 $31 million revenue change for each tenth of a percentage point change in population share.
– Ontario Basic Federal Tax (BFT) Share 41.1 per cent in 2011–12 $3 million revenue change in the opposite direction for each tenth of a percentage point change in Ontario's BFT share.
Canada Social Transfer  
– Ontario Population Share 38.7 per cent in 2011–12 $12 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 2010 Personal Income Tax (PIT) is a forecast estimate because 2010 tax returns are yet to be assessed by the Canada Revenue Agency. Some tax amounts for 2009 and prior years are also yet to be assessed in 2011, and estimates of these amounts are included in the revenue outlook.
3 The 2010 gross revenue pool excludes impact of Ontario measures and reflects the HST being implemented on July 1, 2010. The revenue pool is an estimate because assessments are not complete.
4 The 2011 gross revenue pool, projected by the Federal Department of Finance, excludes impact of Ontario measures.
5 The provincial allocation of 2012 Canada Corporate Taxable Income will be based on shares from the 2010 tax returns to be assessed during 2011.
6 Revenue impacts related to changes in Ontario Corporate Profit Growth would be realized in the current year if reflected in federal instalment payments; otherwise the impact would be recognized in future years.