2012 Ontario Budget: Chapter II: Ontario's Economic Outlook and Fiscal Plan
Section D: Ontario's Revenue Outlook

Ontario government revenues are projected to grow over the forecast period, largely reflecting the outlook for Ontario economic growth.

 

TABLE 2.12 Summary of Medium-Term Outlook
($ Billions)
Revenue Interim
2011–12
Plan
2012–13
Outlook
2013–14 2014–15
Taxation Revenue 75.2 78.8 81.1 84.7
Personal Income Tax 24.2 25.8 27.2 28.7
Sales Tax 20.9 21.1 22.1 23.3
Corporations Tax 9.4 10.8 10.2 10.5
Ontario Health Premium 2.9 3.1 3.3 3.4
Education Property Tax 5.6 5.6 5.7 5.7
All Other Taxes 12.2 12.4 12.6 13.1
Government of Canada 21.4 21.8 23.0 23.5
Income from Government Business Enterprises 4.4 4.1 4.4 5.3
Other Non-Tax Revenue 8.3 7.6 7.6 7.5
Total Revenue 109.3 112.2 116.1 121.0

Starting in the 2012 Budget, revenue and expense have been restated to reflect a fiscally neutral reclassification of a number of tax expenditures as described in Section F of this chapter.
Note: Numbers may not add due to rounding.

Revenues are projected to increase at an annual average rate of 3.5 per cent over the 2011–12 to 2014–15 period. The revenue forecast is based on the Ministry of Finance economic outlook (see Section C of this chapter). The outlook reflects revenue measures that the government is proposing in order to manage the fiscal plan responsibly and achieve the targets announced in its balanced budget plan. These measures are discussed in more detail in Chapter I: Transforming Public Services and Chapter IV, Section A: Tax. These measures together are projected to increase revenue by $2.7 billion by 2014–15.

TABLE 2.13 Personal Income Tax Revenue Outlook
($ Billions)
Revenue Interim
2011–12
Plan
2012–13
Outlook
2013–14 2014–15
Total Projected Revenue 24.2 25.8 27.2 28.7
Measures Included in Total1 (0.1)
Adjustments for Prior Years (0.6)
Base Revenue2 24.8 25.8 27.2 28.8
Base Revenue Growth (Per Cent) 4.1 5.5 5.6
Wages and Salaries Growth (Per Cent) 3.2 4.2 4.5

1Represents the incremental revenue impact of all tax measures, announced previously and in this update, relative to their impact on revenue in 2011–12.
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.

The forecast for Personal Income Tax (PIT) revenue is consistent with the economic outlook for wages and salaries growth. Adjustments for Prior Years captures the overestimation of PIT revenues in prior years' Public Accounts. After accounting for the impact of these adjustments, the PIT revenue base grows at an annual average rate of 5.1 per cent over the forecast period. This compares to average annual growth of 4.0 per cent in wages and salaries over this period. Personal Income Tax revenue tends to grow at a faster rate than incomes due to the progressive structure of the tax system.

TABLE 2.14 Sales Tax Revenue Outlook
($ Billions)
Revenue Interim
2011–12
Plan
2012–13
Outlook
2013–14 2014–15
Total Projected Sales Tax Revenue1 20.9 21.1 22.1 23.3
Measures Included in Total2 0.2 0.3 0.4
Adjustments for Prior Years 0.8
Sales Tax Base Revenue3 20.1 20.9 21.9 22.9
Sales Tax Base Revenue Growth (Per Cent) 4.3 4.4 4.6
Nominal Consumption Growth (Per Cent) 3.8 4.4 4.5

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 2011–12.
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 based on growth in consumer spending. Measures reflect the impact of transition measures as well as those proposed in this Budget to address the underground economy. For further details, see Chapter IV, Section A: Tax. There is a one-time adjustment of $0.8 billion in 2011–12, mainly reflecting higher federal estimates of Ontario's entitlements for 2010 and 2011 that were received in December 2011 subsequent to the Province's 2010–11 Public Accounts.

TABLE 2.15 Corporations Tax Revenue Outlook
($ Billions)
Revenue Interim
2011–12
Plan
2012–13
Outlook
2013–14 2014–15
Total Projected Revenue 9.4 10.8 10.2 10.5
Measures Included in Total1 0.2 0.1
Net Payment Timing Adjustments (0.3) 0.6 (0.1) (0.1)
Base Revenue2 9.7 10.0 10.2 10.6
Base Revenue Growth (Per Cent) 3.2 2.3 3.4
Corporate Profit Growth (Per Cent) 4.0 4.6 4.9

1 Represents the incremental revenue impact of all tax measures, announced previously and in this update, relative to their impact on revenue in 2011–12.
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 reflects measures proposed in this Budget, such as freezing the general corporate income tax rate, enhancing corporate tax compliance and addressing the underground economy. For further details, see Chapter IV, Section A: Tax. 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 2011–12, OHP revenues include a $76 million negative adjustment for overestimating revenue in the 2010–11 Public Accounts. After accounting for this, OHP base revenues are projected to increase by an annual average of 4.8 per cent over the forecast period.

Education Property Tax revenue increases by an average annual rate of 0.7 per cent over the forecast period, largely due to projected growth in the property assessment base as a result of new construction. The forecast also reflects the measure proposed in this Budget to freeze the Business Education Tax reduction plan, beginning in 2013. For further details, see Chapter IV, Section A: Tax.

The forecast for All Other Taxes is projected to increase at an annual average rate of 2.3 per cent between 2011–12 and 2014–15. The forecast is developed on an item-by-item basis. For example, the forecast for Employer Health Tax revenue is based on the outlook for wages and salaries growth.

The increase in Government of Canada transfers over the forecast period is largely due to projected increases under existing federal–provincial funding arrangements. Growth in federal transfers is moderated by the ending of Harmonized Sales Tax (HST) transition payments after 2011–12 and the projected decline in infrastructure funding over the forecast period.

The forecast for Income from Government Business Enterprises is based on information provided by the individual enterprises. Overall revenue from government enterprises is projected to increase by $0.9 billion, or at an annual average rate of 6.3 per cent, between 2011–12 and 2014–15. The decrease in 2012–13 reflects a drop in the combined net income of Ontario Power Generation Inc. (OPG) and Hydro One Inc. (Hydro One), largely due to the impact of the Ontario Energy Board's March 2011 decision for OPG's rate application for 2011 and 2012, lower forecast market prices and a decrease in the projected regulated returns on equity for OPG and Hydro One. The projected increase in the medium term is primarily due to increases in net income of the Ontario Lottery and Gaming Corporation (OLG) and Liquor Control Board of Ontario (LCBO) as a result of planned efficiency gains and additional measures proposed in this Budget that will increase their combined net income by about $0.7 billion by 2014–15. For further details of these measures, see Chapter I: Transforming Public Services.

The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies. Between 2011–12 and 2014–15, other non-tax revenues are projected to decrease by $0.8 billion, largely reflecting one-time gains in 2011–12 including Chrysler's repayment of an Ontario loan and higher-than-usual recoveries of prior-year expenditures from government ministries. The outlook also reflects proposed Budget initiatives such as increases to vehicle validation and registration fees. For further details, see Chapter I: Transforming Public Services.

TABLE 2.16 Summary of Medium-Term Revenue Changes Since the 2011 Budget
($ Billions)
  2011–12 2012–13 2013–14
Economic Growth (0.7) (1.6) (2.7)
Past-Year Tax Return Processing — Ongoing 0.7 0.6 0.6
Past-Year Tax Return Processing — One Time (0.5)
Corporations Tax Timing of Payments 0.5
2012 Budget Revenue Initiatives 0.3 1.4
Government of Canada (0.4) (0.0) (0.1)
Electricity Sector (0.2) (0.6) (1.0)
2011–12 Non-Tax Revenue 0.9
All Other Revenue Changes 0.1 0.3 (0.0)
Total Revenue Changes (0.0) (0.4) (1.8)

Starting in the 2012 Budget, revenue and expense have been restated to reflect a fiscally neutral reclassification of a number of tax expenditures as described in Section F of this chapter. For purposes of comparison, 2011 Budget revenues were restated on the same basis.
Note: Numbers may not add due to rounding.

Revenues are very close to the 2011 Budget outlook in 2011–12. The decrease in the forecasts for 2012–13 and 2013–14 largely reflects the slower economic growth outlook.

The Economic Growth outlook has softened since the 2011 Budget. See Section C of this chapter for changes in Ontario's economic growth outlook. This has reduced the revenue outlook over the 2011–12 to 2013–14 period.

Since the 2011 Budget, processing of past-year tax returns for PIT, OHP, CT and HST has increased the 2010–11 combined base upon which growth is applied in 2011–12 and onwards. A lower 2010 tax base for PIT and OHP is more than offset by higher tax bases for CT and HST. There is also a net one-time decrease in 2011–12 revenues as adjustments for past years are reflected in the current year. These adjustments include higher CT refunds related to prior years and lower 2010 PIT, which are only partially offset by higher 2010 HST.

Changes in federal repayments of Corporations Tax lead to a revenue increase in 2012–13 compared to the 2011 Budget outlook.

Revenue initiatives proposed in this Budget result in higher revenues over the medium term. For further details, see Chapter I: Transforming Public Services and Chapter IV, Section A: Tax.

The change in Government of Canada transfers reflects:

  • the previously announced downward revision to Ontario's Equalization entitlement in 2011–12 as a result of a federal government calculation error;
  • revised entitlement projections for federal programs under existing formulas; and
  • in 2011–12, lower infrastructure revenue as a result of revised timelines for capital projects and lower transfers to consolidated government agencies.

The change in electricity sector revenues is largely a result of the impact of the Ontario Energy Board's March 2011 decision for OPG's rate application for 2011 and 2012, lower forecast market prices and a decrease in the projected regulated returns on equity for OPG and Hydro One.

Higher Non-Tax Revenue in 2011–12 reflects one-time revenues related to the previously announced gain from Chrysler's repayment of an Ontario loan and higher recoveries of prior-year expenditures from government ministries.

All Other Revenue Changes reflect a variety of changes reported by government ministries and agencies.

Risks to the Revenue Outlook

Ontario’s revenue outlook is based on reasonable assumptions about the pace of growth in Ontario’s economy. There are both positive and negative risks to the economic projections underlying the revenue forecast. Some of 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 the risk is 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 2.17 Selected Economic and Revenue Risks and Sensitivities
Item/Key Components 2012–13 Assumption 2012–13 Sensitivities
Total Revenues
– Real GDP 1.7 per cent growth in 2012 $800 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.
Total Taxation Revenues
– Revenue Base1 3.5 per cent growth in 2012–13 $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 3.4 per cent growth in 2012
Personal Income Tax (PIT) Revenues
– Revenue Base 4.1 per cent in 2012–13  
Key Economic Assumptions
– Wages and Salaries 3.2 per cent growth in 2012 $332 million revenue change for each percentage point change in wages and salaries growth.
– Employment 0.9 per cent growth in 2012  
– Unincorporated Business Income 4.2 per cent growth in 2012 $34 million revenue change for each percentage point change in unincorporated business income growth.
Key Revenue Assumptions
– Net Capital Gains Income 0.5 per cent decrease in 2012 $7 million revenue change for each percentage point change in net capital gains income growth.
– RRSP Deductions 2.9 per cent growth in 2012 $16 million revenue change in the opposite direction for each percentage point change in RRSP deductions growth.
– 2011 Tax-Year Assessments2 $23.2 billion $232 million revenue change for each percentage point change in 2011 PIT assessments.2
– 2010 Tax-Year and Prior Assessments $1.3 billion $13 million revenue change for each percentage point change in 2010 and prior PIT assessments.2
Sales Tax Revenues
– Revenue Base 4.3 per cent growth in 2012–13  
– Nominal Consumption Expenditure 3.8 per cent growth in 2012 $250 million revenue change for each percentage point change in nominal consumption expenditure growth.
– 2011 Gross Revenue Pool3 $23.1 billion $231 million revenue change for each percentage point change in 2011 gross revenue pool.
– 2012 Gross Revenue Pool3 $24.1 billion $241 million revenue change for each percentage point change in 2012 gross revenue pool.
Corporations Tax Revenues
– 2011 Tax Assessments2 $7.7 billion $77 million change in revenue for each percentage point change in 2011 Tax Assessments.
– 2012 Canada Corporate Taxable Income $245.9 billion $103 million change in revenue for each percentage point change in the federal estimate of 2012 Canada Corporate Taxable Income.
– 2013 Canada Corporate Taxable Income $262.9 billion $26 million change in revenue for each percentage point change in 2013 Canada Corporate Taxable Income or Ontario Share of 2013 Corporate Taxable Income.4
– Ontario Share of 2013 Corporate Taxable Income 37.04 per cent
– 2012 Ontario Corporate Profit Growth 4.0 per cent $53 million change in revenue for each percentage point change in 2012 Ontario Pre-Tax Corporate Profit Growth.5
Employer Health Tax Revenues
– Revenue Base 3.3 per cent growth in 2012–13  
– Wages and Salaries 3.2 per cent growth in 2012 $51 million revenue change for each percentage point change in wages and salaries growth.
Ontario Health Premium (OHP) Revenues
– Revenue Base 4.4 per cent growth in 2012–13  
– Personal Income 2.9 per cent growth in 2012 $28 million revenue change for each percentage point change in personal income growth.
– 2011 Tax-Year Assessments $2.8 billion $28 million revenue change for each percentage point change in 2011 OHP assessments.
Gasoline Tax Revenues
– Revenue Base 0.8 per cent growth in 2012–13  
– Gasoline Pump Prices 126.2 cents per litre in 2012 $3 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.
Fuel Tax Revenues
– Revenue Base 2.8 per cent growth in 2012–13  
– Real GDP 1.7 per cent growth in 2012 $10 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenues
– Revenue Base 2.7 per cent decline in 2012–13  
– Housing Resales 1.8 per cent decline in 2012 $14 million revenue change for each percentage point change in both the number and prices of housing resales.
– Resale Prices 0.6 per cent growth in 2012  
Canada Health Transfer
– Ontario Population Share 38.8 per cent in 2012–13 $33 million revenue change for each tenth of a percentage point change in Ontario's population share.
– Ontario Basic Federal Tax (BFT) Share 40.4 per cent in 2012–13 $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 38.8 per cent in 2012–13 $12 million revenue change for each tenth of a percentage point change in Ontario's 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 2011 Personal Income Tax and Corporations Tax are forecast estimates because 2011 tax returns are yet to be assessed by the Canada Revenue Agency. Some tax amounts for 2010 and prior years are also yet to be assessed in 2012, and estimates of these amounts are included in the revenue outlook.
3 The gross revenue pool is a Federal Department of Finance estimate and excludes the impact of Ontario measures.
4 The provincial allocation of 2013 Canada Corporate Taxable Income will be based on shares from the 2011 tax returns to be assessed during 2012.
5 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.