2013 Ontario Budget
Chapter II: Ontario's Economic Outlook and Fiscal Plan

Section D: Ontario's Revenue Outlook

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

TABLE 2.12 Summary of Medium-Term Outlook
($ Billions)
Revenue Interim
2012–13
Plan
2013–14
Outlook
2014–15 2015–16
Personal Income Tax 26.1 27.6 29.0 30.6
Sales Tax 21.1 21.9 22.7 23.7
Corporations Tax 12.0 11.3 11.1 11.3
Ontario Health Premium 3.1 3.2 3.4 3.6
Education Property Tax 5.7 5.7 5.7 5.8
All Other Taxes 12.3 12.4 12.7 13.0
Total Taxation Revenue 80.3 82.0 84.6 88.0
Government of Canada 21.7 22.5 23.2 24.0
Income from Government Business Enterprises 4.5 4.5 5.0 5.4
Other Non-Tax Revenue 7.8 7.9 7.8 7.5
Total Revenue 114.2 116.8 120.5 124.9
Note: Numbers may not add due to rounding.

Revenues are projected to increase at an average annual rate of 3.0 per cent over the 2012–13 to 2015–16 period. The revenue forecast is based on the Ministry of Finance economic outlook (detailed in Section C: Ontario's Economic Outlook in this chapter).

TABLE 2.13 Personal Income Tax Revenue Outlook
($ Billions)
Revenue Interim
2012–13
Plan
2013–14
Outlook
2014–15 2015–16
Total Projected Revenue 26.1 27.6 29.0 30.6
Measures Included in Total1 0.1 0.3 0.4 0.5
Base Revenue2 26.1 27.3 28.5 30.1
Base Revenue Growth (Per Cent) 4.6 4.6 5.5
Wages and Salaries Growth (Per Cent) 2.8 3.7 4.3
1 Represents the incremental revenue impact of all tax measures, announced previously or in this Budget, relative to their impact on revenue in 2012–13. The 2012–13 figure also includes Public Accounts prior-year adjustments.
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 outlook for wages and salaries growth is the primary driver of the forecast for Personal Income Tax (PIT) revenue. Total projected PIT revenue includes previously announced tax measures such as the Deficit-Fighting High-Income Tax Bracket. After adjusting for the impact of these measures, the PIT revenue base grows at an average annual rate of 4.9 per cent over the forecast period. This compares to average annual growth of 3.6 per cent in wages and salaries over the same 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
2012–13
Plan
2013–14
Outlook
2014–15 2015–16
Total Projected Sales Tax Revenue1 21.1 21.9 22.7 23.7
Measures Included in Total2 0.3 0.4 0.4
Adjustments For Prior Years 0.2
Sales Tax Base Revenue3 20.9 21.5 22.3 23.4
Sales Tax Base Revenue Growth (Per Cent) 2.9 3.6 4.7
Nominal Household Consumption Growth (Per Cent) 2.8 4.1 4.1
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 previouslyor in this Budget, relative to their impact on revenue in 2012–13.
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 revenue, after adjustments for measures and prior-year amounts, is projected to grow based primarily on growth in consumer spending. Total projected Sales Tax revenue includes measures such as those proposed in the 2012 Budget to address the underground economy. Prior-year adjustments of $0.2 billion in 2012–13 mainly reflect variances from past Public Accounts. After accounting for measures and prior-year adjustments, the Sales Tax revenue base grows at an average annual rate of 3.7 per cent over the forecast period, consistent with average annual consumer spending growth of 3.7 per cent over the same period.

TABLE 2.15 Corporations Tax Revenue Outlook
($ Billions)
Revenue Interim
2012–13
Plan
2013–14
Outlook
2014–15 2015–16
Total Projected Revenue 12.0 11.3 11.1 11.3
Measures Included in Total1 0.1 0.1
One-Time Adjustments 0.5 –  –  – 
Other Adjustments2 1.3 0.7 0.2 0.1
Base Revenue3 10.1 10.4 10.8 11.2
Base Revenue Growth (Per Cent) 2.9 3.8 3.1
Net Operating Surplus – Corporations Growth (Per Cent) 3.3 5.0 4.0
1 Represents the incremental revenue impact of all tax measures, announced previously and in this update, relative to their impact on revenue in 2012–13.
2 Other Adjustments include net timing of payments adjustments due to the difference between projected Corporations Tax (CT) revenue entitlements and projected federal CT remittances.
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.

The forecast for Corporations Tax (CT) revenue is based largely on the projected annual growth in the net operating surplus of corporations. One-time adjustments in 2012–13 include an increase from processing of corporate tax returns for years prior to 2011. Total projected CT revenue also includes the impact of previously announced tax measures, including measures announced in the 2012 Budget to enhance corporate tax compliance. For further details, see the section entitled Revenue Integrity and the Underground Economy in Chapter IV: Tax, Pension and Financial Services. After accounting for tax measures and adjustments, the CT revenue base grows at an average annual rate of 3.2 per cent over the forecast period.

The Ontario Health Premium (OHP) is based on the outlook for employment and household income growth. Ontario Health Premium base revenues are projected to increase by an average annual rate of 4.7 per cent over the forecast period.

Education Property Tax revenue is projected to increase by an average annual rate of 0.8  per cent over the forecast period, largely due to growth in the property assessment base as a result of new construction. The forecast also reflects the ongoing impacts of measures announced in the 2012 Budget to freeze the Business Education Tax reduction plan, beginning in 2013.

Revenues from All Other Taxes are projected to increase at an average annual rate of 1.9 per cent over the forecast period. The relatively modest rate of growth in revenues from this category reflects the inclusion of volume-based taxes such as Gasoline Tax, Fuel Tax, Tobacco Tax, and Beer and Wine Tax.

The forecast for Government of Canada transfers is based on existing federal-provincial funding arrangements. Revenues are expected to grow at an average annual rate of 3.4 per cent over the forecast period, largely reflecting growth in major ongoing federal funding programs such as the Canada Health Transfer and Canada Social Transfer.

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 $1.0 billion between 2012–13 and 2015–16, or at an average annual rate of 6.7 per cent. The projected increase over the medium term is primarily due to higher projected net incomes from the Liquor Control Board of Ontario (LCBO) and the Ontario Lottery and Gaming Corporation (OLG).

The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies. Between 2012–13 and 2015–16, other non-tax revenues are projected to decrease by $0.3 billion, largely reflecting lower power-supply contract recoveries over the medium term. These recoveries are fiscally neutral, being offset by power-supply contract costs.

Key Changes in the Medium-Term Revenue Outlook Since the 2012 Budget

Revenues are projected to be higher in 2012–13 compared to the 2012 Budget outlook mainly due to one-time factors. Slower economic growth, particularly for 2012 and 2013, results in lower revenues by 2014–15.

TABLE 2.16 Summary of Medium-Term Revenue Changes Since the 2012 Budget1
($ Billions)
  2012–13 2013–14 2014–15
Impact of Change in Nominal GDP Growth (0.1) (0.8) (1.3)
Higher Tax Revenue Base 0.5 1.2 0.6
One-Time Impacts 0.9
Federal Transfers (0.1) (0.5) (0.3)
Government Business Enterprises 0.4 (0.3)
Other Revenue 0.3 0.2
Total Revenue Changes 1.7 0.2 (1.1)
1 Reflects the 2012 Budget Plan as outlined in the April 25, 2012 fiscal update.
Note: Numbers may not add due to rounding.

The outlook for nominal GDP growth is half a percentage point lower in 2012 and 1.1 percentage points lower in 2013 compared to the 2012 Budget outlook. The decline lowers taxation revenue by $0.1 billion in 2012–13 and by $1.3 billion by 2014–15.

The tax revenue base upon which growth is projected is higher, due primarily to the net impact of 2011 corporate and personal income tax return processing and revised Harmonized Sales Tax entitlement estimates.

One-time impacts, largely related to Corporations Tax (CT), increase revenues in 2012–13 mainly due to a one-time boost to CT revenues from tax assessments for years prior to 2011.

Federal transfers are projected to be lower over the medium term, largely due to lower-than-forecast Equalization payments in 2013–14 and 2014–15. The lower projected Equalization payments reflect, in part, the one-time boost to CT revenues in 2012–13 due to prior-year assessments.

Income from Government Business Enterprises (GBEs) is higher in 2012–13 due to stronger-than-projected performance from all GBEs. Hydro One and OPG now project higher combined net income than had been forecast in the 2012 Budget. While the OLG and the LCBO have had significant year-to-year growth, their net income in the near term will be lower than projected in the 2012 Budget.

The increase in other revenue is due largely to higher revenue from government 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: Ontario's Economic Outlook in 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, the outlook for Government of Canada transfers is subject to changes in economic variables that affect federal funding as well as changes by the federal government to the funding arrangements themselves.

TABLE 2.17 Selected Economic and Revenue Risks and Sensitivities
Item/Key Components 2013–14 Assumption 2013–14 Sensitivities
Total Revenues   ­
– Nominal GDP 3.0 per cent growth in 2013 $815 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.
Total Taxation Revenues
– Revenue Base1 2.9 per cent growth in 2013–14  
– Nominal GDP 3.0 per cent growth in 2013 $550 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.
Personal Income Tax (PIT) Revenues
– Revenue Base 4.6 per cent growth in 2013–14  
– Wages and Salaries 2.8 per cent growth in 2013 $322 million revenue change for each percentage point change in wages and salaries growth.
– Employment 1.2 per cent growth in 2013  
– 2012 Tax-Year Assessments2 $24.5 billion $245 million revenue change for each percentage point change in 2012 PIT assessments.2
– 2011 Tax-Year and Prior Assessments $1.3 billion $13 million revenue change for each percentage point change in 2011 and prior PIT assessments.2
Sales Tax Revenues
– Revenue Base 2.9 per cent growth in 2013–14  
– Nominal Household Consumption 2.8 per cent growth in 2013 $210 million revenue change for each percentage point change in nominal household consumption growth.
– 2011 Gross Revenue Pool3 $22.3 billion $223 million revenue change for each percentage point change in 2011 gross revenue pool.
– 2012 Gross Revenue Pool3 $23.4 billion $234 million revenue change for each percentage point change in 2012 gross revenue pool.
– 2013 Gross Revenue Pool3 $24.3 billion $243 million revenue change for each percentage point change in 2013 gross revenue pool.
Corporations Tax Revenues  
– Revenue Base 2.9 per cent growth in 2013–14  
–Net Operating Surplus – Corporations 3.3 per cent growth in 2013 $53 million change in revenue for each percentage point change in net operating surplus – corporations growth.
– 2012 Tax Assessments2 $8.0 billion $80 million change in revenue for each percentage point change in 2012 Tax Assessments.
– 2013 Canada Corporate Taxable Income $258.0 billion $112 million change in revenue for each percentage point change in the federal estimate of 2013 Canada Corporate Taxable Income.
– 2014 Canada Corporate Taxable Income $274.6 billion $29 million change in revenue for each percentage point change in 2014 Canada Corporate Taxable Income or Ontario Share of 2014 Corporate Taxable Income.4
– Ontario Share of 2014 Corporate Taxable Income 38.83 per cent
Employer Health Tax Revenues
– Revenue Base 2.6 per cent growth in 2013–14  
– Wages and Salaries 2.8 per cent growth in 2013 $53 million revenue change for each percentage point change in wages and salaries growth.
Ontario Health Premium (OHP) Revenues
– Revenue Base 4.1 per cent growth in 2013–14  
– Primary Household Income 2.8 per cent growth in 2013 $28 million revenue change for each percentage point change in primary household income growth.
– 2012 Tax-Year Assessments $2.9 billion $29 million revenue change for each percentage point change in 2012 OHP assessments.
Gasoline Tax Revenues
– Revenue Base 0.4 per cent growth in 2013–14  
– Gasoline Pump Prices 127.0 cents per litre in 2013 $3 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.
Fuel Tax Revenues
– Revenue Base 1.7 per cent growth in 2013–14  
– Real GDP 1.5 per cent growth in 2013 $11 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenues
– Revenue Base 5.3 per cent decline in 2013–14  
– Housing Resales 4.5 per cent decline in 2013 $13 million revenue change for each percentage point change in both the number and prices of housing resales.
– Resale Prices 2.0 per cent decline in 2013  
Canada Health Transfer
– Ontario Population Share 38.7 per cent in 2013–14 $35 million revenue change for each tenth of a percentage point change in Ontario's population share.
– Ontario Basic Federal Tax (BFT) Share 39.7 per cent in 2013–14 $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 2013–14 $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 2012 Personal Income Tax and Corporations Tax are estimates because 2012 tax returns are yet to be assessed by the Canada Revenue Agency.
3 The Gross Revenue Pool is a Federal Department of Finance estimate and excludes the impact of Ontario measures.
4 The provincial allocation of 2014 Canada Corporate Taxable Income will be based on shares from the 2012 tax returns to be assessed during 2013.