Ontario’s tax revenue rose in fiscal 2021 even as the coronavirus flash-freezes the provincial economy, defying not only the government’s own budget projections, but also economic conservatism.
According to final accounting for the 2020-21 fiscal year released Friday, Ontario’s revenue from both personal and corporate income taxes rose, exceeding updated budget estimates and higher than last year. The province’s tax revenue grew 2.4 percent in the last fiscal year, while Ontario’s real GDP fell 5.1 percent in calendar 2020.
The increase in revenue was more than unexpected – it shouldn’t have happened. During recessions, tax revenues have historically declined as job losses eat into personal income and falling profits reduce taxes from corporations.
But the economic contraction of 2020 was different, as the federal government (and to a lesser extent, provinces) spent hundreds of billions of dollars on support programs for individuals and companies. Trevor Tombey, assistant professor of economics at the Calgary School of Public Policy, said household income actually increased as programs like the Canada Emergency Response Benefit more than made up for lost earnings. Companies also benefited from a number of support programs, most notably the Canada Emergency Wage Subsidy.
“Since these emergency benefits are taxable, the provinces get a piece of it,” Prof. Tombe said.
Ontario’s piece is worth billions, according to final public accounts for fiscal year 2020-21 released last week. The province’s finance ministry said taxation revenue rose to $110.9 billion, an increase of $11 billion from an estimate of $99.1 billion in March 2021. $108.3 billion in tax revenue for Ontario in March, 2020 on the day of the pandemic and in 2019-20.
Corporate income taxes accounted for the largest share of that increase, rising to $17.8-billion as of March 2021, exceeding the $11.4-billion estimate, and exceeding the 2019-20 total of $15.4-billion. The pattern was similar, if less dramatic, with personal income taxes. The province does not break down taxation by region, but the profitability of the financial sector, centered in Toronto, has grown so rapidly during the pandemic that federal liberals have proposed two windfall profits taxes.
Revenue from individuals grew to $40.3 billion in fiscal year 2020-21, higher than the $35.9 billion forecast in March, and over $37.7 billion collected in 2019-20.
In an e-mail to Ontario Finance, Scott Blodgett, a spokesman for Ontario Finance, wrote that the growth in tax revenues is “a stark contrast to the experience of the previous economic downturn, when these revenues declined sharply.”
In its Public Accounts document, the provincial finance ministry drew contrasts between growth in tax revenues last year and the effects of the previous recession. For example, in 1991–92, taxation revenue declined by 5.8 percent, when real GDP declined by 3.4 percent over the 1991 calendar. It was a similar story in fiscal 2009–10, when Ontario’s taxation revenue declined by 5.8 percent following a fall in real GDP. Up to 3.1 percent in calendar 2009.
In his e-mail, Mr. Blodgett said that no forecaster had predicted such a strong growth in revenue for fiscal year 2020-21, with the federal government, other provinces, parliamentary budget officials and Ontario financial accountability in that assessment. Office included.
Smaller provinces reported declines in taxation revenue for 2020-21, although it is possible that those declines would have been more severe without Ottawa’s intervention. Ron Kneebone, professor of economics at the University of Calgary, said energy prices and policy decisions are other influences.
British Columbia also marked some gains, albeit on a smaller scale than Ontario. The province’s 2020-21 taxation revenue was slightly lower than its pre-pandemic forecast made in February 2020, but higher than the updated forecasts released in subsequent months. Pro. Kneebone said the province’s personal income tax revenue increased by 4.3 percent in fiscal year 2020-21 compared to fiscal year 2019-20.
Ontario’s finance ministry would not say whether it expects similar windfall gains in the current fiscal year. In its first-quarter financial update released last month, the government projected taxation revenue of $105.8 billion over the previous year’s forecast, but $5.1 billion lower than actual results.
The government will only say it will provide updated information in its fall economic statement, which needs to be submitted by November 15.
However, Prof. Tombe said there’s no doubting the fiscal upswing from Ottawa, as the pandemic ravages for individuals and businesses to continue for at least the first six months of the fiscal year. “Some of these effects will continue,” he said.
Tax & Spend examines the intricacies and disparities of taxation and government spending.
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