Commission on the Reform of Ontario's Public Services

Chapter 1: The Need for Strong Fiscal Action
Inevitably, some people will balk at the severity of program spending restraint to balance the
budget by 2017–18 without any increases in tax rates; naturally, some will suggest that higher
taxes be part of the solution to Ontario’s budget problem. This is, of course, not an option for
the <strong>Commission</strong>; our mandate precludes any such recommendations or even much discussion
of the issue.
Nonetheless, we do wish to register some thoughts.
Most of the reforms we recommend should go ahead regardless of the particular spending
growth rate target. Many programs and services are not being delivered efficiently. Whether or
not the savings are needed to meet some particular spending target, there is no valid reason
not to address this question. It is just plain good sense for taxpayers to want everything to run
as efficiently as possible and for the government to ensure that this occurs. So any reprieve
that might be taken from the spending austerity we recommend should not be applied across
the board. Given the number of our recommendations, it should come as no surprise that
some would have been avoided if not for the spending limits imposed by the 2017–18 target
date for balancing the budget.
A critical sequencing is involved here. We are adamant that the government’s first priority must
be to implement a process that ensures greater efficiency in spending. Nothing that might be
done on the tax side should ever distract from this. Push the tax button too quickly and that
discipline might be lost. Ministries should be given seven-year spending targets, for example,
regardless of the degree of overall spending restraint. And again, most of our reforms should
be done just for the sake of delivering better value for taxpayers’ money.
Finally, it should be understood that it takes a lot of tax rate effort to get much relief from the
spending restraint. Suppose that instead of our recommended 0.8 per cent growth rate for
program spending, the government preferred a target of 2.0 per cent. That would raise the
level of program spending by around $10 billion in 2017–18 relative to our Preferred Scenario.
But if the budget were still to be balanced, revenues would also have to be $10 billion higher.
That amounts to almost a 10 per cent increase in every provincial source of tax and non-tax
revenue. The personal income tax rate, corporate income tax rate, HST rate, gasoline tax,
user fees and so on would all have to rise by the equivalent of 10 per cent, or the government
would have to find some combination (i.e., less of one, more of another) that produces the
same result. The most economically neutral way of doing this would be to raise the money
through a broad-based consumption tax, such as the HST. If that were the only source of
higher taxes, then to raise an extra $10 billion, the provincial portion of the HST would have to
rise from 8 per cent to 11 per cent, which would lift the whole HST from its current 13 per cent
to 16 per cent.
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