Commission on the Reform of Ontario's Public Services

Executive Summary
The government receives about $1.8 billion every year from over 400 types of user fees (e.g.,
driver’s licences). Most are set at a specific rate, but there is no regular process for reviewing
these fees so, over time, they do not reflect the rising costs of providing the related service.
Many of these have seen little change since 2003. The government could set fees to recover
all costs associated with the service provided, as recommended by the Auditor General in
2009; this would raise over $500 million per year in additional revenue. Or it could index all
user fees each year by the rate of inflation. The government should update its user fees
using a blend of full cost recovery and indexation, with the change phased in over the next
two years.
The <strong>Commission</strong> has no mandate to recommend tax increases. However, we have noted
throughout the report that revenues tend to grow more slowly than nominal GDP. As such,
our Status Quo Scenario features a decline in the tax burden, defined as the revenue-to-GDP
ratio. Allowing the overall tax burden to decline magnifies the severity of program spending
restraint required if we are to return to a balanced budget. This severity could be alleviated
somewhat if the taxes that do not keep pace with economic activity were reformed to do so.
Consistent with our mandate, we have not incorporated any such revenue increases into our
Preferred Scenario. We simply note the reforms that could prevent a decline in the overall
tax burden.
The main source of this downward bias in the tax burden is education property taxes, including
business education taxes (BETs), and a number of excise taxes that are levied on the volumes
rather than the values of the products.
Since 2000, property assessments have more than doubled, but municipal property taxes
have increased by only 70 per cent and education tax revenues, by only one per cent per
year. This is because the provincial government fully offsets the impact of reassessment
when resetting education tax rates. This reduces revenues available to support education
and requires increased transfers to school boards. The province should stop fully offsetting
reassessments so that revenues increase with inflation.
An additional concern is the wide range of BET rates across the province. Under a 2007 plan
to address these distortions and inequities, high BET rates are being reduced to a target rate
by 2014, eventually saving businesses $540 million annually. Since the plan was introduced,
high BET rates have decreased and the variance among BET rates has narrowed, but a
considerable gap remains. The province should continue to implement the BET reduction
plan while considering options to avoid revenue losses; raising low BET rates would help to
offset reductions in high BET rates. This would make the business tax system more equitable,
while providing a significant increase in revenues for education — up to just over $1 billion
by 2017–18.
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