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Date Due 







THE ( 
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ION 



REPOR' 



Printed and Published by 
FRANK FOGG 
Queen's Printer 
Price $15 per set 




THE ONTARIO 
COMMITTEE ON TAXATION 

VOLUME I 

APPROACH, BACKGROUND 
AND CONCLUSIONS 




To His Honour 

The Honourable W. Earle Rowe, P.C., LL.D., D.Sc. Soc. 

Lieutenant Governor of Ontario 

May it please Your Honour 

We, the commissioners of The Ontario Committee on Taxation appointed 
under The Public Inquiries Act by Order-in-Council OC-5 57/63, dated the 26th 
day of February, 1963, to inquire into and report upon the taxation and revenue 
system of the Province of Ontario and its municipalities and school boards within 
the terms set forth in that Order-in-Council, beg to submit the accompanying 
Report. 




Chairman 




(3^C^ 



f\. Cj^/uu^ An^yj, 




August 30, 1967 
Toronto, 



ONTARIO 
EXECUTIVE COUNCIL OFFICE 

Copy of an Order-in-Council approved by His Honour the Lieutenant Governor, 
dated the 26th day of February, A.D. 1963. 

Upon the recommendation of the Honourable the Prime Minister, the Com- 
mittee of Council advise that pursuant to the provisions of The Public Inquiries Act, 
R.S.O. 1960, Chapter 323, and effective from November 21, 1962, a commission 
be issued appointing: 

Lancelot J. Smith, F.C.A., Toronto, 
Eric Hardy, Toronto, 

Dr. R. Craig Mclvor, Hamilton, 

Carl Pollock, Kitchener, and 

R. Bredin Stapells, Q.C. Toronto, 

as commissioners, designating them as The Ontario Committee on Taxation, and 
naming the said Lancelot J. Smith as chairman thereof, 

(a) to inquire into and report upon the taxation and revenue system of the 
Province of Ontario and its municipalities and school boards in relation 
to their expenditures, the tax and revenue sources available to them, their 
debts and other financial obhgations, with a view to determining whether, 
within the constitutional limitations existing and having regard to present 
and potential financial requirements, such tax and revenue system is as 
simple, clear, equitable, efficient, adequate and as conducive to the sound 
growth of the Province as can be devised, 

(b) in connection therewith, to inquire into such other matters as the com- 
missioners shall deem advisable, 

(c) to co-operate with the Royal Commission on Taxation and with any 
other bodies of inquiry appointed by other Provincial Governments, and 

(d) after due study and consideration, to make such recommendations in 
accordance with the objectives and terms set out herein as the commis- 
sioners see fit to the Prime Minister and the Executive Council of Ontario. 

The Committee further advise that pursuant to tlie said Act the said commis- 
sioners shall have the power of summoning any person and requiring him to give 
evidence on oath and to produce such documents and things as the commissioners 
deem requisite for the full investigation of the matters into which they are 
appointed to examine; 

And the Committee further advise that all Government departments, boards, 
agencies and committees shall assist, to the fullest extent, the said The Ontario 
Committee on Taxation which, in order to carry out its duties and functions, shall 
have the power and authority to engage such counsel, staff and technical advisers 
as it deems proper. 

Certified, 

J. J. Young, 

Clerk, Executive Council 

vii 



PROVINCE OF ONTARIO 

(Signed) W. Earl Rowe 

ELIZABETH THE SECOND, by the Grace of God of the United Kingdom, 

Canada and Her other Realms and Territories, 
Queen, Head of the Commonwealth, Defender 
of the Faith. 

TO Lancelot J. Smith, Esquire, of the City of Toronto; Eric Hardy, Esquire, of 
the City of Toronto; Dr. R. Craig Mclvor, of the City of Hamilton; Carl 
Pollock, Esquire, of the City of Kitchener and R. Bredin Stapells, One of 
Our Counsel learned in the Law, of the City of Toronto 

GREETING: 
WHEREAS in and by Chapter 323 of The Revised Statutes of Ontario, 1960, 
entided 'The Public Inquiries Act", it is enacted that whenever Our Lieutenant 
Governor in Council deems it expedient to cause inquiry to be made concerning 
any matter connected with or affecting the good government of Ontario or the 
conduct of any part of the public business thereof or of the administration of 
justice therein and such inquiry is not regulated by any special law, he may, by 
Commission appoint one or more persons to conduct such inquriy and may confer 
the power of summoning any person and requiring him to give evidence on oath 
and to produce such documents and things as the commissioner or commissioners 
deems requisite for the full investigation of the matters into which he or they are 
appointed to examine; 

AND WHEREAS Our Lieutenant Governor in Council of Our Province of 
Ontario deems it expedient to cause inquiry to be made concerning the matters 
hereinafter mentioned: 

NOW KNOW Ye that We, having and reposing full trust and confidence in 
you the said Lancelot J. Smith, Eric Hardy, Dr. R. Craig Mclvor, Carl PoUock 
and R. Bredin Stapells, One of Our Counsel learned in the Law DO HEREBY 
APPOINT you, effective November 21st, 1962, to be Our Commissioners, desig- 
nating you as "The Ontario Committee on Taxation", and naming you, the said 
Lancelot J. Smith to be the Chairman thereof, 

(a) to inquire into and report upon the taxation and revenue system of Our 
Province of Ontario and its municipalities and school boards in relation to 
their expenditures, the tax and revenue sources available to them, their debts 
and other financial obligations, with a view to determining whether, within the 
constitutional limitations existing and having regard to present and potential 
financial requirements, such tax and revenue system is as simple, clear, equi- 
table, efficient, adequate and as conducive to the sound growth of Our 
Province as can be devised, 

ix 



(b) in connection therewith, to inquire into such other matters as you the said 
commissioners shall deem advisable, 

(c) to co-operate with the Royal Commission on Taxation and with any other 
bodies of inquiry appointed by other Provincial Governments, and 

(d) after due study and consideration, to make such recommendations in accor- 
dance with the objectives and terms set out herein as you the said commis- 
sioners see fit to Our Prime Minister and Our Executive Council of Ontario. 

AND WE DO HEREBY CONFER on you. Our said Commissioners, the 
power to summon any person and require him to give evidence on oath and to 
produce such documents and things as you Our said Commissioners deem requisite 
for the full investigation of the matters into which you are appointed to examine. 

AND WE DO HEREBY FURTHER ORDER that aU Our departments, 
boards, commissions, agencies and committees shall assist you. Our said Commis- 
sioners, to the fullest extent, and that in order to carry out your duties and functions, 
you shall have the authority to engage such counsel, research and other staff and 
technical advisers as you deem proper. 

TO HAVE, HOLD AND ENJOY the said Office and authority of Commis- 
sioner for and during the pleasure of Our Lieutenant Governor in Council for Our 
Province of Ontario. 

IN TESTIMONY WHEREOF We have caused these Our Letters to be made 
Patent, and the Great Seal of Our Province of Ontario to be hereunto affixed. 

WITNESS: THE HONOURABLE WILLIAM EARL ROWE, 

A Member of Our Privy Council for Canada, 
Doctor of Laws, Doctor of Social Science, 

LIEUTENANT GOVERNOR OF OUR PROVINCE OF 
ONTARIO 

at Our City of Toronto in Our said Province, this second day of May in the year 
of Our Lord one thousand nine hundred and sixty-three and in the twelfth year of 

Our Reign. 

(Signed) John Yaremko 

BY COMMAND 

PROVINCIAL SECRETARY AND 

MINISTER OF CITIZENSHIP 



Preface 

Upon our appointment, we undertook the most extensive inquiry into the taxa- 
tion and revenue system of the Province of Ontario and its municipahties and 
school boards that has ever been made. Our terms of reference required us to 
examine the taxes and revenue sources available to both the Province and its local 
governments as well as their debts and other financial obligations. We were 
directed to determine whether, within existing constitutional limitations and with 
regard to not only present but potential financial requirements, the tax and revenue 
system is as simple, clear, equitable, efficient, adequate and as conducive to the 
sound growth of the Province as can be devised. We believe that this Report, 
subscribed to by all of us without dissent, fulfils the responsibility entrusted to 
us in accordance with our terms of reference. 

As is customary with a Royal Commission of Inquiry, we invited written sub- 
missions from individuals and organizations to assist us in our deliberations. We 
were gratified to receive briefs from one hundred and seven organizations^ and 
forty-six individuals,- representing almost every economic activity and walk of Ufe. 

Later we held twenty-four days of hearings at which we took the opportunity 
of exploring further the views of five individuals and the representatives of fifty-six 
organizations who had previously submitted briefs. These hearings proved helpful 
not only in identifying the problem areas but also in bringing us to the realization 
of the extreme divergences of opinion concerning the revenue system and proposals 
for its improvement. 

In addition to public hearings, we received invaluable assistance from informal 
discussions with a host of government, academic, professional and business people 
possessing special knowledge of matters of concern to us. 

We instituted a broad but selective research program in the areas of our interest. 
For convenience this work was divided into studies of the economic effects of 
various tax and revenue sources, and studies of the structure and operation of 
available forms of taxes and other means of raising revenue. While some of this 
work was done by persons on staff, by far the larger part was entrusted to outside 
specialists. Of the many studies made for the Committee by those participating in 
our research program, those listed in Appendix D were considered of sufficient 
general interest to warrant publication. We wish to make it clear that while we 
were greatly assisted by those who participated in our research program, the 
responsibility for the views and proposals contained in this Report is entirely 
our own. 

We did not commission any studies on the structure of the federal income tax 
which forms the base for Ontario's personal income tax and to which Ontario's 



'Names listed in Appendix A to this Volume. 
-Names listed in Appendix B to this Volume. 

xi 



corporation income tax conforms. The structure of income tax was the subject of 
a thorough examination by the federal Royal Commission on Taxation and we did 
not wish to duplicate its studies in view of our other responsibilities. 

We have not dealt in this Report with the conclusions and recommendations 
of the federal Royal Commission on Taxation. First, it was necessary for us to 
report on the tax and revenue system as it now is, rather than on what it would be 
in the event that the federal government implemented the recommendations of the 
federal Commission. Second, at the time that the Commission reported, our own 
Report had progressed to such a stage that to take the federal findings into con- 
sideration would have involved substantial rewriting. Finally, any worth-while 
appraisal of the implications for Ontario of the recommendations of the federal 
Commission would have unduly delayed the presentation of our Report. 

We were directed in our terms of reference to co-operate with the federal Royal 
Commission on Taxation and with any other bodies of inquiry appointed by other 
provincial governments. We are most grateful for the co-operation freely extended 
to us not only by the commissioners and staff of the federal Royal Commission on 
Taxation but also by those of the Saskatchewan, Manitoba, Quebec, New Bruns- 
wick and Nova Scotia bodies of inquiry. 

In Appendix C to this Volume we have noted the names of those who con- 
tributed to our work as members of staff and as research consultants and study 
authors. We are appreciative of the contribution made by each of them. Not to 
be found in these lists, however, are innumerable officials and staff members of 
government departments, boards, agencies and committees, at the provincial, local 
and federal levels, who gave us their utmost assistance. For their unstinted 
co-operation we express our grateful thanks. 

In acknowledging the significant contribution made by staff, we wish particularly 
to mention the loyalty and indefatigable efforts of our secretary, Hugh R. Hanson, 
and our four directors, F. Warren Hurst, F.C.A., Dr. J. Stefan Dupre, Dr. Robert 
M. Clark, and F. Gerald Townsend, C.A. Their services involved the sacrifice of 
much of their personal life for a long period. 

We are also indebted to all of the universities, government departments, pro- 
fessional firms, corporations and organizations who released members of their staffs 
to us at considerable inconvenience to themselves. We extend our appreciation in 
this regard especially to the Consumers Gas Company for Mr. Hurst, the Treasurer 
of Ontario for Mr. Hanson, The University of Toronto for Professor Dupre, The 
University of British Columbia for Professor Clark, and the firm of Thorne, 
Mulholland, Howson & McPherson for Mr. Townsend. 

Finally, we wish to express our thanks to the Honourable John P. Robarts, 
the Prime Minister of Ontario, for his patience and his understanding of the time 
needed to complete the task entrusted to us in accordance with our terms of 
reference. 



Xll 



Contents of the Report 

VOLUME I APPROACH, BACKGROUND AND CONCLUSIONS 

Chapter 1. The Committee's Philosophy of Government Finance: Taxation 
Chapter 2. The Committee's Philosophy of Government Finance: Intergovern- 
mental Fiscal Relations 
Chapter 3. The Committee's Philosophy of Government Finance: Provincial 

Fiscal Policy and Public Borrowing 
Chapter 4. The Ontario Setting: Patterns of Expenditure, Revenue and Debt 
Chapter 5. The Incidence of Government Revenue and Expenditure 
Chapter 6. A Projection of the Expenditure, Revenue and Debt of Ontario 

Governments, 1966-75 
Chapter 7. Recommendations 

Chapter 8. Fiscal Effects of the Recommendations: Prescription for Future 
Needs 

VOLUME 11 THE LOCAL REVENUE SYSTEM 

Chapter 9. Introduction to Volume II 

Chapter 10. Taxes on Property: Their History and Present Use in Ontario 

Chapter 11. Taxes on Property: Basic Issues and Policy Proposals 

Chapter 12. Taxes on Property: Exemptions 

Chapter 13. Taxes on Property: Assessment 

Chapter 14. Taxes on Property: Collections 

Chapter 15. Special Capital Levies and Developer Charges 

Chapter 16. The Poll Tax 

Chapter 17. Local Non-Tax Revenues 

Chapter 18. Local Revenue and Property Assessment Appeals 

Chapter 19. Some Possible New Sources of Municipal Revenue 

Chapter 20. School Finance 

Chapter 21. Provincial Grants to Municipalities 

Chapter 22. Municipal Debt 

Chapter 23. Reconciling Structure with Finance 

VOLUME HI THE PROVINCIAL REVENUE SYSTEM 

Chapter 24. Introduction to Volume III 

Chapter 25. Provincial Revenue Legislation: Administration and Appeals 

Chapter 26. The Personal Income Tax 

Chapter 27. The Corporations Tax 

xiii 



Chapter 28. The Taxation of Wealth: Death and Gift Taxes 

Chapter 29. The Retail Sales Tax 

Chapter 30. Motor Vehicle Revenues 

Chapter 31. Other Provincial Taxes 

Chapter 32. Revenue from Mines 

Chapter 33. Revenue from Forest Resources 

Chapter 34. Revenue from Other Natural Resources 

Chapter 35. Revenue from Alcoholic Beverages 

Chapter 36. Provincial Government Enterprises 

Chapter 37. Other Non-Tax Revenues 

Chapter 38. Financing Hospital and Medical Care 

Chapter 39. Two Alternative Sources of Provincial Revenue: A Transportation 

Tax and Lotteries 

Chapter 40. Provincial Debt Policy to 1975 



xiv 



VOLUME I APPROACH, BACKGROUND AND CONCLUSIONS 



Table of Contents 

LETTER OF TRANSMITTAL v 

ORDER-IN-COUNCIL vii 

THE ROYAL COMMISSION ix 

PREFACE xi 

CONTENTS OF THE REPORT xiii 



Chapter 1: THE COMMITTEE'S PHILOSOPHY OF GOVERNMENT 
FINANCE: TAXATION 

INTRODUCTION 1 

CONSTITUTIONAL DEMOCRACY AND TAXATION 2 

Constitutional Democracy 2 

Democracy and the Common Good 3 

Constitutionalism and Individual Rights 3 

Constitutional Democracy and Society 5 

Constitutional Democracy, Economic Policy and Taxation 6 

EQUITY IN TAXATION 8 

The Principle of Equal Treatment of Equals 8 

The Principle of Benefits Received 9 

The Principle of Ability to Pay 11 

OTHER PRINCIPLES OF TAXATION 16 

Adequacy 16 

Flexibility 16 

Elasticity 17 

Balance 17 

Neutrality 18 

Certainty 19 

Simplicity 20 

Convenience 20 

Economy of Collection and Compliance 20 

CONFLICTS OF TAX PRINCIPLES 21 

TAX PRINCIPLES AND SOCIAL POLICY 21 

XV 



Contents 

Chapter 2: THE COMMITTEE'S PHILOSOPHY OF GOVERNMENT 

FINANCE: INTERGOVERNMENTAL FISCAL RELATIONS 

INTRODUCTION 23 

OUR PHILOSOPHY OF FEDERALISM AND ITS FISCAL 

IMPLICATIONS 24 

The Nature of Federalism 24 

Our Philosophy of Federalism 24 

The Division of Expenditure Responsibilities 26 

The Division of Revenue Powers 28 

Joint Occupancy of Tax Fields 32 

The Role of Grants 34 

The Taxation of Government Entities 40 

OUR PHILOSOPHY OF PROVINCIAL-MUNICIPAL RELATIONS 

AND ITS FISCAL IMPLICATIONS 42 

The Nature of the Provincial-Municipal Relationship 42 

Our Philosophy of Provincial-Municipal Relations 43 

The Division of Expenditure Functions 45 

The Division of Revenue Sources 46 

The Role of Grants 48 

The Province and Local Government Organization 50 

The Taxation of Government Entities 52 

OUR PHILOSOPHY OF PROVINCIAL-SCHOOL BOARD 

RELATIONS AND ITS FISCAL IMPLICATIONS 53 

Principles of Provincial-School Board Relations 53 

The Division of Expenditure Responsibilities 54 

The Division of Revenue Sources 55 

The Role of Grants 56 

The Province and School Boundaries 57 

Chapter 3: THE COMMITTEE'S PHILOSOPHY OF GOVERNMENT 
FINANCE: PROVINCIAL FISCAL POLICY AND 
PUBLIC BORROWING 

CHANGING CONCEPTS OF FISCAL POLICY 59 

INSTRUMENTS OF ECONOMIC POLICY 62 

CONFLICTS AMONG ECONOMIC OBJECTIVES 63 

THE NEED FOR "DISCRETIONARY" FISCAL POLICY 65 
INCREASING IMPORTANCE OF PROVINCIAL AND MUNICIPAL 

FINANCE 66 

NEED FOR INTERGOVERNMENTAL FISCAL CO-ORDINATION 67 

xvi 



Volume 1 

FEASIBILITY OF PROVINCIAL COUNTER-CYCLICAL FISCAL 

POLICY 68 

PHILOSOPHIES OF PUBLIC BORROWING 73 

MUNICIPAL FINANCE 76 

Chapter 4: THE ONTARIO SETTING: 

PATTERNS OF EXPENDITURE, REVENUE AND DEBT 

INTRODUCTION 79 

THE POPULATION OF ONTARIO 80 

Size, Composition and Distribution 80 

Economic Activities 81 

THE CHANGING ROLE OF GOVERNMENT 84 

PATTERNS OF GOVERNMENT FINANCE 86 

Expenditure Patterns 87 

Expenditure by Function 95 

Comparison with Other Provinces 98 

Revenue Patterns 103 

Sources of Revenue 107 

Debt Patterns 115 

CONCLUSION 119 

APPENDIX TO CHAPTER 4: Tables 121 

CHARTS 

4:1 Gross and net money expenditure, Province, municipalities and school 

boards, 1939-63 88 

4:2 Indexes of expenditure: Province, municipalities and school boards, 

1939-63. 90 

4:3 Government expenditures by level of ultimate spending responsibility, 

1939-63 92 

4:4 Provincial and local net expenditure on goods and services as a 

percentage of provincial domestic product, 1939-63. 94 

4:5 Percentage analysis of net expenditure for provincial functions, fiscal 

years ending March 31, 1945-64. 96 

4:6 Percentage analysis of net and gross local expenditure by function, 

1951-63. 99 

4:7 Combined provincial and local expenditure as a percentage of gross 

domestic product in Ontario and in rest of Canada, 1945-62. 101 

4:8 Combined provincial and local net general expenditure as a percentage 

of personal income, by province, 1952 and 1962. 102 

4:9 Gross and net revenue. Province, municipalities and school boards, 

1939-63. 104 

xvii 



Contents 

4:10 Indexes of revenue: Province, municipalities and school boards, 

1939-63 105 

4:11 Percentage analysis of ordinary provincial revenue, 1939-67 109 

4:12 Percentage analysis of gross municipal revenues, 1939-63 Ill 

4:13 Percentage analysis of gross school board revenues, 1939-63. Ill 

4:14 Provincial, municipal and school board net revenues as a percentage 

of provincial domestic product, 1939-63. 113 

4:15 Provincial net capital debt and provincial domestic product Ontario, 

1943-66 117 

4:16 Municipal and school board debt, Ontario, selected years 1939-1964. 118 

TABLES 

4:1 Gross Money Expenditures of Provincial Government, Municipalities 

and School Boards, 1939-63 121 

4:2 Net Money Expenditures of Provincial Government, Municipalities 

and School Boards, 1939-63 122 

4:3 Net Money Expenditures as a Percentage of Gross Money Expendi- 
tures, Provincial Government, Municipalities and School Boards, 
1939-63 123 

4:4 Net Real Expenditures of Provincial Government, Municipalities and 

School Boards, 1939-63 124 

4:5 Net Real Per-Capita Expenditures of Provincial Government, 

Municipalities and School Boards, 1939-63. 125 

4:6 Government Expenditure by Level of Ultimate Spending Responsi- 
bility, 1939-63 126 

4:7 Provincial and Local Net Real Expenditure on Goods and Services; 

National Accounts Basis, 1939-63. 127 

4:8 Functional Classification of Net Expenditures of Provincial Govern- 
ment, 1945-64 128 

4:9 Percentage Distribution of Functional Classification of Net Expendi- 
tures of Provincial Government, 1945-64. 128 

4:10 Functional Classification of Net General Expenditures of Local 

Governments, 1951-63. 129 

4: 1 1 Percentage Distribution of Functional Classification of Net General 

Expenditures of Local Governments, 1951-63. 129 

4:12 Functional Classification of Gross General Expenditures of Local 

Governments, 1952-63. 130 

4:13 Percentage Distribution of Functional Classification of Gross General 

Expenditures of Local Governments, 1952-63. 130 

4:14 Combined Provincial and Local Net General Expenditure and Pro- 
vincial Domestic Product, Ontario and Rest of Canada, 1945-62. 131 

4: 15 Combined Provincial and Local Net General Expenditure and Personal 

Income, by Province, 1952 and 1962 131 

xviii 



Volume 1 

4:16 Combined Provincial and Local Net General Expenditure Per Capita, 

by Province, 1952 and 1962 132 

4:17 Principal Revenues of Provincial Government, 1939-67. 133 

4:18 Percentage Distribution of Principal Revenues of Provincial Govern- 
ment, 1939-67. 134 

4:19 Provincial Government Receipts from the Government of Canada for 

Shared-cost Programs and Grants-in-aid, 1 939-64 135 

4:20 Gross Money Revenues of Provincial Government, Municipalities 

and School Boards, 1939-64. 135 

4:21 Net Money Revenues of Provincial Government, Municipalities and 

School Boards, 1939-64 136 

4:22 Net Real Revenues of Provincial Government, Municipalities and 

School Boards, 1939-64 136 

4:23 Net Real Per-Capita Revenues of Provincial Government, Munici- 
palities and School Boards, 1939-64 137 

4:24 Current Revenues of Municipalities, 1939-63 137 

4:25 Current Revenues of School Boards, 1939-63 138 

4:26 Provincial, Municipal and School Board Net Real Revenues as a 

Percentage of Real Provincial Domestic Product, 1939-63. 138 

4:27 Net Capital Debt of Provincial Government and Provincial Domestic 

Product, 1943-66 139 

4:28 Municipal and School Board Debt Selected Years, 1939-1964 140 



Chapter 5: THE INCIDENCE OF GOVERNMENT 
REVENUE AND EXPENDITURE 

INTRODUCTION 141 

THE BASIS OF ESTIMATING INCIDENCE 144 

The Method of Estimating the Incidence of Government Expenditures . 149 

BURDENS AND BENEFITS, BY MONEY-INCOME CLASSES 151 

EFFECTIVE RATES OF INCIDENCE 154 

Adjusted Broad Income 154 

Effective Tax Rates 154 

Effective Benefit Rates 158 

The Concept of Net Fiscal Incidence 161 

The Pattern of Net Fiscal Incidence Among Ontario Residents 163 

GENERAL CONCLUSIONS 165 

APPENDIX TO CHAPTER 5 167 

xix 



Contents 

Assumptions Regarding the Shifting and Incidence of Major Revenue 

Sources 1 67 

Assumptions Regarding the Allocation of Benefits from Major Expendi- 
ture Programs 1 69 

CHARTS 

5:1 Effective tax (burden) rates of provincial and municipal governments 

in Ontario, 1961 156 

5:2 Effective expenditure (benefit) rates of provincial and municipal 

governments in Ontario, 1961 159 

5:3 Net fiscal incidence rates, 1961. 164 

TABLES 

5:1 Governmental Revenues by Source, 1961 145 

5:2 Distribution of Tax Burdens, by Family Money-Income Classes, 1961 146 

5:3 Allocation of Governmental Expenditures, 1961 151 

5:4 Distribution of Government Expenditures by Family Money-Income 

Classes, 1961 152 

5:5 Derivation and Distribution of Adjusted Broad Income, 1961 155 

5:6 Effective Revenue Rates for Selected Governments of Canada, 1961 157 

5:7 Effective Expenditure Rates for Selected Governments in Canada, 1961 160 
5:8 "Net Fiscal Incidence" of the Revenue and Expenditure Programs of 

Selected Governments in Canada, 1961 163 

Chapter 6: A PROJECTION OF THE EXPENDITURE, REVENUE AND 
DEBT OF ONTARIO GOVERNMENTS, 1966-75 

INTRODUCTION 171 

BASIC ASSUMPTIONS OF THE PROJECTION 172 

PROJECTION OF POPULATION, LABOUR FORCE, EMPLOYMENT, 

AND PROVINCIAL DOMESTIC PRODUCT 173 

Population 174 

Labour Force 174 

Provincial Domestic Product 175 

PROJECTION OF MUNICIPAL AND SCHOOL BOARD REVENUE, 

EXPENDITURE AND DEBT 177 

Municipal Revenues 177 

School Board Expenditure 179 

Municipal Expenditure 180 

Grants to Local Governments from the Province 181 

Budgetary and Debt Position 183 

PROJECTIONS OF PROVINCIAL REVENUE 185 

Share of Federal Estate Tax 185 

XX 



Volume 1 

Gasoline Tax 185 

Motor Vehicle Licences and Permits 186 

Personal Income Tax 186 

Other Current Revenue 187 

PROJECTIONS OF PROVINCIAL EXPENDITURE 187 

Education 1 87 

Highways and Roads 197 

Health 198 

Construction of Public Buildings 200 

Other Capital Expenditure 200 

. Other Current Expenditure 200 

Grants to Municipalities and School Boards 200 

PROJECTION OF PROVINCIAL BUDGETARY AND DEBT POSITION 201 

Combined Provincial and Local Budgetary and Debt Position 203 

CONCLUSION 204 

APPENDIX TO CHAPTER 6 206 

Detailed Projections 206 

Note Concerning the Method Used in Projecting Personal Income 

Tax Revenue 216 

Note on Projection as of Spring 1967 217 

TABLES 

6:1 Projected Growth of Population, Labour Force, Employment, and 

Provincial Domestic Product for Ontario 174 

6:2 Municipal Revenues 177 

6:3 Expenditure by Elementary and Secondary School Boards 179 

6:4 Municipal Current and Capital Expenditure 180 

6:5 Local Government Grants Received from the Province 182 

6:6 Budgetary and Debt Position of Local Governments 183 
6:7 Revenues of the Government of Ontario — Fiscal Years ending 

March 31 186 

6:8 Distribution of Post-Secondary Students in Ontario 190 

6:9 Costs to the Government of Ontario of Post-Secondary Education 194 

6:10 Government of Ontario Expenditures on Highways and Roads 197 
6:11 Government of Ontario Expenditures on Hospitals and Health — Major 

Items 199 

6:12 Budgetary and Debt Position of the Government of Ontario 201 
6:13 Combined Provincial and Local Government Budgetary and Debt 

Position 203 
6:14 Projected Growth of Population, Labour Force, Employment, and 

Provincial Domestic Product for Ontario, 1963-74 206 

6:15 Municipal Current Revenues, 1963-74 207 

xxi 



Contents 

6:16 Expenditure by Elementary and Secondary School Boards, 1963-74 207 

6:17 Municipal Current and Capital Expenditure, 1963-74 208 

6:18 Local Government Grants Received from the Province, 1963-74 208 

6:19 Budgetary and Debt Position of Local Governments, 1963-74 209 

6:20 Net Ordinary Revenues of the Government of Ontario, 1964-75 210 

6:21 Distribution of Post-Secondary Students in Ontario, 1965-74 210 

6:22 Costs to the Government of Ontario of Post-Secondary Education, 

1964-75 211 

6:23 Government of Ontario Expenditures on Highways and Roads, 

1964-75 212 

6:24 Government of Ontario Expenditures on Hospitals and Health — Major 

Items, 1964-75 212 

6:25 Other Government of Ontario Expenditures, 1964-75 213 

6:26 Budgetary and Debt Position of the Government of Ontario, 1964-75 214 
6:27 Combined Provincial and Local Government Budgetary and Debt 

Position, 1963-74 215 

Chapter 7: RECOMMENDATIONS 

INTRODUCTION 219 

FISCAL EFFECTS OF THE RECOMMENDATIONS: PRESCRIPTION 

FOR FUTURE NEEDS 219 

INTRODUCTION TO VOLUME II 220 

TAXES ON PROPERTY: BASIC ISSUES AND POLICY PROPOSALS 220 

TAXES ON PROPERTY: EXEMPTIONS 223 

TAXES ON PROPERTY: ASSESSMENT 227 

TAXES ON PROPERTY: COLLECTIONS 228 

SPECIAL CAPITAL LEVIES AND DEVELOPER CHARGES 229 

THE POLL TAX 230 

LOCAL NON-TAX REVENUES 230 

LOCAL REVENUE AND PROPERTY ASSESSMENT APPEALS 231 

SCHOOL FINANCE 232 

PROVINCIAL GRANTS TO MUNICIPALITIES 233 

MUNICIPAL DEBT 236 

RECONCILING STRUCTURE WITH FINANCE 238 

INTRODUCTION TO VOLUME III 238 

PROVINCIAL REVENUE LEGISLATION: ADMINISTRATION AND 

APPEALS 238 

xxii 



Volume 1 

THE PERSONAL INCOME TAX 240 

THE CORPORATIONS TAX 242 

THE TAXATION OF WEALTH: DEATH AND GIFT TAXES 243 

THE RETAIL SALES TAX 251 

MOTOR VEHICLE REVENUES 252 

OTHER PROVINCIAL TAXES 253 

REVENUE FROM MINES 254 

REVENUE FROM FOREST RESOURCES 257 

REVENUE FROM OTHER NATURAL RESOURCES 257 

REVENUE FROM ALCOHOLIC BEVERAGES 257 

PROVINCIAL GOVERNMENT ENTERPRISES 259 

OTHER NON-TAX REVENUES 259 

FINANCING HOSPITAL AND MEDICAL CARE 259 

PROVINCIAL DEBT POLICY TO 1975 260 

Chapter 8: FISCAL EFFECTS OF THE RECOMMENDATIONS: 
PRESCRIPTION FOR FUTURE NEEDS 

INTRODUCTION 261 

THE FISCAL SCENE IN 1966-67 262 

THE FISCAL SCENE: 1968-75 272 

THE FISCAL SCENE: CONCLUDING COMMENTS 280 

TABLES 

8:1 The Fiscal Effect on Local Governments, had Recommendations made 

in Volumes II and III been effective in 1966 263 

8:2 The Fiscal Effect on the Provincial Government, had Recommenda- 
tions made in Volumes II and III been effective in 1966-67 265 

8:3 The Fiscal Effect on the Provincial Government for 1966-67, Assuming 
changes recommended in Volumes II and III, increased Provincial 
School Grants, and Tax Rate Changes necessary to maintain a Reason- 
able Ratio of Debt to Provincial Domestic Product 267 

8:4 The Fiscal Effect on Local Government for 1966, Assuming changes 
recommended in Volumes II and III, and increased Provincial School 
Grants 271 

8:5 Projected Provincial Deficit after Recommendations, including Pro- 
vision for Higher School Grants, but before Tax Rate changes, in 
Selected Fiscal Years 1968-75 274 

8:6 Tax Rate Changes Required to Cope with Deficits Projected in 

Table 8:5 275 

xxiii 



Contents 

8:7 Rates of Tax that would be in effect after Rate changes compared to 

actual rates as of January 1, 1967 276 

8:8 Projected Provincial Deficit before and after Tax Rate changes, and 

resulting net capital debt position 279 

8:9 Local Expenditure, Revenue and Debt Position, Assuming Implemen- 
tation of the Recommendations 279 

8:10 Effective Levy on Local Property Taxpayers, Assuming Implementa- 
tion of the Recommendations as a Percentage of Projected Tax 280 

APPENDIX A: Organizations from Which Submissions Were Received 284 

APPENDIX B: Individuals from Whom Submissions Were Received 287 

APPENDIX C: Staff and Consultants 289 

APPENDIX D: Studies to be Published by the Committee 292 

INDEX 293 



XXIV 



Chapter 
1 



The Committee's Philosophy 
of Government Finance: 
Taxation 



INTRODUCTION 

1. This Report contains the results of an inquiry in which we, as commis- 
sioners, have attempted to fulfil our mandate to examine the taxation and revenue 
system of the Province of Ontario, its municipalities and school boards. Specifically, 
our instructions were to carry out this investigation with particular regard to 
whether "the tax and revenue system is as simple, clear, equitable, efficient, 
adequate and as conducive to the sound growth of the Province as can be devised". 
That our undertaking was not an easy one is already evident from the length of 
time — more than four years — which the preparation of this P.eport has consumed. 
The many chapters that follow, occasionally technical and frequently long but 
always, we trust, pertinent, now confront the reader with his own demanding task: 
that of appraising the significance of our work. 

2. We hope that this task will be eased somewhat if we begin the Report 
with a discussion of the basic philosophy on which we have reached agreement 
concerning the role of government in society, including the financing of its 
activities. We recognize that the personal philosophies that commissioners may 

1 



Philosophy of Taxation 

hold will necessarily influence the substance of their recommendations designed 
to improve the performance of a tax system. Granted that the logical analysis 
of facts is an indispensable prerequisite to sound conclusions, it remains true 
that different underlying philosophies may lead, from the same set of facts, to 
rather different conclusions about what constitutes an optimum tax structure. To 
put the matter somewhat differently, the soundness of a tax system must be judged 
not only in the light of its technical performance but also in relation to the 
particular priorities that one attaches to its various objectives, not all of which may 
be mutually compatible. For these reasons, we have tried throughout this Report 
to relate each of our recommendations to the underlying philosophical principles 
we arrived at in the course of our public hearings, studies and discussions. In the 
interest of convenience and manageable organization, the present chapter deals 
primarily with our basic position on taxation, in particular with respect to revenue 
which is raised and spent by the same level of government. The second chapter 
will develop our underlying premises with regard to intergovernmental relations, 
critically important because federal, provincial and local influences are all at 
work in Ontario; and the third the philosophical consensus we have reached on 
fiscal policy and public debt. 

CONSTITUTIONAL DEMOCRACY AND TAXATION 
CONSTITUTIONAL DEMOCRACY 

3. The reconciliation of governmental power with individual rights is a prob- 
lem as old as human society itself. Centuries of evolution, and sometimes 
revolution, have yielded in much of the western world a mode of governmental 
organization that is indeUbly stamped by the quest for such a reconciliation. This 
mode of government is commonly called constitutional democracy. Constitutional 
democracy can assume different forms in different countries, but its most classic 
types are the parliamentary form as practised in the United Kingdom and Canada, 
and the presidential-congressional of which the United States is the progenitor 
and leading example. 

4. Whatever particular forms developed to suit their peculiar circumstances, 
all constitutional democracies share two basic elements. The first, the "demo- 
cratic" element, attempts to ensure government that is at once responsive and 
responsible. This it does by providing for periodic competitive elections on the 
basis of something approaching universal adult suffrage and for constant ready 
access to governing representatives on the part of the governed, whether as indi- 
viduals or as groups. The second, the "constitutional" element, consists of built-in 
practices designed to restrain abuses of government power. The rule of law, the 
independence of the judiciary, and legislative oversight of the executive are the 
best known of these restraining devices. At this point, we think it appropriate 
to develop two philosophical positions to which we wholeheartedly subscribe. 
The first concerns democracy, the second constitutionalism. 



Chapter 1: Paragraphs 3-7 

DEMOCRACY AND THE COMMON GOOD 

5. It is a long-held axiom that government exists for the promotion of some- 
thing that is variously called the "common good", the "public interest", the "general 
welfare"; namely, the well-being, material and otherwise, of its citizens. Demo- 
cratic governments seek out the "common good" through a variety of processes, 
the best-known of which are majority vote, the reconciliation of competing group 
claims, and the quest for consensus through deliberation. However, it is a dan- 
gerous and not uncommon fallacy to equate the "common good" with the process 
through which it is reached. We believe that the "common good" evokes some- 
thing more than majority rule, the outcome of group conflict or the politics of 
consensus. This is because one set of policies is not just as good as any other, 
even though it may be the temporary outcome of the democratic process. Ration- 
ality, in the raising and spending of public funds as in other areas, requires 
the making of difficult choices in the light of the expected consequences of alterna- 
tive courses of action. It is always distinctly possible that a given choice made 
by consensus or majority rule will be based on misapprehension or unawareness of 
the underlying facts and hence will be irrational. Alternatively, it may be that 
through inertia, a particular minority is allowed to dictate a policy or another 
minority is placed at such a disadvantage that the basic rights of its members have 
been prejudiced. 

6. The achievement of the common good, then, depends on more than the 
existence of democratic processes through which policies are devised. It will 
require from each individual a genuine concern for the needs of others and a 
consequent refusal to use others simply as a means of promoting his private or 
pubUc objectives, however laudable these may be made to appear. It will depend, 
too, on the continuous use of the individual's powers in the maintenance and 
enlargement of freedom in human relationships. Finally, the common good will 
always require the orientation of public policy to the general well-being of society 
rather than to particular interests. When, for example, it is proposed that selective 
tax concessions be granted to particular sectors of the economy, the proponents 
will clearly bear the onus for proving that such a policy will best further the 
public interest. Because the furthering of the common good does represent the 
fundamental task of democratic government, government's use of the tax system 
must always be judged in relation to that end. 

CONSTITUTIONALISM AND INDIVIDUAL RIGHTS 

7. If the basic purpose of democratic government is the pursuit of the com- 
mon good, constitutionalism exists to safeguard individual rights in the face of 
any aberrations or deviations that will necessarily arise from time to time as 
falUble governments press on in their quest for the public welfare. While there 
is considerable disagreement over the source of individual rights — whether from 
divine intent, human reason or sociological conditions — there exists remarkable 
consensus as to their content. We wish to comment briefly on three widely 
recognized individual rights, not because we necessarily prize them more highly 



Philosophy of Taxation 

than others, but because they are particularly relevant to the field of taxation. 
The first is the right to equal treatment before the law, the second is the right of 
the individual to earn, own and dispose of private property, and the third is the 
right of the individual to a minimum level of economic and social well-being — 
all essential to achieve both the free exercise of constitutional rights and the 
equitable distribution of the fruits of economic growth. 

8. Each of these rights imposes corresponding duties and obligations on the 
individual. With the right to equal treatment before the law goes the obligation 
to uphold and respect the law. The right to property carries with it the duty to 
earn, own and dispose of property with due concern for the welfare of society 
and the rights of others. And with the right of the individual to a minimum 
standard of economic and social well-being goes the obligation to make every 
reasonable effort to provide adequately for his needs. 

9. The right to equal treatment before the law is one of the principal reasons 
for constitutionalism. Restraints against arbitrary and capricious legislation, the 
independence of the judiciary, legislative checks on executive power, all are 
designed to secure for the individual this basic right. Tax laws, no less than other 
kinds of legislation, must be tailored and applied with strict adherence to the 
letter and spirit of this right. However, both because taxation so intimately affects 
every individual and because it is heavily dependent on administrative processes, 
the achievement of strict equity in this field poses an unusually severe challenge. 
Our concern for the equal treatment of equals in matters of taxation is such that 
it pervades this entire Report. We consider equity in tax law and tax administration 
a prime test both of a sound revenue system and, more important, of truly 
functional constitutionalism. 

10. If the capacity of constitutionalism to guarantee equaUty before the law 
is exceedingly important in matters of taxation, so too is its ability to sustain and 
protect the individual's right to private property, a bulwark of human freedom 
and one of the basic ethical postulates of the competitive market economy. Taxa- 
tion, which by definition is a compulsory contribution to the support of govern- 
ment, directly affects property rights. Property, of course, is generally recognized 
as an individual right that is strongly conditioned by the existence of a social 
order. Hence taxation is not a negation of the right to property and indeed, 
because it finances the maintenance of the social order, complements rather than 
contradicts this right. However, because it is a self-evident proposition that 
arbitrary and inequitable taxation will impinge on the individual's right to property, 
equity in taxation is a desideratum based no less on his right to property than on 
his standing before the law. 

1 1 . The right of the individual to a minimum level of economic and social 
well-being is derived not only from humane considerations, but from his right to 
property and ultimately to liberty. Freedom without bread is an illusion. However, 
this right has imposed on constitutional government new responsibilities that 
differ markedly from those necessary to preserve private property and maintain 



Chapter 1: Paragraphs 8-13 

equal treatment before the law. The latter age-old rights emphasize the limits 
within which government must operate. But the right to a minimum level of 
economic and social well-being, to be effective, requires direct action by govern- 
ment. The proper scope of such action by no means commands general under- 
standing or agreement, although it is clear that measures which are unduly adverse 
to economic growth must be avoided. Government, therefore, should direct its 
economic policies primarily to promoting an environment in which the full poten- 
tial of the economy will be realized. This involves ensuring opportunities for the 
full and productive employment of a continuously expanding labour force. As an 
important adjunct, government must also develop social welfare programs for 
those who are prevented by circumstances beyond their own control from pro- 
viding adequately for their own needs. As we show subsequently in our analysis 
of the burden of public expenditures and revenues, the present pattern of govern- 
ment finance in Ontario has produced, through a combination of social expen- 
ditures and progressive taxation, a significant redistribution of income. Such a 
process of redistribution is, of course, not an end in itself but is deemed to 
contribute to both equity and economic efficiency. It reflects a widespread beUef 
that a less uneven distribution of income than that produced initially by the 
market mechanism is a legitimate aspect of economic policy. 

CONSTITUTIONAL DEMOCRACY AND SOCIETY 

12. Constitutional democracy enables individuals to seek out collectively their 
common good through a government that is under regular and recognized restraints. 
While we have no doubts about the superiority of constitutional democracy as a 
mode of government, we also believe that governments, however constitutional and 
democratic, should not have an unlimited sphere of activity. Surely the permissible 
scope of government does not extend to all aspects of social organization. The 
market economy, with its private incentives and with the opportunities it extends to 
all to exercise responsibiUty in the use of property, is essential for the most efficient 
production and distribution of goods and services. Business firms, labour unions, 
private associations, local governments, all are vital components of efficiency and 
freedom. 

13. A governmental sphere that extended to every aspect of human life would 
be no less a monolith by virtue of its constitutionalism and democracy. As John 
Stuart Mill noted over a century ago in his celebrated essay "On Liberty": 

The . . . most cogent reason for restricting the interference of government is the 
great evil of adding unnecessarily to its power. Every function superadded to 
those already exercised by the government causes its influence over hopes and 
fears to be more widely diffused, and converts, more and more, the active and 
ambitious part of the public into hangers-on of the government, or of some party 
which aims at becoming the government. If the roads, the railways, the banks, 
the insurance offices, the great joint-stock companies, the universities, and the 
public charities, were all of them branches of the government; if, in addition, 
the municipal corporations and local boards . . . became departments of the 
central administration; if the employes of all these different enterprises were 
appointed and paid by the government and looked to the government for every 



Philosophy of Taxation 

rise in life; not all the freedom of the press and popular constitution of the 
legislature would make this or any other country free otherwise than in name.^ 

14. The key phrase in the above quotation is that which refers to the evil of 
"adding unnecessarily" to the power of government. In the economic development 
of their country, Canadians have fortunately at all times adopted a pragmatic 
approach to the role of government in economic affairs, a role that since earliest 
times has been substantial. Whether as the guarantor of the institutional framework 
within which private enterprise must operate, or in initiating public policies designed 
to influence strongly the prevailing economic climate, or in directly producing 
goods and services for its citizens, or in exercising its responsibility for regulating 
the use of private property in the public interest, government must continue to 
exercise a pervasive influence if the country's economic objectives are to be attained. 
But however beneficent the role of government, it is surely dangerous to suppose 
that there exist no limits on its encroachments. Excessive concentrations of power 
are no less to be feared when they involve big government than they are when they 
involve big business, big labour or big agriculture. 

15. At this point we beheve it important to single out a substantial advantage 
that accrues to this country from its multi-level governmental structure — federal, 
provincial and local. We regard the existence of a plurality of governmental levels, 
each with its own sphere of responsibility, as conferring singularly effective safe- 
guards against the abuse of power. A rational distribution of revenue sources and 
expenditure functions among several levels of government, each strong and viable, 
is one of the surest antidotes to monolithic public power. The basic principles that 
should underlie such a distribution form the substance of the next chapter. 



CONSTITUTIONAL DEMOCRACY, ECONOMIC POLICY AND TAXATION 

16. To say that there are limits to the appropriate scope of government is not 
to deny that government must play a critically important role in society, more par- 
ticularly in economic life. Such a denial would surely fly in the face of reality. 
Indeed, there are at least five major economic objectives that are so generally 
recognized as falling within the purview of government that an enumeration is 
almost superfluous. These objectives can be summarized as: 

( 1 ) a high and stable level of employment, which is not only essential to the 
most efficient use of available productive resources but is a basic founda- 
tion of human welfare and dignity; 

(2) reasonable stability of the general price level, a fundamental condition 
for economic efficiency and highly important to the achievement of 
equity and to the protection of savings; 

(3) economic growth, defined as a rising per-capita annual production of 
goods and services, a process vital to continuing improvement in the 



^John Stuart Mill, "On Liberty", Utilitarianism, Liberty and Representative Government, 
London: Everyman's Library, 1910, p. 165. 



Chapter 1: Paragraphs 14-19 

standard of living — improvement that makes possible wider choices over 
the entire range of public and private goods and services; 

(4) an equitable distribution of income, necessary not only to provide incen- 
tives and to ensure the basic right of all individuals to a minimum level 
of economic and social well-being, but also to prevent undue concen- 
trations of private economic power and to lessen the severity of cyclical 
swings in the level of economic activity; 

(5) the promotion and regulation of competition, with a view to furthering 
the healthiest possible market economy. 

17. These objectives are the legitimate concern of government because it has 
become clear that the market mechanism, unaided, cannot be relied upon to achieve 
them in satisfactory measure. In particular, the private market economy by itself 
is clearly incapable of assuring stability in employment and price levels and of 
achieving an optimal and balanced rate of growth. Nor does the market economy 
of itself guarantee an equitable distribution of goods and services. Some services, 
such as education, highways, police and fire protection, confer such general social 
benefits that they must be provided collectively; others, such as welfare programs, 
are necessitated both by humane considerations and by the need to maintain a high 
and stable level of aggregate consumption. Finally, the susceptibility of the private 
economy to monopolistic influences, whether in industry, labour, agriculture or 
elsewhere, means that its effective functioning must be the constant concern of 
government. 

18. In the light of what are necessary objectives of economic policy in all 
constitutional democracies, the tax system takes on a particular degree of impor- 
tance. Taxation is, of course, necessary as the means of financing all but those 
very few government services — electricity, for example — that can be priced like 
any private good and charged directly to the user. But in addition taxation, 
because it influences the distribution of income, the level of demand for goods and 
services, and the allocation of resources between public and private uses, can be 
an invaluable component of policies designed to secure full employment, price 
stability and balanced growth. The potential economic effects of the tax system 
therefore make its functioning a matter of special concern. 

19. Taxation, to be sure, is but one tool that governments utilize in their quest 
to meet the economic objectives of society. Public expenditures, debt management, 
monetary policy and regulatory legislation are other tools that, along with 
taxation, are directed to the attainment of optimal economic policies. The problem 
of integrating these various tools forms the subject of a later chapter. In the 
context of the present discussion, however, we wish to suggest that the objectives of 
taxation may be described either in the immediate sense — that of raising the 
revenues necessary for discharging the responsibilities assumed by or allocated to 
a particular level of government — or in the ultimate sense — that of furthering the 
basic economic objectives of the community. It is in the light of these ultimate 
objectives that the performance of the tax system must in the end be assessed. 



Philosophy of Taxation 

20. Whether in terms of its immediate or its ultimate objectives, a sound tax 
system should possess certain important characteristics. The process of identifying 
and developing these characteristics is the task of the remaining sections of this 
chapter. But there is one characteristic in particular that in our view rises above 
all the rest, both because a majority of the remaining characteristics flow from it 
and because it goes to the core of constitutional democracy. This characteristic 
is equity. 

EQUITY IN TAXATION 

THE PRINCIPLE OF EQUAL TREATMENT OF EQUALS 

21. The basic rule of equity in taxation is the principle of equal treatment of 
equals. This principle is basic because it is derived from the equality of individuals 
before the law, which we have already referred to as a fundamental right of man. 
Furthermore it is applicable to all types of taxation since all taxes are ultimately 
paid by the individual. To be sure, a substantial proportion of taxes are paid in 
the first instance not by individuals but by incorporated enterprises which have a 
legal identity apart from their owners. In the long run, however, corporations 
are simply intermediaries for collecting revenues from individuals, whether as 
consumers, owners or employees. In exceptional circumstances, a tax may be 
shifted in its entirety to the consumers of a firm's product, or to the owners of the 
enterprise, or to the suppUers of labour and other resources employed by the 
business. More commonly, the tax burden will be shared among these interests, 
the proportion of sharing being related to market conditions and to the period of 
time within which shifting takes place. Whatever the case, the upshot is that since 
all taxes are ultimately paid by individuals, the principle of equal treatment of 
equals is always a relevant consideration and its application should look beyond 
the entity on which any tax is first imposed to the individuals on whom the burden 
of tax finally rests. 

22. In an imperfect world, it is quite obvious that the principle of equal 
treatment of equals can never be realized fully. Even if one could assume general 
agreement as to what constituted the total fulfilment of this principle, other objec- 
tives might conflict with equity, objectives whose achievement was deemed by 
society to warrant marginal sacrifices in equity. Then too, our limited knowledge 
of tax shifting means that we cannot pretend to know precisely the incidence or 
ultimate impact of many taxes. To recognize these impediments is in no way to 
deprecate equity but is simply to face up to the practical difficulties that beset its 
achievement. Such recognition also points to at least one significant conclusion, 
namely that over-reliance on taxes whose ultimate burden is difficult to trace 
is highly questionable from the standpoint of equity. 

23. In taxation, the principle of equal treatment of equals has two broad 
dimensions. First, it is a bulwark of protection against arbitrary and capricious 
treatment by tax authorities. Second, it provides the principal cornerstone on the 
basis of which taxes can be justified. 

8 



Chapter 1 : Paragraphs 20-27 

24. The first dimension of the principle of equal treatment of equals requires 
little elaboration. Here it serves as the master guideline of tax legislation and 
administration. In legislation, the principle demands that the over-all classification 
of taxpayers into categories be reasonable and just and that all taxpayers within a 
given category be treated equally. Thus, if it is decided that a tax is to be based on 
retail sales, the array of items subject to tax must be clearly defined and the rate 
or rates must be assessed uniformly. Then in administration, the principle dictates 
both the unbiased handling of taxpayer affairs on their merits and the existence of 
appropriate appeal procedures. Appeal must be reasonable in time and in cost to 
the taxpayer, and unimpeachable in terms of the competence of the persons decid- 
ing tax cases, both on questions of fact and on questions of law. It goes without 
saying that while the equal treatment of equals in legislation and administration 
is easy to elaborate in theory, the application of the principle can be realized only 
through constant public vigilance and governmental effort. 

25. The second dimension of the principle of equal treatment of equals, which 
involves the justification of taxes, is like the first in that it is difficult to achieve in 
practice, but unfortunately unlike the first in that its elaboration in theory is highly 
complex. We can at least, however, begin on a simple note. It is this: from the 
premise that equals should be treated equally, it is generally conceded that unequals 
should be treated unequally. At this point it will be observed that two time- 
honoured principles apply to the unequal treatment of unequals; namely, the 
principle of benefits received and the principle of ability to pay. 

THE PRINCIPLE OF BENEFITS RECEIVED 

26. Under the principle of benefits received, equity is interpreted as requiring 
that the burden of taxation be allocated among taxpayers in relation to the benefits 
each derives from the enjoyment of public services. The benefit principle is 
accordingly derived from a basic rule of the private sector of the economy: that 
goods and services should be paid for by their users. Thus it provides, at least in 
theory, a means of determining the aggregate dimensions of government activity 
in providing goods and services. The benefit principle was widely accepted by 
political theorists in the eighteenth century, and supported by Adam Smith in his 
Wealth of Nations. It was attacked by John Stuart Mill a century ago as imposing 
excessive burdens on the poor, but has enjoyed a vigorous renaissance in recent 
decades. 

27. Wherever it is possible to identify unmistakably the beneficiaries of a 
particular public service, the benefit principle leads not to a tax but to the charging 
of a price or fee, which makes the relationship between the government and the 
users of its services virtually identical to that between participants in private 
market transactions. The fee may cover the entire cost of providing the service, 
or alternatively, where the service is deemed to provide social as well as individual 
benefits, it may cover a portion of the costs incurred. An example of the latter 
instance is found in the charging of premiums for hospital care. 



Philosophy of Taxation 

28. In theory, the most useful interpretation of the benefit principle is that 
the cost of providing a public service should be allocated among individuals accord- 
ing to the marginal (additional) benefit that each receives from that service. A 
willingness by the beneficiaries to support a new service on this basis of cost 
sharing will then reflect the fact that they have equated the marginal benefit from 
the service in question with the marginal sacrifice involved in paying for that 
service. At this point an optimal allocation of resources between the individual's 
public and private wants will have been achieved. In practice, it is impossible to 
apply the benefit theory with the above degree of precision because marginal benefit 
to each beneficiary cannot be measured directly. The government, therefore, 
applies the principle in crude form by allocating the total cost of a service among 
the beneficiaries in accordance with some arbitrary criterion — for example, real 
property frontage — in proportion to which each individual is deemed to benefit. 
At this point, of course, the government is levying taxes, not charging fees. 

29. The benefit theory is an appropriate justification of taxation if the principal 
aim of the financial arrangement is to provide public goods and services roughly 
in accordance with the dictates of the market-place, and if the government does 
not wish to modify the existing pattern of income distribution in society. Frequently, 
however, modification of the existing distribution of income is a particular objec- 
tive of government policy — for example, in the financing of welfare programs. 
Here the benefit principle is clearly inappropriate. It will likewise be inappropriate 
where society may wish to subsidize the public treasury by increasing the cost of 
certain activities that may lead to abuse or inefficiency — the consumption of alco- 
holic beverages, for example. 

30. With different degrees of emphasis, the benefit principle can be used to 
justify a number of taxes in whole or in part. It is often applied in defence of the 
real property tax, especially in so far as this tax is used to finance services thought 
to be more or less directly related to the ownership or occupancy of real property. 
It forms the basis for special assessments by municipalities and is frequently used 
by various levels of government in setting licence charges. An element of "benefit" 
is even to be found in the personal income tax, as for example, when questions 
arise concerning the fairest means of taxing individuals who live in one jurisdiction 
but earn their livelihood in another. Again the benefit principle is particularly 
relevant to taxes on gasoline and diesel fuel, whose consumption by motor vehicles, 
which depends on speed, weight and distance travelled, is an excellent index of 
demand for highway services. 

31. It is frequently advocated that motor vehicle revenues, because they con- 
form so closely to the benefit principle, be earmarked and funded, that is to say 
that they be segregated in a special account distinct from the consolidated revenue 
fund and used only to finance road and highway expenditure. The basic advantage 
of earmarking and funding is that this practice permits a close identification of 
particular receipts and disbursements, and we recognize two general circumstances 
in which it is desirable. The first is where government wishes to use the price 

10 



Chapter 1: Paragraphs 28-36 

mechanism in deciding how much to charge for a particular service. A munici- 
pality, for instance, may wish to make its off-street parking business self-support- 
ing, and here earmarking and funding will be appropriate. The second is where, 
in connection with particular social insurance programs, the government wishes 
to emphasize the relationship between public benefits and the cost of providing 
them. In both circumstances, the underlying benefit principle is readily apparent. 

32. But we do not believe that the presence of a strong benefit element, as in 
the case of motor vehicle revenues, of itself justifies earmarking and funding. 
Indeed, we are of the opinion that the disadvantages of earmarking and funding 
generally outweigh the advantages. For one thing, this practice may introduce 
undue rigidity into the over-all pattern of public finance by handcuffing revenues 
to a specific expenditure program. Furthermore, far from ensuring effective control 
over expenditure, earmarking and funding may mislead legislators if funded 
revenues do not fully cover the costs of a particular service. Revenues derived 
from taxes based on the benefit principle provide a guide to what is an appropriately 
corresponding level of expenditure, and the latter in turn provides a general index 
of what the amount of tax should be. The practice of earmarking and funding is 
not necessary to achieve this objective. 

33. We are convinced that taxation according to the benefit principle has an 
important role in our fiscal system. Specifically, we are of the opinion that taxes 
based on benefit are desirable first, when the benefits and beneficiaries of govern- 
ment expenditure programs can be identified relatively clearly; second, when a 
modified distribution of wealth and income is not a policy objective; and third, 
when the imposition of benefit-related charges on the users or beneficiaries of a 
service will not result in an inefficient use of that service. 

34. It is evident that the above conditions restrict the application of benefit- 
related taxation to a portion of the revenue-raising activities of government. 
Accordingly, we now turn to a consideration of the principle of ability to pay, the 
second approach to achieving equity in taxation, and the major pillar of most 
modern revenue systems. 

THE PRINCIPLE OF ABILITY TO PAY 

35. Under the principle of ability to pay, equity requires the equal treatment 
of persons possessing the same capacity to pay taxes. Ability to pay is appropriate 
for financing that great portion of government expenditure where it is either 
impossible or inappropriate to allocate cost among taxpayers in accordance with 
benefits received. The application of the ability principle, however, requires 
agreement on some generally accepted criterion or criteria by which capacity to 
pay taxes may be measured. 

36. Under the early versions of the ability-to-pay principle, in sixteenth- 
century Europe and later in North America, wealth or property was considered 
the most appropriate index of tax-paying capacity. A Uttle later, consumption or 

11 



Philosophy of Taxation 

spending was singled out as most suitable. Thus Thomas Hobbes, the seventeenth- 
century English philosopher, stated that equity required that people be taxed on the 
basis of what they used up of their country's product, not on the basis of what they 
contributed to it. In our present generation, Mr. Nicholas Kaldor of Cambridge 
University is perhaps the foremost exponent of an expenditure tax, regarding con- 
sumption as an equitable criterion of ability to pay.- As a matter of general 
practice, with the increase in industrialization of the past century, income has 
become widely regarded as the best index of tax-paying capacity. 

37. The case for income as a better index of ability to pay than either con- 
sumption or wealth rests on the fact that income is a more comprehensive index 
than the other two. Income, after all, comprises both consumption and saving, or 
increases in wealth, during a given time period. Against this it can be argued 
that income is inferior to consumption precisely because it is too comprehensive. 
Because an income tax applies to saving, it reduces the capital which an individual 
can invest, and the effect is compounded when, at a later period of time, the same 
individual will be taxed again on the interest income from his reduced investment. 
But this viewpoint is far from unassailable. The counter-argument is that interest 
on accumulation is an additional accretion to income and that the tax thereon is 
therefore a new tax on new income. In the words of a leading contemporary 
authority, "If this view is taken, it is not the income tax that involves 'double 
taxation', but the consumption tax that involves undertaxation of the saver."^ It 
seems fair to conclude that the extent to which society taxes consumption as 
opposed to income will be a function of that society's desire to encourage saving. 

38. By contrast to wealth, the taxation of income recommends itself again 
in that income is more universal than wealth and a better index of an individual's 
standard of living. Many Canadian families enjoy relatively high incomes and 
consequently high living standards, and yet possess relatively little wealth. On the 
other hand there are many others, especially older persons owning homes, 
businesses or farms, who may possess considerable amounts of wealth but rela- 
tively little income and a very modest standard of living. The taxation of wealth 
can none the less be viewed as a useful, indeed necessary, supplement to the taxa- 
tion of income. Income by definition fails to take into account changes in the 
capital value of savings, and hence does not fully reflect changes in an individual's 
economic position from time to time. It is thus deemed desirable in most countries 
to tax wealth — for example, when increases in the value of assets are realized 
through sale, by means of a capital gains tax, or, when assets change hands 
through gifts or successions, by means of gift and death taxes. 

39. We concur in the widely accepted practice that takes income as the prime 
index of tax-paying capacity. At the same time, and for the reasons discussed 
above, we believe that wealth and consumption must be essential components of 
a tax system based on a notion of balanced tax-paying capacity. In this connection 



''See Nicholas Kaldor, An Expenditure Tax, London: George Allen & Unwin, Ltd., 1955. 
•■"Richard A. Musgrave, The Theory of Public Finance, New York: McGraw-Hill Book 
Company, 1959, p. 162. 

12 



Chapter 1 : Paragraphs 37-43 

we wish to stress that the allocation of the tax burden among individuals or 
families is accomplished through the aggregate effect of all taxes taken together 
and not by any one tax. Furthermore, as will be demonstrated in a later chapter, 
to produce over-all equity, government fiscal operations must take into account the 
differential impact of public expenditures on individual incomes as well as the 
impact of taxes. 

40. It has been only in the twentieth century that broad support has developed 
for the idea that to conform to ability to pay, a tax system must be progressive. 
Individual taxes in fact differ greatly in the degree to which they conform to this 
notion, but the idea in question is most effectively embodied today in the personal 
income tax. The personal income tax generally incorporates basic exemptions that 
recognize minimum income standards below which no tax should be levied. These 
exemptions can be tailored to recognize the need for minimal levels of income and 
the existence of different family responsibilities for maintaining dependants. 
Above the basic exemption level, rates of personal income tax can be made to 
vary in increasing proportion as the level of income rises. Thus it is that the 
personal income tax is widely acclaimed as the tax most in accord with the 
principle of ability to pay. 

41. While the personal income tax may indeed be the most equitable tax in 
terms of tax-paying capacity, it must be emphasized that this is far more a con- 
clusion of social judgment than of scientific principle. Admittedly, a degree of 
support for taxation at progressive rates can be drawn from the economist's law 
of diminishing marginal utility. The most concise statement of this law is probably 
that of the celebrated Alfred Marshall, who, near the turn of the century, noted 
that "the marginal utility of a thing to anyone diminishes with every increase 
in the amount of it he already has."'* In other words, the increased satisfaction 
(marginal utility) that any individual obtains from owning or consuming each 
additional unit of any commodity or service diminishes according to the number of 
units that he already owns or has consumed. 

42. The operation of the law of diminishing marginal utility is readily evident 
and a matter of common sense. In the case of milkshakes and hot dogs, for 
example, the diminishing utility of consuming successive units within a given time 
period is clearly apparent, for the hmited capacity of the human stomach causes 
the law to operate quickly. With other items of consumption, and particularly with 
intangibles such as travel and education, many successive units can be consumed 
over a long time period before the law will gradually begin to assert itself. But 
assert itself it will; among academics, for instance, a second earned Ph.D. is a rarity. 

43. In the realm of taxation, the law of diminishing marginal utility is 
relevant in so far as it applies to successive marginal units of income. Income is 
either consumed or saved, and saving can be defined as the forgoing of present 
consumption. Accordingly, it can be argued that since all income is eventually 



*Alfred Marshall, Principle of Economics, 8th edition, New York: The Macmillan 
Company, 1920, p. 93. 

13 



Philosophy of Taxation 

exchanged for goods and services, the marginal utility of income will decline, 
reflecting the decreasing marginal utility of these goods and services. If this is so, 
it follows that an individual will sacrifice less of his well-being (utility) in paying 
a tax of 1 per cent on an income of, let us say, $10,000 than on an income of 
$5,000. Hence if ability to pay is regarded as equality of sacrifice, a taxpayer's 
contribution should vary more than proportionately as his income changes. 

44. At least two noteworthy criticisms can be directed against linking progres- 
sive taxation with the diminishing marginal utility of income. The first is that such 
a linkage assumes that the utility of the successive dollars of a given income declines 
equally for all, whereas in fact there exist great differences in the satisfaction 
derived by different individuals from succeeding units of income. The second is 
that the actual rate at which the marginal utility of income declines cannot be 
known and hence diminishing utility provides no guide as to what is an appropriate 
rate of tax progression. 

45. The first criticism is entirely valid, but in our view it in no way contra- 
dicts the proposition that the tax-paying capacity of an individual increases faster 
than his income, and that society is therefore entitled to make a judgment on this 
basis. In the words of Dr. Richard Goode of the Brookings Institution, such an 
assertion has appeal 

because it is plausible to suppose that people first satisfy their most urgent 
needs and then use additional income to meet less urgent wants and because, 
in civilized communities, public or private assistance is given to those who lack 
the means to provide for themselves the items that are customarily bought with 
small incomes. It is widely agreed, even by severe critics of extensive progres- 
sion, that people below a certain level of poverty should not be expected to 
pay taxes. Acceptance of a personal exemption necessarily implies endorse- 
ment of at least a limited degree of progression, since tax liability will rise 
faster than income immediately above the exemption, even if rates are not 
graduated. In my judgment, the reasoning that approves this level of pro- 
gression can also justify much wider progressivity. To deny this would imply 
that there is a sharp discontinuity in the sacrifices made in paying taxes or in 
the social importance of successive increments of income, consumption, or 
wealth. It seems more plausible to suppose that the private and social 
importance of additional units diminishes gradually over a very wide range. '^ 

46. We likewise support the second assertion that the slope of marginal income 
utility schedules cannot be known. We would point out that it is simply impossible 
to "measure" utility in an absolute sense, in which case it becomes obvious that 
the notion of diminishing marginal utility provides no guide to an appropriate 
degree of rate progressivity. We accept this as a fact. But surely this notion need 
not have mathematical precision to support the principle of a progressive income 
tax. To quote Dr. Goode once more. 

If this seems distressingly imprecise, it is because ability to pay is being 
regarded as the name of a numerical formula rather than a term of ethics or 
politics, as it should be. Ability to pay is no more imprecise than concepts 



'Richard Goode, The Individual Income Tax, Washington, D.C.: The Brookings Insti- 
tution, 1964, pp. 18-19. 

14 



Chapter 1 : Paragraphs 44-49i 

such as the national interest, general welfare, due process of law, morality and 
duty. It is as susceptible of objective valuation as are intelligence, social 
adjustment, prudence, and many other personal characteristics.^ 

47. While we strongly support the principle of ability to pay as a cornerstone 
of sound taxation and believe that income provides the most reliable but by no 
means sole index of tax-paying capacity, we readily admit that the principle and 
the so-called "law" from which it is often derived provide no guide as to the most 
appropriate rate of progression. The ultimate sanction for any given pattern of 
tax progression is the prevailing consensus of ethical judgment as to what con- 
stitutes a socially desirable distribution of the nation's income and wealth. Without 
undertaking to probe the depths of this consensus, we think it appropriate at this 
juncture to suggest two guidelines that we believe are important considerations on 
making social judgments on progressivity. The first is that the concept of ability 
to pay, rather than dictating the progressivity of any given tax, embodies instead 
the more general notion that the tax system should be moderately progressive as 
a whole. The second is that government expenditures, which themselves affect 
the relative position of individuals, should be considered along with taxes in 
determining what constitutes over-all equity. 

48. We attempt to show in a later chapter that different taxes place rather 
different burdens on individuals and families with different levels of income. Thus 
property taxes, motor vehicle fuel taxes and retail taxes, to take but a few 
examples, each absorb rather different proportions of family income, depending on 
the size of that income. Such taxes, of course, cannot take into account varying 
personal and financial circumstances. This suggests to us that the personal income 
tax, which can be tailored to take relatively precise account of such circumstances, 
has a particularly critical role in helping to achieve equity and that the burden of 
the other taxes on individuals and families provides a rough but useful guide to the 
desirable degree of progressivity in personal income tax rates. 

49. A truly comprehensive guide to the setting of personal income tax rates 
will take into account the impact on the individual of government expenditure as 
well as of other taxes. It is significant that progressivity first received great emphasis 
some decades ago when it was thought that an equitable distribution of income 
should be accomplished almost entirely through the tax mechanism. However, 
during the last quarter-century, both in Canada and elsewhere, the distribution 
of income has been greatly affected through the expenditure side of fiscal opera- 
tions, and in particular through government transfer payments such as family 
allowances, unemployment insurance and old age pensions. This range of activity 
has been continuously broadened and, in addition, government spending on goods 
and services further alters the distribution of income. Under these circumstances, 
to ignore the effects of government spending will be to distort seriously the 
distribution of income on which judgments of tax progressivity should be made. 
Indeed, when the impact of all government fiscal operations — that is to say, taxes 
and expenditures — on the individual are taken into account, it may well be that 

Hbid, p. 19. 

15 



Philosophy of Taxation 

considerations of equity will call for personal income tax rates somewhat more 
moderately progressive than at present. 

50. In closing our discussion of equity in taxation, we wish to emphasize two 
points. The first is that whether it is embodied in the principle of benefits received 
or in that of ability to pay, equity relates solely to the individual or family and has 
no meaning except with regard to those persons on whom the burden of taxation 
ultimately falls. In particular, equity provides no basis for the taxation of corporate 
income, the rationale for which is discussed at a later stage of this Report. Our 
second point is that no tax system can be considered equitable unless it rests in 
part both on ability to pay and on benefits received. Benefits received is a key 
element in determining the optimum total of taxation, and therefore the appropriate 
distribution of resources between public and private uses. Ability to pay, on the 
other hand, in taking into account the equitable distribution of income, is an 
indispensable guide to the proper allocation of the burden of financing government. 

OTHER PRINCIPLES OF TAXATION 

51. Equity is the prime, but by no means the sole, characteristic of a good 
tax system. After due consideration, we have selected no fewer than nine 
principles which, together with equity, should form the basis of a sound revenue 
structure. Some of these are derived from considerations of equity, others are 
prompted by the need for efficiency. We enumerate them here for the sake of 
convenience and will proceed to discuss them in turn. They are: 

1 . adequacy, 

2. flexibility, 

3. elasticity, 

4. balance, 

5. neutrality, 

6. certainty, 

7. simplicity, 

8. convenience, and 

9. economy of collection and compliance. 

ADEQUACY 

52. This principle requires virtually no explanation. It is a self-evident 
proposition that to be satisfactory, a tax system must be capable of providing the 
flow of funds that a government deems appropriate in any given period. We note, 
however, that the principle of adequacy can become highly relevant when the 
relative merits of grants and taxes are discussed in connection with provincial 
and municipal revenue systems. This matter will occupy our attention in the 
next chapter. 

FLEXIBILITY 

53. By flexibility is meant that a tax system should be so constituted that 
government, by discretionary action, can readily increase or decrease the flow 

16 



Chapter 1 : Paragraphs 50-56 

of tax funds in response to changing circumstances, which can stem either from 
considerations of expenditure requirements or of economic poUcy. Obviously, 
some taxes, such as those on property and on personal income, are more flexible 
than others, in that rate alterations can be graded so as to accommodate small 
as well as large changes in revenue requirements. The principle of flexibility can 
thus be deemed to be satisfied if a revenue system is comprised in part of flexible 
taxes. 

ELASTICITY 

54. The principle of elasticity is closely related to those of adequacy and 
flexibility. This principle requires that a revenue system be composed in part of 
taxes whose yields respond closely to changing economic circumstances without 
deliberate changes in rates. It is important that the principle be fulfilled for two 
reasons. First, elasticity enables governments to meet rising service demands 
occasioned by economic growth without the disturbance of frequent rate changes. 
Second, elastic tax yields are an important adjunct of fiscal policy in that they 
can serve as automatic stabilizers, leaving a greater proportion of income in 
the private sector in times of adversity and dampening inflationary pressures in 
times of prosperity. 

BALANCE 

55. This principle is to be found in certain textbooks under such names as 
"multiplicity" or "plurality", but we have chosen the term "balance" in order to 
emphasize the kind of plurality that a tax system should possess. The need for a 
balanced plurality of taxes is grounded partly in the requirements of flexibility 
and elasticity, partly in equity, and partly in administrative considerations. As to 
flexibility and elasticity, it is readily apparent that some taxes are more flexible, 
others more elastic. Thus the property tax is relatively unresponsive to economic 
change but highly flexible, whereas consumption taxes are rather more elastic but 
relatively inflexible. A tax system should therefore have a sufficient multiplicity 
of taxes to take account of these characteristics. In the domain of equity, if a 
tax system is to conform to the basic rule of equal treatment of equals, it must 
not only be able to take differing individual situations into account but also be 
virtually foolproof in terms of evasion. If we may quote the Right Honourable Hugh 
Dalton, a former ChanceUor of the Exchequer of the United Kingdom, 

Anomalies as between persons, which are liable to arise under a single tax, 
are liable to be corrected under a multiplicity of taxes. And evasions, which 
may be comparatively easy under a single tax, are more readily detected under 
the check and counter-check which a multiple tax system may provide. Thus 
valuations for death duties and the previous income tax returns of the deceased 
may be checked against one another.' 

56. Multiplicity, then, is an important key to elasticity, flexibility and equity. 
But it is not an end in itself. For one thing, the number of taxes that reflect 



^Hugh Dalton, Principles of Public Finance, 4th edition, London: Routledge & Kegan 
Paul Ltd., 1954, p. 31. 

17 



Philosophy of Taxation 

elasticity, flexibility and equity is limited. Furthermore, to quote Mr. Dalton 
again, 

. . . though a multiple tax system is generally preferable to a single tax system, 
too great a multiplicity is not desirable. Advocates of "broadening the basis 
of taxation" are to be distrusted. Of this fellowship was [one] who said, "if 
I were to define a good system of taxation, it should be that of bearing lightly 
on an infinite number of points, heavily on none." But there is not necessarily 
any less total pressure under such a system for, as mathematicians know, the 
sum of an infinitely large number of infinitely small weights may be greater 
than a single moderate weight. Moreover, a large number of taxes, however 
small, usually involves a large cost and a large amount of vexation in collection.* 

To this we wish only to add the thought that too great a multiplicity of taxes 
may dissipate altogether taxpayer consciousness of the cost of government, con- 
sciousness that is certainly desirable in a constitutional democracy. Thus we 
subscribe only to that multiplicity of taxes consistent with flexibility, elasticity, 
equity and sound administration — in short, to a principle of balance. 

NEUTRALITY 

57. The principle of neutrality is directly related to the objective of efliciency 
in the use of the human and material resources of society. We do not suggest 
that, in order to be neutral, a fiscal system must exert no influence on the economic 
behaviour of persons or businesses. When the fiscal operations of all levels of 
government in Canada involve, as they do, almost one-third of gross national 
product, it is clear that no such thing is possible. Our approach to neutraUty is 
rather in terms of applying the rule of least price distortion in the choice of taxes. 
If one assumes that the pattern of relative prices determined by competitive market 
forces tends to encourage the most efficient allocation of the nation's resources, 
then to the extent that a tax system minimizes its distortion of relative prices, it 
minimizes its interference with productive efficiency. An important implication 
follows, namely that the more general a tax, the less it will normally interfere with 
individual choices on the part of producers, resource owners and consumers. From 
this point of view, such general taxes as those on income and retail sales are to 
be preferred to selective excise taxes applied to a narrow range of commodities. 

58. Understood in terms of least price distortion, the principle of neutrality 
is violated if consumers are taxed on their expenditures for goods but not for 
services. The principle is likewise violated if governments provide tax concessions 
in order to induce particular firms or industries to locate in areas where, in terms 
of the most efficient use of resources, they would not otherwise go. In its broad 
context, however, the efficient use of resources involves not only the private 
costs incurred by a firm but also the social costs arising from its operation in a 
particular location. Again, neutrality will be violated where the revenue system 
imposes heavier taxes on some legal forms of business organization than on 
others. To be neutral, the tax system should provide similar treatment for indi- 
vidual proprietors, partnerships, co-operatives and all forms of corporate enterprise. 

"Ibid., p. 32. 

18 



Chapter 1 : Paragraphs 57-62 

We are, of course, fully aware of the enormous practical difficulties involved in 
providing such neutral treatment. 

59. We do not wish to argue that neutrality is a principle of taxation that 
should be followed under any and all circumstances. It is appropriate only when 
economic efficiency is a prime criterion of policy. On frequent occasions, govern- 
ments are legitimately more concerned with other goals and will consciously depart 
from neutrality in order to further these objectives. What should be recognized, 
however, is that where tax neutrality is abandoned, the efficient allocation of 
resources, in the short run at least, will be impeded. 

CERTAINTY 

60. The principle of certainty as to the time, manner and amount of payment 
of tax has been advocated for centuries. Adam Smith regarded a small degree 
of uncertainty as a much greater evil than "a very considerable degree of 
inequality'V in that it subjected the taxpayer to the arbitrary decisions of the 
authorities. A further argument for certainty is the desirability, in an era of high 
government expenditure, that the citizen be well informed of his tax burden so 
that he may relate it to the benefits he derives from public services. If the individual 
is not well informed, he may make decisions about government spending that might 
have been different had he been aware of the facts. A particular risk is that being 
only dimly aware of his total tax burden, he will underestimate the cost of the 
public services with which he is provided. This is particularly Ukely where many 
of his taxes are hidden in the prices of the goods and services he purchases, 
rather than imposed upon him directly. 

61. If the principle of certainty is vaUd, and we beUeve that it is, then those 
direct taxes that cannot be shifted, or that can be shifted only to a limited degree, 
are superior to any taxes that can be hidden or easily shifted. On this basis, the 
personal income tax is superior to corporation income tax which sooner or later 
must be borne by individuals as consumers, shareholders or employees. Similarly, 
a visible retail sales tax is superior to a consumption tax levied at the manufacturer's 
level. Again, as it affects the relative merits of subsidies or tax concessions as forms 
of government financial assistance, the principle of certainty favours subsidies, 
for their costs are more readily ascertainable to government and public alike than 
are the costs of tax concessions or exemptions. 

62. Finally, the principle of certainty should apply with force to the content 
of tax statutes. At the very least, no tax law should be written in such a way 
that it contains provisions that the government either cannot or will not enforce 
effectively. An obvious example of such a provision can be found in the Ontario 
Retail Sales Tax Act which stipulates that residents of Ontario are liable for sales 
tax on goods bought outside but transported into the province for their use. To 
the extent that such a requirement is known to be the law but is not enforced, the 



®Adam Smith, The Wealth of Nations, Modern Library edition. New York: Random 
House, 1937, p. 778. 

19 



Philosophy of Taxation 

reputation of the government as a law-maker, to say nothing of respect for the 
law itself, is imperceptibly lowered in the public esteem. The principle of certainty 
demands statutes that are at once enforceable and enforced. 

SIMPLICITY 

63. We wish to comment only briefly on the relation between certainty and 
simplicity. The principle of simplicity will lend strong support to certainty pro- 
vided it is applied with care. The point is, of course, that indiscriminate striving 
for simplicity will yield statutes that leave too much unsaid and hence that can 
only be applied with a wide scope for administrative discretion — discretion that 
will unduly impinge on certainty. Again, undue simplicity may make it impossible 
to recognize the varying circumstances of particular taxpayers. Hence the principle 
of simplicity must be considered as dictating the greatest clarity within the limits 
set by certainty and equity. It should be understood that after every effort has 
been made to apply the principle of simplicity in the sense indicated above, certain 
taxes, notably those on personal and corporate income, will be embodied in 
statutes that are irreducibly but still appreciably complex. 

CONVENIENCE 

64. The principle of convenience is highly significant in relation to the time, 
place and manner in which a taxpayer is called upon to discharge his obligations. 
It is in accordance with this principle that municipaUties have developed instal- 
ment systems for the payment of property taxes and have, in some instances, 
permitted payment through chartered banks and other specified places of business. 
The principle of convenience is not simply a matter of good public relations. 
Observance of this principle redounds to the direct advantage of government by 
simplifying compliance and by reducing costs. With regard to the latter, there 
can be no doubt that the deduction of income tax at the source, a practice intro- 
duced by the Dominion during World War II, has greatly simplified government 
fiscal operations by increasing the speed of cash flows and hence reducing the 
need for short-term borrowing. 

ECONOMY OF COLLECTION AND COMPLIANCE 

65. The principle of economy applies both to the costs incurred by government 
in collecting taxes and to those incurred by the taxpayer in complying with his 
tax obligations. With regard to compliance, we have later in this Report devoted 
considerable effort to devising appeals procedures that are within the financial 
means of all taxpayers. We wish to point out, however, that the principle of 
economy, especially in relation to the costs incurred by government, dictates not 
the lowest possible cost but the lowest cost consistent with equity and effective 
enforcement. Thus it is blatantly false economy for governments to employ 
unqualified assessors at rock-bottom rates of remuneration. Such practices can 
result only in inefficiency, discrimination, and multiplying appeals and hence 
increasing the cost of taxpayer compliance. Properly understood, the principle 
of economy requires the employment of competent public servants in sufficient 
numbers. 

20 



Chapter 1 : Paragraphs 63-69 

CONFLICTS OF TAX PRINCIPLES 

66. It is the better part of wisdom to recognize that among the many tax 
principles that we have outlined there exist numerous occasions for conflict. 
Decisions concerning the most appropriate mix of taxes will accordingly require 
some consensus as to which principles should be given priority, a consensus that 
even among responsible and reasonable people may be difficult to formulate. 
Thus thorny problems may arise because of differing interpretations of the principle 
of ability to pay, or because this principle conflicts with benefits received or with 
neutrality or with simplicity or with economy of collection and compliance. Then 
too, it may be that convenience or the reasonable opportunity to appeal — an 
essential aspect of equity- — conflicts with economy. Whatever the nature of the 
conflict, we wish to stress that among all the principles that we have discussed, 
those relating to equity are of fundamental importance in the formulation of tax 
policy. This is by no means to deny that in specific circumstances equity may 
legitimately be subordinated to other principles, but where such is argued, we 
place the burden of proof squarely on the proponents of the case. 

TAX PRINCIPLES AND SOCIAL POLICY 

67. We wish to close this chapter by noting that there wiU be instances 
where certain tax practices depart from principles not because of conflict between 
the principles but because certain generally accepted goals of social policy are 
held to override the principles. To cite but three well-known examples, let us 
briefly examine the tax treatment of alcohol and tobacco, the exemption of 
churches and charitable organizations from property tax, and tax discrimination 
based on location. 

68. In all countries whose revenue systems we have studied, alcohol and 
tobacco are taxed more heavily than other foods and beverages. This is a viola- 
tion of the principle of neutrality, sanctioned historically in part by the widespread 
belief that such commodities are luxuries whose consumption, within limits, should 
be discouraged. We are not convinced that many governments have seriously 
sought to attain sumptuary objectives of this kind by taxation, or that where they 
have, the pricing mechanism represents the most appropriate or effective means 
of achieving these objectives. Stronger justification for the relatively high taxation 
of these products undoubtedly rests on the fact that their heavy consumption by 
many individuals imposes substantial costs on society. But the very high taxation 
of alcohol and tobacco in many jurisdictions must ultimately rest on social policy 
and consensus. 

69. The exemption of churches and charitable organizations from real property 
taxes — a common practice in Canada, the United States and other countries — 
violates the principles of benefits received, equal treatment of equals, and neutrality. 
The social policy underlying such exemptions and other preferential treatment may 
be defended in terms of the valuable contributions that these institutions make to 
their supporters and to society generally, and because of the difficulty of providing 
support for churches through direct subsidy. 

21 



Philosophy of Taxation 

70. Social policy frequently finds expression in tax discrimination on the 
basis of the location of the taxpayer. Such discrimination clearly violates the 
principle of equal treatment of equals. Among the areas of discrimination that 
have come to our attention are provincial and municipal tax concessions offered 
to induce firms to select a particular location. At the federal level, tax concessions 
and subsidies for industrial firms locating in "designated areas" of low economic 
activity testify to the belief that equal treatment must here give way to the 
national interest. 

71. That social policy may from time to time override the principles of taxa- 
tion is a fact of life. And it can be argued that in a democratic setting, social 
policy based on a deep-seated popular consensus should have priority over principles 
in that it represents the will of the people. The danger of this argument, however, 
is that if pushed too far, it sanctions indiscriminate trampling on the principles of 
taxation and hence invites revenue-raising by caprice, which is hardly compatible 
with constitutional democracy. As a Committee on Taxation, we deem it our 
particular responsibility to assess the tax system in terms of its conformity to 
principle, leaving to others the interpretation of the dictates of social policy. 

72. We, of course, recognize that social policy may at times take precedence 
over the application of the principles of taxation. But we believe that in every 
such instance, the case should be clearly established. We confess that although 
we have bent every effort to relate our recommendations to the principles that 
we espouse, we have ourselves in the course of this Report occasionally departed 
from principle in deference to social policy — for example, with regard to alcohol. 
We have taken scrupulous care, however, to label clearly each of our de- 
partures from principle and to state our reasons for them. But for the vast 
majority of the topics treated in this Report, we do not advocate that principles 
bow to social policy in the matter of provincial and municipal tax discrimination 
on the basis of location. At this juncture we are anticipating the subject matter 
of the next chapter. 



22 



Chapter 
2 



The Cominittee's Philosophy 
of Government Finance: 
Intergovernmental 
Fiscal Relations 



INTRODUCTION 

1 . By our terms of reference, we are required to report upon the revenue system 
not only of the Province of Ontario but also of its municipalities, both regional and 
local, and of its school boards. The philosophy of taxation we have set forth in 
the preceding chapter is applicable to the conduct of government at any level within 
our political system. But given the multiplicity of these levels, we must now unfold 
our broad philosophy of intergovernmental fiscal relationships with respect to the 
proper meeting of over-all public revenue and expenditure responsibilities within this 
country. In this latter connection it is readily apparent that the Province of Ontario 
operates not in a vacuum but as one provincial entity in a greater Canadian nation. 
Federal tax and expenditure policies vitally affect the economic development of 
Ontario, both directly and indirectly through their impact on the country as a 
whole. Conversely, Ontario's economic policies, and those of other provinces, may 
support or impede both national objectives and the objectives of sister provinces. 
We therefore find it necessary to begin our discussion of the most appropriate fiscal 
relationships among the several levels of government in Canada with a statement of 
our philosophy of federalism and of federal-provincial fiscal relations. 



23 



Intergovernmental Fiscal Relations 

OUR PHILOSOPHY OF FEDERALISM AND ITS FISCAL 
IMPLICATIONS 

THE NATURE OF FEDERALISM 

2. Federalism is a system of government that attempts to reconcile unity and 
diversity. More specifically, federalism involves a constitutional division of 
authority and responsibility between a national government on the one hand and 
several regional or provincial governments on the other. Under a federal constitu- 
tion, public functions are often exclusively allocated to one level of government, as, 
for example, defence to the federal government and education to the provinces, or 
they may be shared, as, for example, welfare. Whatever the individual function, 
however, the essence of federalism is that the ultimate executive and legislative 
powers for the performance of that function reside in whole or in part at one or the 
other level of government, national or regional. 

3. In Canada it is precisely this constitutional allocation of power between the 
Dominion and the provinces that enables federalism to play so well its role in recon- 
ciling diversity and unity. The several provinces enjoy, within the spheres of 
activity assigned to them, constitutionally guaranteed authority to develop public 
policies suited to their peculiar needs. At the same time the Dominion, within its 
own constitutional confines, is the repository of those powers necessary to ensure 
the uniform discharge of functions that affect the well-being of the country at 
large. 

OUR PHILOSOPHY OF FEDERALISM 

4. Our philosophy of federalism is based firmly on our recognition of the value 
of this mode of government as a constitutional mechanism for the simultaneous 
promotion and mutual reinforcement of unity and diversity. To be sure, the 
pursuit of diversity within a framework of national unity, as Canadian history 
attests, is neither easy nor automatic. Healthy intergovernmental relations in a 
federal system can be achieved only through continuous and unremitting effort, on 
the part of all, to adjust to changing circumstances. 

5. We believe that if any Canadian federal system is to function satisfactorily, 
its underlying fiscal arrangements must reflect four basic principles. The first of 
these is autonomy, which at the provincial level requires that each of the provinces 
have the power to determine its own taxation and expenditure programs and that it 
assume full political responsibility for its decisions in these areas. Provincial 
autonomy emphasizes the fact of diversity among the component parts of a federa- 
tion. 

6. The second principle, which we choose to call economic mobility, stresses a 
federation's need for unity. Economic mobility requires an absence of internal 
barriers to the geographic and occupational allocation of human and material 
resources and to the free movement of goods and services. Any such barriers 
lessen economic efficiency and accordingly have no place in a smoothly function- 
ing federal system. It follows that public policy in a federal state must be the 

24 



Chapter 2: Paragraphs 2-8 

subject of close intergovernmental co-ordination. This should hold both in the 
economic realm and in related fields; here steps recently initiated by Ontario to 
make possible nation-wide portability of pensions provide an excellent example. 
It also follows that the principle of provincial autonomy provides no justification for 
the use of fiscal measures designed to distort the market allocation of resources in 
pursuit of protectionist goals. Interprovincial differences in tax levels, in grants 
and welfare payments, and in fiscal incentives to industry will necessarily affect 
resource allocation to some degree but are potentially subject to co-ordination. Far 
more serious are provincial policies deUberately restrictive and discriminatory in 
nature, of which preferential purchasing policies and "buy provincial" campaigns 
are leading examples. The difficult harmonization of national and provincial 
economic interests will scarcely be promoted by the independent use of restrictive 
poUcies by the provincial governments, the main effects of which must be a lower- 
ing of the productivity of the Canadian economy and the shifting of some part of 
the costs of uneconomic provincial policies to outsiders. 

7. Our third and fourth principles are designed to smooth the path of reconcilia- 
tion between diversity and unity, between provincial autonomy and economic 
mobility. The third principle is that of equalization, which impUes that it is both 
necessary and appropriate to ensure that every province have the financial capacity 
to provide pubUc services at a level that is regarded as minimally satisfactory, by 
generally accepted Canadian standards. If such minimal financial capacity is not 
made available to every provincial government, provincial autonomy will be illusory 
because certain provinces will lack the resources to meet the costs of their basic 
services. The Rowell-Sirois Commission noted twenty-five years ago, a grossly 
"unequal distribution of the national income as between the people of different 
regions may excite feelings quite as dangerous to national unity as those aroused 
by gross inequalities between different income groups".^ For reasons which we 
shall advance later, we beUeve that, as a general proposition, equalization should 
apply directly to provincial revenues rather than to provincial expenditure. We 
recognize, of course, that there may be the occasional case for exceptions to this 
rule, particularly where the provision by the provinces of a particular service at a 
nationally uniform standard is deemed necessary. The Trans-Canada Highway 
project is a recent example. 

8. As a fourth and final principle, we beUeve that co-operation, both federal- 
provincial and interprovincial, is an essential ingredient of federalism. Provincial 
autonomy, clearly understood, cannot operate in a vacuum when the interdepen- 
dence of the provinces within a thriving national economy is a fact of twentieth- 
century life. Conversely, the federal goverimient cannot hope to discharge its 
responsibilities effectively without taking into account the impact of its policies upon 
the provinces. If ever a luxury, co-operation between the federal government and 
the provinces, and among the provinces, especially in the formulation and imple- 
mentation of economic policy, has now become a vital necessity. The need for 

^Royal Commission on Dominion-Provincial Relations, Report, Vol. 11, Ottawa: King's 
Printer, 1940, p. 10. 

25 



Intergovernmental Fiscal Relations 

co-operation extends from the highest ministerial level to the more specialized 
compartments of the pubhc service, and its scope ranges from the realm of broad 
fiscal and economic issues to such highly specialized fields as conservation, public 
health and tax administration. 

9. We believe that intergovernmental co-operation is vital to the achievement 
of at least five important ends. First is simply the exchange of information. A 
frequently cited advantage of federalism is that it gives a nation the advantage of 
many governments, each of which is a laboratory for policy experiments. Com- 
munication is indispensable if the benefits of experimentation are to be reaped 
fully. Second is the recognition and identification of common problems. Whether 
in matters of health or education, welfare or transportation, governments should 
have the opportunity to discover the extent to which they share similar challenges. 
Third is research. Joint efforts in the quest for solutions to common problems are 
often the logical outcome of the identification of such problems. Fourth is the 
elimination of needless and wasteful duplication. The achievement of this end is 
entirely dependent on the smooth accomplishment of the first three. Fifth is the 
negotiation of common solutions. It is here perhaps more than anywhere else that 
regional diversity and national unity will be reconciled to the greatest effect. The 
negotiation of solutions to common problems, while more frequent now than in the 
past, remains a relatively untapped resource of Canadian federalism. We shall 
argue later in this chapter that such negotiation provides the key both to the formu- 
lation of effective economic policies and to the achievement of national standards 
in many fields of expenditure responsibility at present covered by conditional grants. 

10. Our philosophy of federahsm as a mode of government whose purpose is 
the reconciliation of diversity and unity has led us to formulate four basic prin- 
ciples: provincial autonomy, economic mobility, equalization and co-operation. We 
shall now seek to apply these principles to the division of spending and revenue 
responsibilities in Canada, to intergovernmental grants, and to the taxation by one 
government of other governmental entities. 

THE DIVISION OF EXPENDITURE RESPONSIBILITIES 

11. In approaching the division of expenditure responsibilities in Canada, our 
starting point, explicit in our terms of reference, is the British North America Act. 
The federal-provincial division of powers and responsibilities laid down in this 
document has in fact proved much more flexible than certain contemporary critics 
of the Canadian constitution seem to believe. In making this statement, we are not 
thinking merely of formal amendments such as those transferring jurisdiction over 
unemployment insurance and old age pensions to the federal government. We note 
more especially the many applications of the federal spending power to grants in 
such fields as highways, health care and public welfare, grants which have served 
to blend federal and provincial jurisdictions in the pursuit of goals nationally agreed 
upon. We are also particularly mindful of the growth, both in importance and 
numbers, of intergovernmental consultative bodies. These bodies, the spectrum of 
whose activity ranges from the virtually all-inclusive scope of federal-provincial 

26 



Chapter 2: Paragraphs 9-14 

conferences at the prime-ministerial level to the very specific task of the National 
Potato Breeding Committee at the technical level,- have had the net effect of 
transforming Canadian federalism from one of exclusively divided powers into a 
federalism of shared responsibility. 

12. Constitutional amendments, applications of expenditure policy, and the 
growth of intergovernmental consultative machinery have all wrought substantial 
changes in the dimensions of Canadian federalism. These changes are ample testi- 
mony to the fact that the Canadian constitution offers a generous measure of 
flexibility. Without necessarily approving each and every change in detail, we 
applaud the degree to which the Canadian constitution has proved itself adaptable 
to the challenges of one hundred years of history. Those who persist in observing 
that the British North America Act is a remnant of the horse-and-buggy age simply 
ignore constitutional developments which make contemporary Canadian federalism 
as different from its 1867 version as a jet plane is from a stage coach. 

13. We believe that no division of powers between the federal and provincial 
governments can be rigidly maintained for all time. Flexibility is the prime test of 
a sound constitution. Just as depression, war and economic growth have forced 
some striking changes in Canadian federalism since 1867, so will the adaptability 
of the constitution to further change continue to be severely tested during its 
second century. It is within such a framework of flexibility that we believe that 
our four principles of federalism — provincial autonomy, economic mobility, 
equalization and co-operation — can serve as useful guides to the division of govern- 
mental responsibilities within a federal system. 

14. Provincial autonomy, within the jurisdictional sphere assigned to the prov- 
inces under the constitution, is indispensable to ensure that the responsibilities of 
these governments wiU be clearly pinpointed in the public mind. In the words of 
the Rowell-Sirois Commission, "If a province chooses to provide inferior services 
and impose lower taxation it is free to do so, or it may provide better services than 
the average if its people are willing to be taxed accordingly, or it may, for example, 
starve its roads and improve its education, or starve its education and improve its 
roads. "^ Within its jurisdictional sphere, in brief, a province must be free to deter- 
mine its own expenditure priorities and its own levels of taxation. Only in this way 
will a province stand fully accountable at the bar of public opinion. Critics of 
provincial autonomy may well inquire if the freedom of provinces to determine 
priorities and levels of expenditure is not disruptive to national unity. To this we 
reply that it is necessary to bear in mind that citizens of several provinces are also 
citizens of Canada. It is unlikely that informed public opinion in any given prov- 
ince will long tolerate severe discrepancies in provincial performance, and all the 
more so if provincial responsibility is clear and inescapable. 



^This little known committee convenes officials of the federal Department of Agricul- 
ture, together with their provincial counterparts. It is but one example of what are 
literally dozens of specialized intergovernmental committees. 

'Royal Commission on Dominion-Provincial Relations, Report, Vol. II, p. 84. 

27 



Intergovernmental Fiscal Relations 

15. In this connection, we wish to emphasize that those functions whose bene- 
fits are clearly indivisible and whose performance has a direct impact on economic 
mobihty should remain unambiguously federal. There can be no question, for 
example, that defence, whose benefits are hardly divisible on a regional basis, must 
be a federal responsibility. The regulation of international and interprovincial trade, 
of the monetary and banking system, and of unemployment insurance, with their 
obvious consequences for the free movement of goods, capital, and labour, are 
likewise appropriate subjects of exclusive federal jurisdiction. Federal autonomy 
is surely an indispensable counterpart to provincial autonomy, in that ample scope 
for independent federal action is necessary, not only to ensure national security and 
economic mobility but also to pinpoint public accountability for the proper discharge 
of those functions that demand provision on a nationally uniform base. In stressing 
the independence of each of the two constitutionally estabUshed levels of govern- 
ment in Canada, and the close link between autonomy and responsibility, we never- 
theless recognize that there are many points at which respective expenditure func- 
tions of the federal and provincial governments are intertwined. This is where 
co-operation and, to a lesser extent, equahzation, have an important role to play. 

THE DIVISION OF REVENUE POWERS 

16. Under the British North America Act, the revenue powers of the federal 
government are said to extend to "the raising of money by any mode or system 
of taxation".^ Provincial revenue powers, for their part, are composed of "direct 
taxation within the Province in order to the raising of a revenue for provincial 
purposes";^ "the management and sale of public lands belonging to the Province 
and of the timber and wood thereon";'* and "shop, saloon, tavern, auctioneer, and 
other licences in order to the raising of a revenue for provincial, local, or municipal 
purposes".'^ The comparatively limited revenue powers granted to the provinces 
were consistent with the view of the Fathers of Confederation that, of the two 
levels of government, the federal faced by far the more onerous burden of 
expenditure. 

17. As in the sphere of spending responsibilities, however, the Canadian con- 
stitution again proved its adaptability to changing revenue requirements with the 
passage of time. Faced with unforeseen public demand for education, welfare, and 
highway transportation, the provinces, with a strong helping hand from court inter- 
pretation of the British North America Act by the Judicial Committee of the Privy 
Council, greatly increased the scope of their revenue powers. "Direct taxation", 
thought in 1867 to extend to little more than the taxation of property, gradually 
become a fount of revenue powers covering most forms of income, consumption and 
wealth. The motor vehicle, for its part, offered a spectacular instance whereby the 
service needs created by technological change were matched by corresponding 
sources of revenue — the gasoline tax and automobile licences. Then too, world 
demand for natural resources, both renewable and non-renewable, coupled with 



^British North America Act, 1867, Section 91(3). 
"Section 92(2). 
•Section 92(5). 
'Section 92(9). 

28 



Chapter 2: Paragraphs 15-21 

successive discoveries of unimagined riches, shaped the management of public 
lands into an asset of unexpected magnitude to the treasuries of several provinces. 

18. Canadian federalism has accommodated the changing needs of the provinces 
not only through flexible revenue powers but through the constant revision of inter- 
governmental financial arrangements. Barely two years after their adoption, the 
statutory federal-provincial subsidies provided by the British North America Act 
"in full settlement of all future demands"** underwent the first of a series of adjust- 
ments. More recently, in order to give the Dominion wider scope for the financing 
of World War II, the provinces agreed to hold their income tax powers in abeyance 
in return for so-called "tax rental" payments. The resulting centralization of fiscal 
powers was carried over into the post-war era, then gradually eased as the provinces 
sought financial accommodation to meet sharply rising expenditures which reflected 
their very rapid economic growth. The concept of tax rentals was replaced by that 
of tax sharing, and a welter of grants, both conditional and unconditional, accom- 
panied federal-provincial developments in the field of taxation, 

19. The history of intergovernmental finance leads us to the inescapable 
conclusion that the division of revenue sources must be highly adaptable. Accord- 
ingly, we reject the notion, popular in some circles, that an enduring and clear-cut 
allocation of taxing powers between federal and provincial governments is desirable. 
It is no more possible to devise permanent and mutually satisfactory tax arrange- 
ments in 1967 than it was in 1867. Periodic revision to take account of changing 
circumstances is the sine qua non of a sound intergovernmental revenue structure. 

20. Just as in the case of a flexible division of spending powers, we believe that 
our principles of autonomy, economic mobihty, equalization and co-operation are 
enormously relevant to a proper allocation of revenue powers at any given point in 
time. By applying the principle of autonomy to federal-provincial finance, we 
derive what we consider to be two highly important rules. The first is that the 
governmental entity responsible for spending money should, to the greatest extent 
consistent with the principle of equalization, be the entity responsible for raising 
that money. The second is that each of the two levels of government, federal and 
provincial, should have access to a balanced revenue structure through the taxation 
of income, consumption and wealth. 

21. Our first rule requires no explanation. It is one of the most basic principles 
of parliamentary democracy and a keystone of responsible government. As to our 
second rule, we beUeve that the scope of provincial responsibility, covering as it 
does some of the most important spending functions of modern-day government, 
necessitates a revenue structure broadly based on income, consumption and wealth, 
in order that expenditure may be financed by recourse to a balanced tax system. 
We also consider that a broad revenue structure at both the federal and provincial 
levels is the prime requisite for the constitutional flexibility which we deem so 
important. An undesirable degree of rigidity would surely be the prime conse- 
quence of a division of revenue that locked the provinces into the exclusive use of, 
let us say, the personal income tax to the exclusion of all sales taxes, or vice versa. 

'Section 118. 

29 



Intergovernmental Fiscal Relations 

22. Just as an autonomous provincial role in determining expenditure levels and 
priorities will lead to interprovincial differences in the provision of services, so also 
will provincial discretion over a wide variety of revenue sources result in inter- 
provincial differences in the degree of tax burdens. Interprovincial differences in 
tax levels can be expected to have marginal consequences for national economic 
mobility, but we believe that provincial policies of non-discrimination, together 
with equalization and co-operation, will go far toward mitigating any otherwise 
harmful results. On the other hand, provincial tax concessions in favour, let us say, 
of resident corporations, may artificially distort a market allocation of resources 
on a national basis quite as much as expenditure poHcies that give preferential 
treatment — for example, to the local wine industry in Ontario. We wish to empha- 
size once again our beUef that protectionism, whether in taxing or spending, has no 
place in a well-ordered federal system. We fully endorse the position that the 
Royal Commission on Dominion-Provincial Relations expressed in 1940 as 
follows : ^ 

It is probable that there is no single province so situated as to gain on 
balance by the existence of local protectionism in Canada. In each case the 
desired objective is sought with such immediacy that the longer view, taking 
account of secondary results and ultimate consequences, is excluded from con- 
sideration. . . . The damage done by local protectionism takes many forms; 
among them, the artificial location of industries within the national economy; 
the wastes of uneconomic competition; the financial burdens involved in sup- 
porting uneconomic industries; the uncertainty to business everywhere if markets 
in other provinces are in danger of being shut off by protectionist devices; the 
emphasis laid on rivalry and jealousy between the provinces. 

In proper perspective, provincial autonomy in raising of revenue is a hallmark of 
public accountability, not a licence for the creation of tax havens. 

23. In addition to a wide jurisdiction overtaxation, genuine provincial autonomy 
requires the use of equalization payments designed to raise the tax yield of poor 
provinces to a level that will enable these provinces to provide services that conform 
to at least a minimally acceptable Canadian standard. Indeed, we beUeve that 
equalization payments are a sine qua non of provincial autonomy which, to be 
effectively operational, must mean that no province lacks the wherewithal to 
meet its basic service responsibilities. 

24. Reserving our position on the relationship of equalization payments to 
economic mobility for treatment in the grants section of this chapter, we wish to 
record here our opinion that the most appropriate index on which to base equaliza- 
tion is provincial revenue. The alternative indexes most often mentioned are, of 
course, personal income within the provinces and provincial government expendi- 
ture, both of which we consider distinctly inferior. We reject the use of personal 
income as an index of interprovincial equalization for two reasons. First, we do 
not regard equalization as a policy designed to mitigate interprovincial differences 



'Royal Commission on Dominion-Provincial Relations, Report, Vol. II, p. 64. 

30 



Chapter 2: Paragraphs 22-28 

in total economic performance, both public and private. On the contrary, we 
view it solely as a means to shore up the ability of provincial governments to meet 
minimum service standards. It follows that equalization should take place primarily 
with reference to the public treasury and not to the provincial economy. Second, 
the argument that the abihty of a provincial government to provide services is 
synonymous with an aggregate index of economic performance as measured by 
personal income, a measure that includes public transfer payments, is most dubious. 
For instance, a province well endowed with natural resources and able to tax their 
exploitation may have a government more able by far to provide acceptable levels 
of service than a province that is less well endowed but has a higher level of 
personal income. 

25. To reject provincial expenditure as an alternative index for equalization 
purposes may appear odd at first blush. Equalization, after all, looks toward 
minimally satisfactory standards of service. Nevertheless, we believe that there exist 
three strong arguments for bypassing provincial spending as a suitable index, under 
all but exceptional circumstances. In the first place, formulas that seek to equalize 
on the basis of provincial spending or on the cost of provincial services are very 
difficult to devise and, once formulated, tend to be extremely complex and of but 
temporary validity. Moreover, the measurement of provincial expenditure discrep- 
ancies on specific services can lead at best to comparisons that are odious and that 
might infringe on provincial autonomy, and at worst to comparisons that are invalid 
because different provinces set different service priorities. Finally, because econo- 
mists generally recognize that the bulk of interprovincial expenditure discrepancies 
are due to differences in fiscal capacity, equalizing with reference to provincial 
spending is an attempt to cope with what are in large part symptoms rather than 
causes. 

26. We are thus left with provincial revenue as a final possible index for equal- 
izing interprovincial disparities. We wish to make it plain, however, that our 
preference for this particular index stems from more than a simple process of 
elimination. It is our considered opinion that the equalization of provincial differ- 
entials in selected tax yields has positive merits of a high order. First, the equaliza- 
tion of tax yields applies to revenue deficiencies that directly reflect underlying 
economic conditions. Second, this method works directly on the most important 
cause of expenditure deficiency. Third, and of great practical importance, experi- 
ence has shown that this same method can be applied through the use of relatively 
simple formulas. 

27. As a general proposition, then, we favour equahzation on the basis of inter- 
provincial revenue discrepancies. We believe that the choice of taxes whose yields 
are subject to equalization must be made with care, as must the selection of the 
level to which equalization will be carried. Reserving more specific comments on 
these matters for later discussion, we shall simply make four supplementary observa- 
tions at this point. 

28. First, we are of the opinion that the equahzation of provincial tax yields 
should include the broad range of taxes levied by provincial governments on income, 

31 



Intergovernmental Fiscal Relations 

consumption and wealth. Accordingly, retail sales taxes have a potential role in 
equalization quite as great as that now occupied by income and inheritance taxes 
and natural resource revenues. 

29. Second, we think that taxes which are justified in large part on the basis 
of benefits received should not be equalized. The yield from such taxes is itself the 
index of the demand for the services to which the tax is related. For example, a 
province whose yield from the motor fuel tax is higher than that of another also 
has a traffic level that demands higher road expenditure. To equalize under such 
circumstances would be to provide funds where no corresponding need exists. 

30. Third, equalization of appropriate provincial tax yields should not be con- 
ditional on the actual provincial imposition of a tax at any specified level of rates. 
The principle of autonomy demands that provincial legislatures be responsible for 
the level of rates effective within their jurisdiction, while the principle of equalization 
requires intergovernmental transfers related to standard rates. 

3 1 . Fourth, and finally, it should almost go without saying that no equalization 
formula — as for that matter no division of revenue sources between federal and 
provincial governments — should be envisaged as a permanent solution to the 
dilemmas of Canadian public finance. Frequent intergovernmental consultation, 
together with periodic revisions, provides the only realistic foundation for sound 
equalization policies. 

JOINT OCCUPANCY OF TAX FIELDS 

32. In matters affecting provincial revenue, equalization is, of course, but a 
single facet of the need for extensive co-operation. Co-operation in all matters is 
of necessity the handmaiden of federal and provincial autonomy. Let us now pursue 
this theme with respect to a critically important problem area, that of the so-called 
"joint occupancy" of tax fields. To say as we do that provincial governments should 
have a revenue structure broadly based on the taxation of income, consumption 
and wealth is to say that provincial governments will occupy these fields of taxation 
jointly with the federal government. We fully recognize that joint occupancy poses 
a stiff challenge to the principles of certainty, simplicity, convenience, and economy 
of collection and compliance, principles which, as developed in the preceding 
chapter, we espouse as foundation stones of a sound revenue system. This challenge 
can only be met through intergovernmental co-operation. 

33. Three forms of intergovernmental co-operation are necessary if the joint 
occupancy of tax fields is to proceed on an orderly basis. The first involves common 
standards of legislation in jointly occupied fields of taxation. The second concerns 
federal-provincial tax collection agencies. And the third involves interprovincial 
tax agreements. Let us consider these in turn. 

34. The existence of autonomous provinces, differing in political complexion, 
social needs and service priorities, precludes uniform rates of taxation in the 
revenue fields that they occupy jointly. Autonomy, however, does not preclude 
federal and provincial legislation so framed that the bases of taxes jointly ex- 
ploited will be uniform throughout Canada. We wish to stress that the practical 

32 



Chapter 2: Paragraphs 29-37 

advantages of such legislation are enormous. For the taxpayer doing business in 
more than one province, a uniform tax base greatly reduces the cost of compliance, 
both in monetary and psychic terms. For the governments involved, a uniform 
tax base substantially eases the task of enforcement, with corresponding savings in 
administrative costs and increments in revenue. Uniformity of base is particularly 
critical in the major tax fields affecting income, consumption and wealth, all of which 
are derived in large part from economic activity that is carried out on a national 
scale. 

35. A practical example of the extent to which the Government of Ontario is 
already concerned with intergovernmental co-operation in tax matters can be found 
in our terms of reference, which direct us "to co-operate with the Royal Commission 
on Taxation and with any other bodies of inquiry appointed by other provincial 
governments". Pursuant to this directive we have participated in inter-commission 
meetings which yielded much common ground for complementary tax legislation, 
evidence of which is scattered throughout our recommendations. Our experience 
has impressed us with both the need for continuing efforts in promoting uniform 
bases of taxation and the practicability of such ettorts. 

36. Where a major tax, such as one on personal or corporate income, is every- 
where levied by federal and provincial governments alike, both a uniform base and 
a single collection agency are to be strongly recommended. In the case of the per- 
sonal income tax, we place a major premium on the convenience to employers in 
withholding, and to individuals in filing, according to the directives and standards 
of a single tax collection agency. We accordingly approve of the present federal- 
provincial tax arrangements whereby Ontario has been able to enter into a collec- 
tion agreement with the federal government, in return for imposing taxes on an 
income base identical to that of the federal. As for the corporation income tax, we 
are impressed, as are all students of this tax, with the inherent complexity of allo- 
cating profits from nation-wide business activity on a provincial basis. Provincial 
occupancy of this tax field is a de facto infringement on the principles of simplicity 
and convenience. We recognize, of course, the practical necessity for such occu- 
pancy; hence we are all the more concerned that provincial exploitation of this tax 
be based on uniform legislation and a single collection agency. 

37. There are two thoroughly valid arguments against particular features of the 
present federal-provincial tax collection arrangements. The first disadvantage is 
that a province, in agreeing to adhere to the federal tax base for purposes of 
uniformity, has virtually no practical recourse against the erosion of its revenue 
base, whether sudden or gradual, through unilateral changes in federal tax laws. The 
protection of provincial revenues requires that any changes in the base of the 
personal income tax or any other tax where a collection agreement exists, reflect 
joint agreement rather than unilateral decision. The second disadvantage is that 
a province's right to conduct separate audits may be unduly circumscribed. These 
twin disadvantages, while not deemed by Ontario to be sufficiently great to forestall 
a collection agreement with respect to the personal income tax, are at least partially 
responsible for the lack of an accord on corporation income tax. 

33 



Intergovernmental Fiscal Relations 

38. We therefore propose that full federal-provincial consultation on tax legis- 
lation should take place on an annual basis and that all future tax collection arrange- 
ments should give to provinces equal audit rights with the federal government. 
These co-operative steps provide the key to reconciling the integrity of the tax base 
in jointly occupied tax fields with the principles of simphcity and convenience. Such 
steps do not challenge federal or provincial autonomy so long as mutually exclusive 
jurisdiction over tax rates is retained. 

39. Our strong inclination towards enhanced co-operation in the domain of 
tax fields jointly occupied by the federal and provincial levels extends to the purely 
interprovincial realm as well. In concrete terms, we are particularly concerned with 
the present condition of retail sales taxation in Canada. There exists appreciable 
tax avoidance on transactions involving purchases of goods in one province for 
consumption in another. We accordingly favour interprovincial collection agree- 
ments, agreements whose implementation can be facilitated through interprovin- 
cially uniform schedules of taxable items. Our own consultation with other pro- 
vincial tax commissions has impressed us with the feasibility of such a step. We also 
note, purely as a matter of principle, that there is no reason why interprovincial 
agreements for sales tax collection could not be expanded to accommodate the 
conversion of the federal manufacturers' sales tax to a tax at the retail field. 

40. It is evident that we place a high premium on intergovernmental co-opera- 
tion in the raising of revenue. Both the administrative rationality of the tax system 
and its proper application to social ends depend entirely upon a network of frank, 
constant and effective federal-provincial and interprovincial consultation. 

THE ROLE OF GRANTS 

41. Our treatment of the division of expenditure and revenue responsibilities 
under federalism has already touched upon the place of grants in an intergovern- 
mental fiscal system. We wish at this point to focus yet closer attention upon the 
role of federal-provincial transfer payments in Canadian public finance. 

42. The making of grants in one form or another is as old as Canada itself. 
What are the reasons for such transactions? Viewed from the broadest possible 
perspective, grants exist because no division of tax powers and spending functions 
can be devised to meet precisely all the fiscal demands that federalism is called upon 
to meet. More specifically, grants come about for three reasons: 

(1) to make up across-the-board deficiencies in provincial revenue (revenue 
deficiency grants). 

(2) to even out gross interprovincial disparities in fiscal capacity (equaliza- 
tion grants); 

(3) to encourage provinces to launch or maintain certain services on a 
nationally uniform scale (stimulation grants). 

Grants made in pursuit of the first objective are nearly always unconditional in 
nature, i.e., they provide funds which can be spent as a province sees fit. Those 
paid for the second reason can be either unconditional or conditional. If the latter, 

34 



Chapter 2: Paragraphs 38-46 

they are tied to a designated proportion of provincial spending on a specific 
function. The third kind of grant is always conditional. Let us briefly review these 
various grants in turn. 

Revenue Deficiency Grants 

43. Such grants occupy a time-honoured place in Canadian federalism. The 
original Confederation subsidies were brought into being because the estimated 
yield of the revenue sources granted to the provinces under the British North 
America Act of 1867 fell somewhat short of anticipated provincial expenditure. 
Much later, during World War II, all provinces received revenue deficiency grants 
in exchange for holding their income tax powers in abeyance, and in recognition 
of the fiscal effects of federally imposed rationing of gasoline and liquor. Subse- 
quently, under a series of post-war arrangements lasting until 1962, all provinces 
except Quebec and — save for the five years from 1952 to 1957 — Ontario, received 
large federal payments in return for "renting" their revenue powers over personal 
income, corporation income, and successions. 

44. As a general proposition, we are strongly opposed to revenue deficiency 
grants. Such grants constitute a singular violation of the principle of governmental 
autonomy, which links the freedom of each level of government to determine its 
expenditures program with its responsibility for legislating its own taxes. We 
recognize that revenue deficiency grants can occasionally be necessary to give 
federalism the flexibility necessary to tide it over such major emergencies as a war 
or a prolonged depression. But over the long run, such grants have no place as a 
major revenue channel in a well-ordered federated fiscal system. The preferred 
alternative to deficiency grants is to be found in an appropriate division of revenue 
powers supplemented by equalization payments where necessary. 

Equalization Grants 

45. We have already indicated that transfer payments designed to enable 
fiscally poor provinces to provide levels of service that are minimally acceptable by 
average Canadian standards are an indispensable adjunct of provincial autonomy 
and national unity. We have also taken pains to state why it is our opinion that 
such payments should be based on deficiencies in provincial tax yields rather than 
on levels of personal income or provincial expenditure and that benefits-related taxes 
should be excluded from any equalization formula. Recapitulating our position in a 
single sentence, we believe that equalization on the basis of non-benefits tax yields is 
simpler, more accurate, and more in keeping with provincial autonomy than equali- 
zation through other methods. Again with regard to provincial autonomy, equaliza- 
tion payments should be unconditional. 

46. To be sure, we offer the above beliefs in the form of a general rule rather 
than an all-pervading dogma. We recognize the possibility that equalization on the 
basis of a tax-yield formula may not in practice meet the basic needs of the very 
poorest provinces. This is indeed true at present with regard to the Atlantic region. 
Under these circumstances, supplementary unconditional payments on a basis other 
than tax yield have a place in federal-provincial finance. We recognize also that 

35 



Intergovernmental Fiscal Relations 

grants of a conditional type can create serious inequities for fiscally weak provinces. 
Here too, subject to important qualifications to be discussed below, a measure of 
equalization may be appropriate. But before tackling this specific problem, we 
wish to expound our general position on the extent to which equalization measures 
of any kind are appropriate. 

47. To be properly grounded, equalization policy involves two difficult judg- 
ments, one on the basis of ethics, the other on the basis of economics. The ethical 
judgment invokes an application of the basic rule of equity which states that indi- 
viduals similarly situated should be treated similarly. The economic judgment, for 
its part, attempts to gauge the role of equalization in promoting or distorting an 
optimum allocation of the country's resources. 

48. In approving equalization from the standpoint of equity, certain authorities 
have taken the view that individuals similarly situated as to income should receive 
equal fiscal treatment, wherever they may reside, taking into account both their 
tax burdens and their benefits from public services.^" This approach in effect 
eliminates the influence of geography as a factor contributing to the unequal fiscal 
treatment of Canadian residents. We reject this doctrine of geographical neutrality 
as unsound in principle and impossible in practice. In our own view, geographic 
location cannot itself be ignored in determining whether or not individuals are in 
fact similarly treated in a federal nation. The very notion of federalism as a form 
of government incorporating and facilitating regional diversity means that geogra- 
phy is a positive rather than a neutral factor in determining an individual's over-all 
economic situation. We regard equalization designed to eliminate fiscal disparities 
arising from geographical location as a policy based on exaggerated notions of 
equity. It is one thing to say that gross disparities in the fiscal position of individuals 
similarly situated as to income but dissimilarly located as to geography should not 
be tolerated, and this is a viewpoint which we support. It is quite another thing 
to say that any and all fiscal disparities among such individuals should be eliminated 
without regard to their location. 

49. The economic effects of equalization, in terms of its impact on the optimum 
allocation of society's productive resources, is a subject that has generated signifi- 
cant differences of opinion among students of public finance. It is contended on the 
one hand that, in the absence of equalization, disparities in tax burdens and levels 
of public services will distort the flow of labour and capital away from the allegedly 
optimum pattern that would result if, as defined above, government fiscal operations 
were geographically neutral. ^^ Yet from another perspective, equalization payments 
directly impede an optimum allocation of resources because they permit higher 
levels of services in poor provinces than would otherwise obtain, thereby discourag- 
ing the outward movement of labour and capital to areas where their marginal 



"See, for example, James M. Buchanan, "Federalism and Fiscal Equity", American 
Economic Review, Vol. XL, September 1950; see also John F. Graham, "Fiscal 
Adjustment in a Federal Country", Intergovernmental Fiscal Relationships, Toronto: 
Canadian Tax Foundation, 1964. 

'Buchanan, "Federalism and Fiscal Equity"; Graham, "Fiscal Adjustment". 

36 



Chapter 2: Paragraphs 47-51 

productivity would be higher. ^^ In a similar vein, it could also be said that equaliza- 
tion payments have a distorting effect because they lower the service standards 
which the more wealthy provinces would otherwise be able to provide and thereby 
reduce the marginal productivity of labour and capital in these areas. 

50. Our collective viewpoint on equalization tries to take account of both its 
virtues and its dangers. On the one hand, we recognize that equalization payments 
have an important role in evening out interprovincial fiscal differences whose exis- 
tence would constitute a threat to optimal resource allocation. Patently sub- 
standard services in the poor provinces can hinder labour mobility and discourage 
the investment of otherwise productive capital. On the other hand, we are acutely 
aware that equalization involves economic costs as well as benefits. Equalization 
payments, in detracting from the abihty of a rich province to provide additional 
services without increased tax burdens, adversely affect productivity and growth not 
only regionally but nationally. 

51. In tending to the view that equalization, if pursued too far, involves signifi- 
cant economic costs to the nation, we wish none the less to emphasize that we 
regard its use as indispensable in the federal state if equity is to be achieved. 
In deciding the precise lengths to which equalization "should" be carried, an 
extemely delicate value judgment must be made, one that must balance the ends 
of national economic efficiency and interprovincial equity. At the risk of sounding 
trite, we believe that the only reasonable approach to equalization is one of modera- 
tion. Neither equity nor economics dictates an equalization policy so extreme that 
it would seek to place all parts of Canada on the same fiscal footing. At the same 
time, both considerations demand some measure of fiscal redistribution among 
provincial governments. The resulting dilemma can perhaps be crystallized to 
some degree with reference to current equalization practice which calls for transfer 
payments sufficient to bring the per-capita yield of income and inheritance taxes in 
every province to the average per-capita yield in the two richest provinces, Ontario 
and British Columbia. On the one hand, there appears to be no valid reason why 
the equalization base should not be broadened to include consumption taxes; sales 
tax yields are surely as relevant an index of provincial revenue capacity as income 
and inheritance levies. On the other hand, the fact that equalization is now carried 
to the tax yield levels that obtain in Ontario and British Columbia poses a serious 
problem. Adverse effects of the present formula on resource allocation are held in 
check only because a Umited number of taxes are included within the formula. But 
to equalize to the level of the two richest provinces on the basis of all major taxes 
would surely involve such unfortunate consequences for national economic growth 
as to be difficult to justify even in terms of equity. We favour the inclusion of a 
broader group of taxes in the equalization formula but believe that the only sound 
working principle is to look to average standards of fiscal performance as the 
measure of provincial need. It is in this context that equalization grants have their 
most appropriate role in our fiscal system. 

^°See, for example, A. D. Scott, "A Note on Grants in Federal Countries", Economica, 
Vol. XVII, November 1950. 

37 



Intergovernmental Fiscal Relations 
Stimulation Grants 

52. The rapid growth of so-called conditional grants or shared cost programs 
has been a hallmark of post-war Canadian federalism. We have chosen to group 
these programs under the heading "stimulation grants" in the belief that this designa- 
tion offers the most accurate description. Such grants, indeed, are designed to 
stimulate provincial spending on certain functions, often in accordance with pre- 
scribed standards. With the significant exception of the hospital insurance program, 
the federal contribution under these grants is normally a set percentage of total 
program costs. 

53. The standards which stimulation grants seek to promote on a national 
scale fall into three kinds, depending on the program. The first and vaguest standard 
simply seeks to promote the provision of a service. Thus, under the unemployment 
assistance program, all provinces are encouraged to provide relief to the largest class 
of indigent persons — unemployed individuals whose insurance benefits are exhausted 
or whose occupations are not covered under the federal unemployment insurance 
scheme. Here the federal contribution is simply based on whatever actual costs a 
province incurs in providing relief according to provincially determined scales of 
assistance. The second type of standard seeks to ensure uniform coverage and 
nation-wide portability of service benefits without actually prescribing identical 
levels of performance in every province. Such a standard is peculiar to the provin- 
cial health insurance plans launched in accordance with the federal Hospital Insur- 
ance and Diagnostic Services Act of 1957. Here federal payments are conditional 
on interprovincially uniform standards of coverage and provision of hospitalization 
for persons who are taken ill outside their own province. But the program by no 
means looks toward identical levels of health care. The third type of standard 
involves the provision of a service on the basis of complete uniformity. For 
example, the federal-provincial Trans-Canada Highway has been built according 
to common engineering standards. Just as stimulation grants seek to promote these 
variously defined standards, so also do they vary in terms of their life span. Such 
shared cost programs as the Trans-Canada Highway are plainly of a temporary 
nature. Others, such as health insurance and unemployment assistance, give the 
appearance of being more or less permanent. 

54. Shared cost programs have in recent years come under increasingly wide- 
spread criticism, criticism with which we have considerable sympathy. We note 
first that these programs do impinge on the capacity of a province to determine 
autonomously its spending priorities and service levels. These same programs 
doubtless exhibit a similar tendency at the federal level. It is quite apparent that 
conditional grants can off"er a potential haven to program officers and special 
interests eager to insulate a special function from the review of treasury personnel 
and elected officials at each of the two levels of government. We note secondly that 
some stimulation grants may promote unrealistic standards. Finally, we are im- 
pressed by the disproportionate sacrifices which certain shared cost programs can 
require different provinces to make. While we join the critics of shared cost pro- 
grams in the above views, we remain mindful of the benefits which national 

38 



Chapter 2: Paragraphs 52-58 

standards can confer in the domain of certain government activities. The question 
of the appropriate place of stimulation grants, then, partakes of the essential 
dilemma of federalism itself. Once again the key problem is to promote diversity 
within a framework of effective unity. 

55. We believe that all existing shared cost programs should be subjected to 
careful review. It is our contention that present programs have been allowed to 
accumulate in number and importance without adequate regard to the basic prin- 
ciples of autonomy, economic mobility, equalization and co-operation. We propose 
as a basic starting proposition that governmental autonomy should not be infringed 
upon unless there exist clearly valid reasons for doing so. Such reasons will only be 
found in the need to promote an optimal allocation of people, goods and capital 
on a national scale. The test for the validity of such reasons is not to be found 
through federal approbation alone but rather through intergovernmental consulta- 
tion. This consultation should take place not merely among officials interested in 
a specific field of activity but also among those who are charged with the higher 
responsibility of determining broad service priorities. If a shared cost program 
survives these hurdles, then consideration should be given to grant formulas that 
will equalize in some measure the sacrifice demanded of the provinces concerned. 
This we consider an important exception to our general rule that equalization 
should not apply to provincial expenditure. 

56. We are of the opinion that well-directed efforts along the above lines would 
result in a substantial rationalization of present stimulation grants. Some would 
fall by the wayside because they simultaneously induce budgetary distortion and 
promote unrealistic standards. Others, at present envisaged as quasi-permanent, 
would revert to a temporary status the primary criterion for whose time span would 
be the period necessary to establish uniform coverage and nation-wide portability. 
In all instances, the potential of co-operation as a means of obtaining reasonable 
national standards in the absence of federal financial strings would be fully explored. 
Surviving and future shared cost programs would be more closely tailored to inter- 
governmental consensus and financed on the basis of equitable formulas. 

57. We do not wish to conclude our discussion of shared cost programs without 
reference to "contracting out". Under this recently established statutory arrange- 
ment, a province can decide to opt out of certain specified conditional grant pro- 
grams and receive in lieu specified additional percentages of federal abatement on 
the personal income tax. It is evident that contracting out has the advantage of 
allowing a shared cost program to operate in the absence of general federal- 
provincial consensus while, at the same time, avoiding the imposition of a financial 
penalty on a non-agreeing province. On the other hand, it is equally plain that 
indiscriminate provision for contracting out could jeopardize the future of all 
national standards. 

58. We believe that contracting out on a limited scale may perhaps make a 
long-run contribution to the flexibility of the Canadian federal system. Such a 
procedure could be advantageously invoked either when a province is already 

39 



Intergovernmental Fiscal Relations 

providing a service envisaged under a shared cost program or when one or two 
provinces are so adamantly opposed to an otherwise general agreement in favour 
of a stimulation grant as to threaten the fibre of national unity. But contracting out 
is no substitute for a searching review of shared cost programs. Indeed, the 
precipitous introduction of this arrangement may well be testimony to the possi- 
bility that such a review has been too long postponed. Surely a thoroughly 
rationalized scheme of stimulation grants can be reasonably expected to reduce 
to a minimum the need for contracting out. 

59. Grants have a critically important role in the domain of federal-provincial 
fiscal relations. So convinced are we of their importance that we believe that all 
grants must receive far more searching scrutiny than in the past. Grants are not 
a substitute for an appropriate and flexible division of revenue sources and spending 
responsibilities. But they are the key to appropriate equalization measures and, 
when grounded on federal-provincial consensus, can be an indispensable tool in the 
promotion of national unity. 

THE TAXATION OF GOVERP^MENT ENTITIES 

60. To conclude this broad discussion of federalism with a note on the position 
of each of the two levels of government with regard to the other's taxes may appear 
at first blush to constitute an all too precipitous descent from the realm of generality. 
It is because we feel that important principles are involved that we choose to 
consider briefly this situation here. 

61. The British North America Act asserts clearly that "No lands or property 
belonging to Canada or any Province shall be liable to taxation. "^^ This assertion 
has been construed to prohibit either the federal government or a province from 
taxing the other's land or property. It equally prohibits a province from taxing 
another province's land or property situate within its boundaries. Furthermore, 
competent authorities believe that the prohibition of taxation on government land 
and property extends to all government assets and transactions, because the Crown 
is traditionally immune from taxation, whether in right of the Dominion or in right 
of a province. 

62. In the nineteenth-century environment, governmental immunity from taxa- 
tion posed no problems. The scope and range of government activity was limited. 
The creation of public bodies to carry out what are essentially business transactions 
still lay in the future. Needless to say, the advent of government as a major 
employer and purchaser, together with the development of federal and provincial 
Crown corporations, has forced consideration of tax immunity in a new light. When 
governments begin to engage in business activity, they enter into competition, direct 
or indirect, with private business firms. In this light, tax immunity can take on the 
guise of an unfair competitive advantage in favour of government enterprise. More- 
over government, whether it carries on business activity or not, has grown to a size 
where its demands for public services create substantial problems if met on a 
tax-free basis. 



'British North America Act, 1867, Section 125. 

40 



Chapter 2: Paragraphs 59-66 

63. The assumption of tax responsibilities by federal and provincial Crown 
corporations has now become widespread. Thus in the domain of sales taxation, 
the federal manufacturers' sales tax applies to purchases made by provincial Crown 
entities and provincial retail sales taxes likewise apply to federal corporations. As 
for property taxation — which, although municipally levied, is in constitutional terms 
a provincial tax — the federal government has in recent years directed its Crown 
corporations to commence the payment of full grants in lieu of taxes and substantial 
progress has been made in this direction. We strongly endorse as an important 
principle the assumption of full tax obligations by all government business enter- 
prises in order that they may be on an identical plane with private firms. 

64. Three important considerations have led us to the view that full tax 
liability should be extended from Crown corporations to cover all departments of 
government as well. The first of these is that not all government activity of a busi- 
ness enterprise nature is carried out under the guise of public corporations. To 
exempt some of this activity from taxation is accordingly to grant an exemption on 
the basis of an artificial and tenuous distinction which leaves the scope of the 
exemption up to a government's own discretion as to the type of organization which 
it will select to discharge its functions. The second is that exemptions of any kind 
impinge upon the simplicity of a tax system and involve ipso facto erosion of a tax 
base. Our view of any exemption is that it can in principle be justified only on 
grounds of equity, grounds that would not appear to provide a basis for the unique 
exemption of government departments from taxation. Our final consideration is 
that government activity of any kind creates demand for public services in the same 
way that demand is created by private firms and individuals. To the extent that 
one level of government is exempted from the taxes levied by another, benefits of 
such services are conferred without relation to costs. 

65. It is our considered opinion, therefore, that the federal government should 
pay the equivalent of full provincial taxes and that provinces should assume a 
similar responsibility with respect to their federal tax obligations. We believe that 
the implementation of this viewpoint, in providing identical tax treatment of govern- 
ment and business, will facilitate an optimal allocation of resources between the 
public and private sectors of the economy. Furthermore, the consequently enhanced 
integrity of both the federal and provincial tax base can only promote governmental 
consciousness of the costs of public services and the simplicity of the tax system as 
a whole. 

66. Our lengthy exposition of the various principles we consider essential to 
well-ordered fiscal relations in a federal scheme can now be brought to a close. 
But we have by no means exhausted the vast network of intergovernmental relation- 
ships that comprise the whole of the Canadian fiscal system. It is to the no less 
important domain of provincial-municipal affairs that we now must turn. 

41 



Intergovernmental Fiscal Relations 

OUR PHILOSOPHY OF PROVINCIAL-MUNICIPAL RELATIONS 
AND ITS FISCAL IMPLICATIONS 

THE NATURE OF THE PROVINCIAL -MUNICIPAL RELATIONSHIP 

67. Unlike federalism, the provincial-municipal relationship defies simple defi- 
nition. Perhaps the most useful starting point from which to broach its nature is 
to compare and contrast its dimensions with those of federalism. Let us begin by 
drawing the contrasts. 

68. Three major elements of contrast between federalism and the provincial- 
municipal realm suggest themselves to us. First, in legal terms, the federal-pro- 
vincial relationship is based on constitutional law; the provincial-municipal on 
statutory law. Second, in policy terms, the federal-provincial relationship is one 
of equal to equal; the provincial-municipal is one of superior to subordinate. Third, 
in structural terms, the federal-provincial relationship is one of relative simpUcity; 
the provincial-municipal is highly complex. 

69. The statutory nature of provincial-municipal relations flows directly from 
the British North America Act which places under exclusive provincial jurisdiction 
"Municipal institutions in the Province".^* Municipahties are accordingly creatures 
of the province and a province is legally free to create, modify or abolish any and all 
units of local government. This surely offers a sharp contrast to the constitutional 
sanctity accorded to provincial entities in a federal system. 

70. The subordinate status of municipal institutions in terms of policy flows 
directly from their position as creatures of provincial statutory law. Municipal 
tax powers and spending responsibilities are no more and no less than those laid 
down in provincial acts. A province can freely choose to make certain public 
services mandatory at the local level and others merely optional. It can require 
municipalities to meet specified standards of performance. It can limit the amount 
of, and otherwise control, the borrowing activities of municipalities and school 
boards. A province, in brief, can generally supervise and direct the development 
of municipal public policy. This again offers a distinct contrast to the federal- 
provincial sphere where neither level of government has a direct responsibility for 
the conduct of the other. 

7 1 . The structural complexity of provincial-municipal relations by comparison 
with the relative simplicity of federalism hardly needs belabouring. The latter 
relationship involves a federal government and ten provinces. The former, on the 
other hand, involves a province and literally hundreds of local authorities, some 
regional, some not, some of a general-purpose nature — e.g., cities, towns, town- 
ships — some specialized — e.g., conservation authorities — and all differing sub- 
stantially one from the other in terms of area, population and resources. To draw 
just one of the implications of this major contrast, a federal-provincial conference 
can take place in the intimate personalized atmosphere characteristic of a univer- 
sity seminar, whereas a full-scale provincial-municipal conference could only be 

"Section 92(8). 

42 



Chapter 2: Paragraphs 67-75 

carried on under conditions resembling a lecture whose attendance would tax the 
capacity of the very largest auditorium. 

72. Of extreme structural complexity, the provincial-municipal relationship is 
one of local subordination to provincial authority, couched in terms of statutory 
law. Yet for all its differences from federaUsm, it has important elements of 
similarity. Within the provincial scene, municipalities are recognized instruments 
of diversity. Their existence fosters democratic values by bringing governmental 
institutions to the individual's doorstep. They can promote efficiency through a 
division of labour that enables local responsibility to be met locally. As such, 
municipalities are an integral part of a multiple-level political system both as 
havens of democracy and as vehicles of public administration. The attendant legal 
superiority of the province should in no way provide any licence for caprice. 
Municipalities, by virtue of their intrinsic contribution to responsible democracy 
and effective administration, have an integrity of their own which partially circum- 
scribes their legally inferior status. The provincial-municipal relationship is 
accordingly modified from one of pure subordination to one that might be likened 
to a senior-junior partnership. 

OUR PHILOSOPHY OF PROVINCIAL -MUNICIPAL RELATIONS 

73. Our philosophy of provincial-municipal relations is grounded in the 
perspective that has led us to conclude that these relations closely resemble those 
of a senior-junior partnership. It can now be articulated in terms of four principles 
which, while similar in number to the principles which we espouse in the domain 
of federalism, differ appreciably in content. These principles we have chosen to 
call local autonomy, provincial responsibility, equalization and assistance. 

74. By the principle of local autonomy, we mean that the dual role of muni- 
cipal institutions in fostering democratic values and administrative decentralization 
must be respected and encouraged. This aim can only be realized if a well- 
organized municipal system is accorded ample scope over the discharge of a 
number of important functions. Municipalities should be accorded a wide measure 
of discretionary authority over the quantity and quality of the public services en- 
trusted to them, and equipped with sources of revenue both adequate for the 
discharge of their spending responsibilities and sufficient to ensure direct account- 
ability to the public. Properly understood, the principle of local autonomy is not 
a refuge for municipalities too small or weakly organized to permit the responsible 
discharge of important functions. Nor does it sanction the endless multiplication 
of special-purpose authorities constituted for the provision of a single service, 
often to the confusion of the electorate and to the detriment of public account- 
ability. Rather, local autonomy, as we envisage it, is both a safeguard to the integ- 
rity of municipal democracy and efficiency and a clarion call for municipal 
institutions capable of bringing responsive administration to all parts of a province. 

75. We believe that the principle of local autonomy is supported rather than 
contradicted by our second basic principle, that of provincial responsibility. This 
latter principle draws on the incontrovertible fact that municipalities are creatures 

43 



Intergovernmental Fiscal Relations 

of the province and legally subject to provincial statutes. It emphasizes, however, 
that the considerable power vested in provincial legislatures should only be 
discharged with reference to an abiding and pervasive concern for the promotion 
of healthy municipal institutions. Thus the power of a province to create muni- 
cipaHties involves a heavy responsibility for organizing local authorities that will 
embody a population, area and resources adequate for the conduct of efficient 
government. Viewed in the above light, local autonomy and provincial respon- 
sibility are indeed mutually complementary. We believe that this compatibihty is 
further ensured by our two remaining principles, equalization and assistance. 

76. Equalization, one of our basic principles of federal-provincial relations, 
returns to the provincial-municipal sphere but with a somewhat different connota- 
tion. Equalization is, of course, a no less necessary adjunct of local autonomy 
than it is of provincial autonomy, in that all municipalities must have the financial 
resources to provide minimally satisfactory levels of public service. But in the 
provincial-municipal realm, equalization also becomes a highly important con- 
comitant of a province's statutory power over local institutions. Because a 
province has the power to create municipalities, it is in a position to assess the 
desirability of pooling tax resources through larger units of local government as an 
alternative to equalization grants. Furthermore, if a province has the authority 
not only to devolve mandatory functions upon local government but also to 
prescribe standards of municipal performance, the need to take account of inter- 
municipal differences in fiscal capacity is clear and unambiguous. 

77. Similar considerations highlight the importance of our final principle, that 
of provincial technical and administrative assistance. Here we mean to emphasize 
a primary consequence of general provincial responsibility. This is that a province, 
in addition to fostering viable municipal institutions, must be ready to provide 
practical administrative guidance and aid whenever it chooses to exercise its 
superior powers in the municipal realm. To cite but two examples, provincial 
legislation calling, let us say, for mandatory community planning is an affront to 
common sense unless it also makes available concrete technical assistance on how 
to organize a local planning board or department. In a similar vein, provincial 
efforts bent on securing greater uniformity in assessment will be futile unless 
they are accompanied by a well-compiled assessment manual and a program to 
train assessors in its use. 

78. At this point we should make it plain that in espousing the principle of 
assistance, we do not advocate a provincial tutelage over municipalities. Local 
autonomy, defined simply as a wide measure of discretionary municipal authority, 
well grounded on close accountability to the local electorate, remains a prime 
requisite for a healthy municipal system. Accordingly, the principle of provincial 
assistance should be understood as looking toward stronger municipal government. 
We would regard provincial measures that sapped municipalities of their vitality 
as a harmful disturbance of the provincial-municipal climate that we advocate, a 
climate in which local autonomy and provincial responsibility provide mutual 
reinforcement. 

44 



Chapter 2: Paragraphs 76-83 

79. Four important principles, then, comprise our philosophy of provincial- 
municipal relations. There now remains the difficult task of applying these prin- 
ciples to the intergovernmental division of expenditure functions and revenue 
powers, to grants, to local government organization and to provincial-municipal 
tax liabilities. 

THE DIVISION OF EXPENDITURE FUNCTIONS 

80. Local autonomy demands that municipahties have important functions to 
perform. A provincial-municipal system that leaves to the discretion of local 
authorities little more than sidewalk construction and the erection of street signs 
would be a system in which municipalities had become empty shells, drained of 
significance and operating in an atmosphere of public apathy. Any proper provin- 
cial-municipal division of spending functions, therefore, must leave in local hands 
a multiplicity of major expenditure responsibilities. 

81. The provincial-municipal division of functions has in fact varied sub- 
stantially over time. Certain public expenditures that had their beginnings at the 
municipal level — for example, welfare — have since been moved in part to higher 
levels of government. Yet other and new responsibilities, many of them the con- 
sequence of urbanization and technological change, have recently devolved upon 
local authorities. Urban renewal provides a good example. The fluctuating nature 
of the provincial-municipal division of spending responsibilities is testimony to the 
critically important role of local authorities in our governmental system. That 
many functions have their beginnings at the municipal level is in part due to the 
fact that the local authority, as the unit of government closest to the people, is 
often the first to respond to newly felt needs. 

82. It is reasonable to expect the provincial-municipal division of spending 
responsibilities to alter periodically in response to changing needs and circum- 
stances. This division will of itself tend to be more flexible than that which prevails 
in the domain of federalism because of the absence of constitutional restraints. Not 
only can spending responsibilities be readily shifted between the province and 
local authorities; they can also be shifted by the province among various kinds of 
local authorities, especially between regional units of municipal government on 
the one hand and cities, towns, townships and villages on the other. Our principal 
concern is to ensure that, whatever its exact dimension at any given point in time, 
the provincial-municipal division of spending responsibiUties be such that local 
discretion over a number of important functions is assured. The principle of local 
autonomy demands no less, and requires that such changes should evolve from 
appropriate intergovernmental discussion of the issues. 

83. We believe that all those services whose benefits are of primarily local 
concern should be provided by local authorities. Such services, of course, include 
police and fire protection, the construction, maintenance and lighting of local 
streets, and recreation and community facilities. But we are of the further opinion 
that certain other services, whose provision is as much a matter of general as of 
local concern, can constitute in important respects a local responsibility as well, 

45 



Intergovernmental Fiscal Relations 

especially if they are under the jurisdiction of sufficiently large units of government. 
Health, public libraries and the construction and maintenance of access roads are 
examples of such services. Our motivation in advocating local responsibility for 
these services stems from the twin underpinnings of local autonomy and efficient 
administration. Because larger, perhaps regional units of local government auto- 
matically pool the financial resources of a more diverse and populated area, they 
make possible levels of service not otherwise attainable by local authorities. At 
the same time, such units ensure that the functions assigned to them will conform 
more closely to locally expressed wishes than they would if the functions in 
question were assigned to the province. 

84. Our concern for local autonomy in the provincial-municipal division of 
spending functions, to be properly understood, must be viewed from the perspec- 
tive contributed by the principle of provincial responsibility. Provincial respon- 
sibility should apply with particular force to those services that are of both general 
and local concern. Here the principle extends to minimum standards, to forms of 
administration, and even to the creation of appropriately designed goverimiental 
units. 

85. At this point, the applicability of the principles of equalization and of 
provincial assistance should be obvious. Particularly in the realm of services that 
are of general concern, equalization, because of the principle of provincial respon- 
sibility, will have a vastly greater role than it plays in federal-provincial relations. 
For its part, provincial assistance in the administrative and organizational realm 
occupies a key position. 

THE DIVISION OF REVENUE SOURCES 

86. Just as the principle of local autonomy demands that municipalities have 
important functions to perform, so also does it dictate that these entities have 
revenue sources of corresponding adequacy. Since the provincial-municipal division 
of revenue has no constitutional base, it is the principle of provincial responsibility 
which dictates that the province provide its municipahties with an adequate revenue 
system. 

87. As a matter of long tradition, the provincial-municipal division of revenue 
sources has left the tax on real property in organized municipalities to the exclusive 
use of local authorities. That the property tax is peculiarly well suited to municipal 
use is attested to both by history and by common practice in most of the indus- 
trialized nations of the west. The relative stabihty and immobility of the tax base, 
the simplicity of collection procedures, and the ease with which rate changes can 
be legislated to accommodate changing spending obligations: these are the mani- 
fest qualities which have made the property tax the basic local levy. We recog- 
nize these qualities and wish simply to single out two other characteristics which 
add to the appropriateness of the property tax as the bed-rock of municipal finance. 
First, there is no question but that the high visibility of this tax enhances that 
essential component of effective local autonomy, public accountability, even 
though on occasion this may lead to false economies. And second, the property 

46 



Chapter 2: Paragraphs 84-90 

tax, although imperfectly reflecting benefits received, can be a useful if rough 
index for gauging the propriety of existing provincial-municipal divisions of spend- 
ing responsibilities. It can translate the often vague idea of a service that is 
"primarily local" into the somewhat more concrete notion of a service that is of 
benefit to persons as owners or occupants of real property and hence one that 
should be provided locally. 

88. The above remark is not meant, of course, to convey the impression that 
we share in the viewpoint, popular in certain circles, that the property tax should 
be used to finance only those services that are directly related to property. On the 
contrary, we believe that there is strong justification for applying the property tax 
to services that are indirectly related to property as well, both because the dis- 
tinction between direct and indirect benefits is highly tenuous and because a theory 
of direct benefits, even if workable, would be unduly confining and hence injurious 
to the principle of local autonomy. At its best, the notion of direct versus indirect 
benefits will provide a guide to what portion of a service should be financed through 
the property tax and what through other means. 

89. This brings us to the thorny question of what revenues other than the 
property tax should accrue to the local level. The principle of local autonomy, 
with its vital connotation of public accountability, inclines us philosophically to 
favour the maximum degree of municipal responsibility in the raising of revenue. 
We are nevertheless conscious of the fact that the property tax yield tends to 
respond rather more slowly to economic growth than the yields of other taxes, 
notably those on income and consumption. Because such a large proportion of 
municipal expenditure is a direct function of economic growth and of its principal 
concomitant, urbanization, excessive reliance on the real property tax can leave 
municipal government ill equipped to meet its service responsibilities. In contrast 
to that of the senior levels of government, the structure of municipal finance 
reveals a basic imbalance in that it couples a relatively stable revenue base with 
rapidly expanding expenditure requirements. We have accordingly paid more 
than passing attention to the development of local non-property taxes, as the most 
casual perusal of this Report will make evident. Our research, however, has im- 
pressed us with the major difficulties — in equity, in collection, and in the allocation 
of proceeds — that adhere to municipal reliance upon any major non-property tax 
field, whether in the form of provincially shared levies or not, unless larger units 
of government are organized where appropriate. We believe that the principle 
of local autonomy dictates that every possible effort be made to overcome these 
difficulties, and that the principle of provincial responsibility makes the quest for 
governmental units suited to the introduction of non-property taxes a matter for 
vigorous joint endeavour by both levels of government. 

90. Attempts to broaden the municipal revenue base, however well motivated 
and conscientiously undertaken, do not comprise a substitute for the strengthening 
of the property tax itself. Here we wish to call particular attention to our principle 
of provincial assistance. Deliberate provincial policies designed to improve muni- 
cipal assessment practices and collection procedures are indispensable. Another 

47 



Intergovernmental Fiscal Relations 

important area, reflected in the provincial statutory regulation of such activities, 
is the thorny problem of inter-municipal competition for high-yield commercial 
and residential developments. Such competition tends to impinge severely on 
effective planning and on the most efficient allocation of resources. It creates 
tendencies toward what might be called "municipal protectionism" quite as harmful 
to economic and social well-being as those involved in provincial protectionism. 
The answer to such cut-throat competition for a favourable municipal tax base, 
no less than to the improvement of property tax administration, lies in provincial 
policies designed to rationalize municipal institutions and improve the local revenue 
base. 

THE ROLE OF GRANTS 

91. The difficulties inherent in devising suitable municipal non-property taxes 
constitute a major reason for the importance of provincial grants to municipalities. 
Moreover, in the discharge of its municipal responsibilities, the province has 
utilized such grants as one of its important instruments. The discussion that follows 
will make use of the threefold division of grant payments developed earlier in the 
context of federal-provincial finance, namely revenue deficiency grants, equaliza- 
tion grants and stimulation grants. 

Revenue Deficiency Grants 

92. Unconditional grants designed to make up across-the-board deficiencies 
in municipal revenue have a place only inasmuch as there is a need to supplement 
the property tax and in so far as this need cannot be met through local non- 
property taxes. Since we place a high value on the close public accountability that 
results from the greatest possible municipal responsibility in the raising of revenue, 
we view deficiency grants as a second-best alternative in principle. But because of 
the difficulties that impede a broadening of the local tax base — difficulties to which 
we have just had occasion to refer — we recognize that revenue deficiency grants are 
an indispensable adjunct of local finance. We wish to stress, however, that we con- 
sider the case for deficiency grants to be practically oriented rather than philosophic- 
ally sound. 

Equalization Grants 

93. The case for lessening gross inter-municipal disparities in fiscal capacity, 
if properly put, is unassailable. The principle of local autonomy can hardly be 
translated into reality if certain municipalities lack the resources to meet the costs 
of their basic services. Moreover, the principle of provincial responsibility, with 
its strong concomitant of provincial concern for the provision of certain services at 
stated minimal levels of performance, lends forceful support to the development 
of equalization in local finance. 

94. While equalization has a considerable role in the provincial-municipal 
scene, it remains subject to a cautionary note concerning the danger of inducing 
distortions in the economic allocation of resources. In particular, we believe that 
equalization grants are least likely to run counter to a rational allocation of 

48 



Chapter 2: Paragraphs 91-97 

resources in the provincial-municipal realm if they conform to three basic rules. 
First, equalization grants are not a substitute for municipal entities' being of viable 
size. Second, minimal standards of performance laid down by provincial legisla- 
tion should not seek levels of services that lie beyond what is socially acceptable 
at any point in time as a reasonable minimum standard. Third, as to those services 
whose benefits to property owners are unquestionably direct, the need for equaliza- 
tion is precluded in all but the very poorest municipalities. This is because the 
value of property, and hence the municipal tax base, is itself a fair index of the 
acceptable standard of services needed. Thus an intensively developed residential 
neighbourhood abutting an explosives factory has both the resources and the need 
to provide an up-to-date fire department manned by a full-time force using the 
most technically advanced equipment. A sparsely populated rural municipality, on 
the other hand, will tend to have a lesser need for fire protection services, matching 
its slimmer resources. 

95. Equalization grants, then, are most appropriate when they are made in 
recognition of the desirability of enabling municipalities to meet performance 
standards of minimum social acceptability in services whose benefits to individuals 
as property owners are either indirect or intangible. Such grants may, of course, 
be either conditional or unconditional. Our assessment of which form is more 
desirable must await discussion of the role of stimulation grants. 

Stimulation Grants 

96. Grants designed to encourage municipalities to provide certain services 
according to more or less closely stipulated standards constitute a logical exten- 
sion of the principle of provincial responsibility, which gives a province scope 
within which to guide the setting of expenditure priorities at the municipal level. 
Recognition of this point is not, to be sure, approbation of its indiscriminate applica- 
tion. We believe that there exist two realistic limits on the extension of conditional 
or stimulation grants to municipalities. The first is the point at which such grants 
involve municipal budgetary distortions such as to impinge seriously on local 
autonomy. The second is where grant programs have become sufiiciently numerous 
to pose serious administrative problems and to exceed the capacity of local 
authorities to take advantage of their existence. An important test of the 
adequacy of a provincial stimulation grant system, therefore, is a combination of 
restraint and simplicity. Conditional grants should extend only to those programs 
in which municipal stimulation is a matter of genuine provincial interest. Such 
grants are, of course, not the only appropriate means of stimulating particular 
municipal functions in which the province has an interest. It follows that all such 
grants should be reviewed from time to time with a view toward determining the 
usefulness of their continued existence. 

97. However carefully rationalized in terms of structure and administation, no 
system of conditional grants can be properly devised without reference to inter- 
municipal disparities in fiscal capacity. We have become acutely conscious of the 
inequities that can result from stimulation grants made according to a so-called 
"flat rate", that is to say according to a stated percentage of total program costs. 

49 



Intergovernmental Fiscal Relations 

Flat-rate stimulation grants are, as is well known, a matter of common provincial 
practice. The inequities that flow from grants of this type result from the fact that 
such grants can have two quite different effects. One, the "incentive effect", is 
the normal effect obtained when a municipality that has not previously provided 
the grant-aided service, or has provided it at a standard below that envisaged by 
the provincial grant program, takes advantage of the assistance offered by the 
province and consequently ties up whatever local tax resources are required to 
match provincial funds. The other, a "substitution effect", occurs in municipalities 
that have already provided the service at acceptable standards prior to the in- 
ception of the grant. For such municipalities, the new grant provides not a 
stimulant but a subsidy that can be applied either to the provision of additional 
units of the grant-aided service, or to other items of expenditure, or to a reduction 
in property taxes. The result is that stimulation grants, depending on their effect, 
can create a dual type of discrimination. One arises from the additional budgetary 
discretion which a municipality enjoying a substitution effect gains by comparison 
with the municipality subject to an incentive effect. The second is due to the fact 
that the municipality that already provided the grant-aided service, and hence 
enjoys the substitution effect, is very likely a wealthier municipality than its 
counterpart which, not having provided the service previously, falls under the 
incentive effect. In any system that incorporates a multiplicity of conditional 
grants, serious problems of equity inevitably arise. 

98. Since stimulation grants by virtue of their very effect can accentuate inter- 
municipal differences in fiscal capacity, equalization provisions have a decided 
role to play in grants of a conditional type. But because we believe that stimula- 
tion grants should be limited in number, and also because all stimulation grants 
are not necessarily amenable to equalization, it is doubtless desirable to incorporate 
certain equaUzation provisions either into unconditional grants made in recognition 
of across-the-board deficiencies in municipal revenue, or into a non-property 
municipal tax should one prove feasible. The extent to which equalization should 
be carried in either case is, of course, subject to the limitations discussed earlier. 

99. The task of devising a rational provincial-municipal grant structure, whether 
with reference to revenue deficiency, stimulation or equalization, is appreciably 
more complex than that of improving grant practices in the federal-provincial 
domain. This is largely because differences in municipal population, service needs 
and fiscal capacity are in fact much greater than those that prevail among provinces. 
In their most extreme form inter-municipal discrepancies may well be insuperable 
obstacles in the path of improved grant policies. It is at this point that the viability 
of municipal institutions themselves must come under close scrutiny. 

THE PROVINCE AND LOCAL GOVERNMENT ORGANIZATION 

100. As we have already had occasion to point out, the principle of local 
autonomy is not a haven for municipalities so small or weakly organized that they 
cannot discharge their functions in efficient fashion. On the contrary, local 
autonomy stresses the importance of strong and responsible municipal institutions 
whose establishment and promotion are an important provincial responsibility. 

50 



Chapter 2: Paragraphs 98-106 

101. The strength of a local unit of government is normally determined by the 
extent to which population and resources are balanced within a given area. We are 
of the firm opinion, therefore, that a philosophy of provincial-municipal fiscal 
relations cannot pretend to be adequate unless it takes into account provincial 
responsibility for the structure of municipal institutions and the consequences of 
boundary organization for local autonomy. 

102. The notion that a unit of government can be too big to function in an 
efficient and responsible fashion can be traced back to the earliest political thinkers 
in the history of western civilization. It is precisely to avoid the more vexing 
problems of bigness that most modern democratic states foster the existence of 
municipal institutions. Yet there also exists a contrary notion, firmly rooted in 
practical experience, that a unit of government can be too small in relation to the 
minimum size necessary for the most efficient discharge of local functions. 

103. We have been impressed by the number of municipal units that lack the 
necessary area, population and resources needed to achieve financial and adminis- 
trative adequacy, the essentials of functioning autonomy. The plight of such 
municipalities is indeed a doleful one. Their revenue base, pitifully slim in many 
instances, is further eroded by poor assessment and collection procedures. Among 
such small municipalities can be found particularly strong pressures towards cut- 
throat competition for business assessment, to the detriment of sound zoning and 
planning practices. The effectiveness of such important spending functions as 
health and welfare becomes dissipated because of size too small to support the 
necessary range and standards of field services. In addition, the ability of the 
province to be of assistance, whether through grants or administrative guidance, is 
hampered by extremes of poverty and smallness of scale that defy adaptability to 
policies designed with more viable units in mind. 

104. We are likewise impressed by the extent to which piecemeal solutions to 
boundary problems tend to be little better than the deficiencies they are designed 
to correct. Ad hoc authorities, such as those created in the health and conservation 
fields, provide governmental units of sufficient size at the expense of divorcing public 
expenditure from taxing responsibility. Worse still, such authorities induce growing 
reliance on appointed or indirectly elected officials to the detriment of the democratic 
practices that surely lie at the heart of true local autonomy. 

105. As a result of the above-described circumstances, it has become our 
considered opinion that, in the interest of local autonomy, provincial responsibility 
for revision in municipal boundaries has become inescapable. There exist two 
possible courses of action. One involves the dissolution of certain existing local 
units in favour of new and larger municipalities. The other is a matter of fostering 
across the whole province a regional tier of local government that would be directly 
accountable for the performance of certain services whose effective discharge is 
dependent on a relatively large population and area. We proceed to comment very 
briefly on each. 

106. New and larger municipalities can provide an answer to many of the 
problems just discussed. They can promote economies of scale, provide specialized 

51 



Intergovernmental Fiscal Relations 

services not otherwise available, and achieve a needed degree of equalization by 
pooling the taxable resources of a wide area. We do recognize, however, the exist- 
ence of circumstances — not all of them valid — that can bar advance along this 
particular avenue of reform. To take but one admittedly extreme example, an 
isolated municipality with but a small contiguous population virtually defies en- 
largement. Viewed in this light the replacement of existing municipalities by larger 
ones, while both feasible and desirable in many cases, cannot be deemed to exclude 
other approaches. 

107. A second or regional tier of local government is not entirely a substitute 
for new and larger municipalities; indeed, it may usefully complement their develop- 
ment. In any event, it beckons as a full-fledged reform in its own right. Even in a 
situation where all municipalities were so constituted as to offer generally viable 
local government, there would remain certain functions, of which roads, health 
and welfare would be examples, whose effective discharge might well continue to 
be circumscribed owing to lack of sufficient population and taxable resources. 
Here regional government provides a reasonable answer by providing the advantages 
of a large municipal entity for the services over which it is assigned jurisdiction. 
Regional government is sometimes criticized by those who contend that, with three 
levels of government, federal, provincial and municipal, the nation is already 
overgoverned. But this line of reasoning completely overlooks the simple fact that 
the practical necessity for regional government is such that this second level of local 
administration is historically grounded in the county and has also been permitted 
and even encouraged to develop in an ad hoc form. Present ad hoc authorities, 
however, constitute nothing more or less than regional government on a narrowly 
specialized, fractionalized and disjointed basis, regional government erected at the 
expense of public accountability and direct responsibility. It follows that the 
creation of comprehensive regional governments, combining within themselves 
adequate tax powers and spending responsibilities and directly responsible to the 
electorate, can be a step in the direction of better government rather than more 
government. 

108. We strongly favour the fostering of larger and more viable units of local 
government, regional or otherwise. We take this stand not primarily on administra- 
tive grounds and certainly not in capitulation to the inevitability of George Orwell's 
rapidly approaching 1984. Rather, we take it in the interest of securing strong 
local authorities, thereby preserving and enhancing local autonomy and democratic 
government. 

THE TAXATION OF GOVERNMENT ENTITIES 

109. Again because principles are involved, we wish, as we did in our treatment 
of federal-provincial finance, to descend into the very specific realm of the tax 
treatment of governmental entities. By traditional practice, the Province of Ontario 
has exempted itself from municipal taxation. In a reciprocal vein, the provincial 
government has also been willing to grant municipalities either exemptions or 
rebates on provincial taxation. And municipal property located within the boun- 
daries of another local jurisdiction has likewise been exempt. 

52 



k 



Chapter 2: Paragraphs 107-1 14 

1 10. Since 1952, Ontario has made grants in lieu of municipal, but not school, 
property taxes on a limited range of provincially owned property. As for provincial 
Crown agencies, only the Hydro-Electric Power Commission pays grants in lieu of 
property taxes for both school and municipal purposes. Much Hydro property, 
however, is exempt from taxation, and its grants-in-lieu, which are related to its 
taxable properties only, are paid in relation to a statutory assessment of those 
properties. Other Crown agencies, such as the Liquor Control Board and the 
Province of Ontario Savings Office, pay grants solely in lieu of the municipal levy. 

111. Both because they derive benefits from the local jurisdictions in which 
they are situated and because they are engaged in business transactions, provincial 
Crown agencies should pay full grants in lieu of both municipal and school taxes 
and be assessed in accordance with the same principles as prevail for private busi- 
ness property. Exemption of Crown agencies, whether partial or complete, has 
added unnecessarily to the financial problems of municipalities and school boards. 
Furthermore, the resulting advantage accruing to these entities in competition with 
private business has no justification in terms either of equity or of economics. 

112. Other provincial property, in so far as it creates the same demands for 
local services as private residential and commercial entities, has no sounder a case 
for exemption. Provincial buildings require sanitation and related services no less 
than others. Provincial employees strain local transportation and educational 
facilities no less than their business counterparts. Full provincial payment in lieu 
of all local taxes is hence the only logical policy. And by extension of the same 
argument, municipal property, such as hydro installations situated in other juris- 
dictions, should meet all property tax liabilities. 

113. Just as we advocate full provincial payment of all local taxes, so also do 
we favour provincial taxation of local entities. The present exemption and rebate 
provisions which the provincial retail sales tax, to take but one example, extends 
to municipalities and school boards, only serve to complicate administration and 
enforcement. If local entities are in need of financial aid, proper assistance should 
be in the form of revised provincial grants and not at the expense of the provincial 
tax structure. In short, we favour the demise of all forms of intergovernmental tax 
immunity, which serves only to undermine sound taxation practices. 

OUR PHILOSOPHY OF PROVINCIAL-SCHOOL BOARD RELATIONS 
AND ITS FISCAL IMPLICATIONS 

PRINCIPLES OF PROVINCIAI^SCHOOL BOARD RELATIONS 

114. We have undertaken to enunciate our philosophy of provincial-school 
board relations in isolation from our discussion of the provincial-municipal realm 
partly because of the peculiar financial and economic importance of education but 
more especially because school boards occupy a position somewhat different from 
that held by other local authorities. Thus they are not taxing authorities, but instead 
raise their revenue requirements through requisitions on local councils. A further 
difference is found in the fact that those boards charged with the administration of 



53 



Intergovernmental Fiscal Relations 

the so-called "separate" schools enjoy a certain constitutional sanctity not shared 
by any other local authorities under the British North America Act, 1867, Section 
93 of which entrenches the provisions of The Separate Schools Act of 1863. Finally, 
there is the obvious difference that in contrast to local councils, school boards 
specialize in the discharge of one particular function, education, which is more 
fully a shared responsibility of provincial and local government than any municipal 
activity. 

115. We proceed, then, fully conscious of the distinctive position of school 
boards within the governmental structure. Distinctions aside, school boards do of 
course remain units of local government. As such we believe that the provincial- 
school board relationship can be analysed in terms of the four principles developed 
in the municipal context, that is to say local autonomy, provincial responsibility, 
equalization and assistance. These principles we presently venture to apply to the 
division of expenditure responsibilities and revenue sources, to grants and to school 
board organization. 

THE DIVISION OF EXPENDITURE RESPONSIBILITIES 

1 16. The above heading is something of a misnomer in that expenditure respon- 
sibilities for education are more shared than divided. The province and school 
boards share in common the financial burden of nearly all facets of the educational 
system, including construction, teachers' salaries and school maintenance. Yet on 
close inspection a certain division of expenditure responsibility becomes apparent. 
This is a division whereby the province bears the cost of essentially guaranteeing that 
adequate standards of education will prevail everywhere in Ontario. To the school 
board, meanwhile, is left the critical responsibility of determining what additional 
quality of education, if any, shall be sought over and above provincial standards. 

117. We approve of leaving to school boards the important role of determining 
marginal school expenditures and thereby the quality of education that shall obtain 
locally. This critical role surely befits the importance of local autonomy in a demo- 
cratic setting and makes possible the diversity and experimentation that are the 
key to educational excellence. At the same time, provincial responsibility for 
ensuring that adequate standards shall prevail in all localities is nowhere more 
pressing than in the domain of education whose proper provision is a matter of the 
most general, indeed national, concern. 

118. In approving the present division of spending responsibilities in education, 
we reject such item-by-item divisions as are sometimes proposed. To make, for 
example, the province solely responsible for construction costs while leaving to the 
municipalities the bulk of operating expenditure, or vice versa, would be an act of 
artificial compartmentalization which ignored the extent to which capital costs 
affect operating costs. Or, to take another example, to burden the provinces with 
the entire cost of teachers' salaries would fly in the face of the autonomy of school 
boards in appointing teachers, an autonomy that not only enhances local importance 
but safeguards the occupational mobility of the teaching profession. The most 

54 



Chapter 2: Paragraphs 115-122 

appropriate division of spending activities in education is surely that which makes 
the province the guarantor of educational standards and the local school board the 
source of diversity. It is this division that best reconciles provincial responsibility 
and local autonomy. 

THE DIVISION OF REVENUE SOURCES 

119. The local share of educational spending is met entirely through the 
property tax, including the business tax. This tax is levied not by school boards 
directly, but by the municipal councils, from which the boards requisition their 
needs. Two questions of principle consequently arise in the domain of educational 
finance. The first involves the propriety of using the property tax to pay for the 
local share of school expenditure. The second arises from the divorce of spending 
from taxation implicit in the requisitioning of school funds from municipalities. 

120. The propriety of using the property tax to finance the local share of 
school expenditure has become a matter of very considerable controversy. There 
are many persons who contend that the property tax bears much too high a propor- 
tion of the cost of financing local education; some individuals, including certain 
witnesses who appeared before us at our public hearings, even support the extreme 
view that the property tax should have no place whatever in educational finance. 
The stock argument advanced in support of this contention is that education is 
not a service whose benefits are related to the ownership of property and that as 
long as the property tax is justified on the basis of benefits received, it cannot 
possibly constitute an appropriate levy for school purposes. 

121. While we take a sympathetic view of the financial problems that have 
played a substantial role in giving currency to the above argument, we reject it as 
invalid. Schools do confer benefits on the owners of property, albeit in indirect 
fashion. Neither people nor business firms will purchase property where school 
facilities are not provided. In an age where consciousness of the benefits to be 
derived from education is acute, both families and industrial firms will tend to 
consider the quality of a community's schools before deciding on location. That 
municipalities themselves understand the practical value of good schools is abun- 
dantly evident from the fact that their own promotional literature designed to en- 
courage further settlement and industrial expansion seldom fails to mention the 
educational advantages which the community offers. The fact that the construction 
of sewers may well enhance the value of property more directly than schools makes 
possible a legitimate argument to the effect that sewers should be financed entirely 
through property taxation while schools should rely only partly on this tax. But it 
most certainly does not invalidate the use of the property tax for educational 
purposes. 

122. Local autonomy demands local participation in school finance. The 
property tax, as the levy most amenable to local administration and by virtue of its 
directness and visibility, serves to ensure responsible performance in the field of 
education. If school costs become an excessive burden on property, the answer is 
surely to be found in increased provincial assistance rather than total removal of 

55 



Intergovernmental Fiscal Relations 

the property tax from the field of education. The latter course could only accentuate 
the disease that had brought on its existence; the close scrutiny which results from 
financing schools through the property tax would be lost and local cost control 
irreparably damaged. 

123. The issue of cost control brings us appropriately to what we consider to 
be the second major problem in the division of school revenue sources: the divorce 
of spending from taxation implicit in the requisitioning of school funds from muni- 
cipalities. This practice violates the principle of local autonomy by enabUng school 
boards to evade direct accountability for levels of taxation. Important elements of 
cost control may have been retained in that no municipal council transmits school 
board requisitions to the taxpayer without identifying them. Nevertheless, the 
practice of requisitioning keeps school boards one critically important step removed 
from direct confrontation with the taxpayer. It is our considered view that no 
principle justifies the requisitioning powers of school boards. One way to end 
requisitioning, of course, would be to place education directly under the municipal 
council, as in the United Kingdom and the Province of Alberta. In the context of 
the present Ontario school system, the principle of local autonomy at least demands 
that school boards bill the taxpayer directly for the expenditures they undertake. 

THE ROLE OF GRANTS 

124. Implicit in our views about the place of the property tax in school finance 
is the notion that education is a function in which provincial grants command a 
leading role. This is so for two reasons: education is of considerably wider than 
local concern, and the elusive concept of equal educational opportunity continues 
to be an ideal dearly sought after by all democratic states, and one to be pursued 
by all feasible means. 

125. While the place of the property tax in school finance is firmly sanctioned 
by considerations of local autonomy and public accountability, we believe that this 
tax should not be counted upon to provide the major part of the costs of education. 
Education, after all, is a function whose benefits have the widest possible import. 
Its implications for national well-being are no less, and perhaps greater, than those 
of defence or foreign policy. The bulk of educational expenditure should therefore 
be financed from the major taxes on income, consumption and wealth — as indeed it 
is at present, if universities and kindred institutions are included in the total picture. 
We are of the opinion that this rule should apply specifically to elementary and 
secondary schools. Provincial responsibility demands no less. 

126. The major taxes on income, consumption and wealth can contribute to 
school finance only through the medium of grants. It is an observation of the 
tritest sort to remark that school boards are hardly in a position to levy their own 
income, sales and inheritance taxes. Accordingly, provincial education grants rep- 
resent the only possible application to local schools of the major taxes that must 
properly predominate in the field of education. 

127. If grants are the means of funneling the proceeds of major taxes to the 
school system, they have no less important a task in the realm of equalizing educa- 

56 



Chapter 2: Paragraphs 123-131 

tional opportunity. There is no public function where equalization is more appro- 
priate than education. Here is an instance where potential conflicts between 
notions of equity and economic efficiency are minimal. The difference between an 
advanced industrial society and its earlier counterparts is that today we can no 
longer afford "mute, inglorious Miltons" whose condition could be charged to a 
lack of educational opportunity. Moreover, in terms of political values, a healthy 
democracy demands an educated citizenry, for without one it will not long survive. 

128. There is, in our view, only one point beyond which financial equalization 
should not be carried. This is the point at which the dead hand of uniformity 
would descend upon the school system. Diversity, including the willingness to 
provide special and extraordinary educational services, is surely the key to an out- 
standing school system. Here is where the imagination and motivation born of local 
autonomy return prominently into the picture. 

129. Grants, both as a channel of income, consumption and wealth taxes and 
as the financial engine of equal educational opportunity, must predominate in the 
realm of educational expenditure. So-called "foundation" schemes of school 
finance, which we shall have occasion to discuss elsewhere in this Report, have 
proved clearly the possibility of devising grants that will fulfil both roles. There 
remains the question of whether the use of grants for stimulation purposes has a 
place on the educational scene. Stimulation grants can of course be made on behalf 
of a variety of services ranging from textbooks to adult education classes. 

130. In considering stimulation grants, it is well to remember that what we 
have called the principle of provincial assistance is so highly developed in the edu- 
cational domain that it is tantamount to provincial supervision. Vigilant inspection, 
provincial directives affecting curriculum, lists of departmentally approved text- 
books, all are part and parcel of provincial-school board relations. In this setting, 
the existence of certain stimulation grants that attempt to encourage school boards 
to carry out stated programs might be reconsidered in the light of substituting 
therefor an appropriate provincial directive with a corresponding increase in the 
general school grants. It is well to bear in mind that stimulation grants complicate 
an already intricate grant structure and that they have the uncertain economic 
effects described earlier no less among school boards than among municipalities. 
They should, therefore, be instituted only in a spirit of the utmost restraint. 

THE PROVINCE AND SCHOOL BOUNDARIES 

131. School units, like their municipal counterparts, can be too small to dis- 
charge their functions in an efficient and accountable manner. The decline in the 
number of one-room rural schools and recent provincial steps in reforming rural 
school boards offer abundant testimony to this fact. We wish to record our opinion, 
therefore, that the viewpoint which we developed in discussing municipal boundaries 
is fully applicable to school boards. Both local autonomy and provincial responsi- 
bility demand that school units be as viable as circumstances permit. Not only the 
present school system, but its further development into vocational and post- 
secondary phases, is critically dependent on rational and responsive organization. 

57 



Chapter 
3 



The Committee's Philosophy 
of Government Finance: 
Provincial Fiscal Policy 
and Public Borrowing 



1. In the first two chapters of our Report, we have presented our broad phi- 
losophy relating to the desirable characteristics of a tax system and of intergovern- 
mental fiscal relationships. To round out this background, we shall now consider 
the general nature, objectives and most appropriate use of provincial fiscal policy, 
a concept that we understand to include all decisions affecting the aggregate size 
and composition of government revenues and expenditures, and hence to the 
magnitude of the government surplus or deficit in any given period. The close 
relationship between fiscal policy decisions and cumulative changes in the public 
debt is therefore readily apparent. 

CHANGING CONCEPTS OF FISCAL POLICY 

2. Until the Great Depression of the 1930's, the most appropriate guide to 
government fiscal policy was almost universally held to be self-evident. The ideal 
objective sought by all governments — though with varying degrees of success — was 
the annually balanced budget. The appeal of this particular prescription lay partly 
in its simplicity, partly in the mistaken behef that it provided an effective bulwark 
against the irresponsible expenditure of public funds, and partly in the misconcep- 
tion that hke any private household or firm, the government was concerned solely 

59 



Provincial Fiscal Policy and Public Borrowing 

with the problem of financing the range of expenditures to which it found itself 
committed at any given time. In short, fiscal performance was evaluated in the light 
of a purely financial or accounting criterion, applicable to successive twelve-month 
periods and without reference to periodic fluctuations in the general level of 
economic activity. 

3. The cataclysmic events of the 1930's and 1940's, ranging from severe eco- 
nomic depression to the acute inflationary pressures of war time and the ensuing 
economic fluctuations of the post-war years, have all served to reveal and clarify the 
fundamental inadequacies of the balanced-budget fiscal philosophy. Accordingly, 
modern fiscal theory demonstrates that the most appropriate cash position for gov- 
ernment will vary with changes in the aggregate level of activity within the economy 
and may range from substantial deficits in times of recession to substantial surpluses 
in times of inflationary pressures. When actual levels of production are below the 
full-employment potential, the stimulation of aggregate demand for goods and 
services will be promoted by an expansionist fiscal policy, involving the creating of 
deficits; on the other hand, when aggregate demand is excessive in relation to avail- 
able productive capacity, it will be curtailed by a restrictive fiscal policy, involving 
the creating of surpluses. These varying fiscal effects can obviously be achieved, 
in principle, by various combinations of changes in taxation and expenditure, the 
most appropriate combination being determined in the light of the prevailing 
economic circumstances. 

4. We wish to make clear at the outset that fiscal policy should not be regarded 
as a panacea for the multiple economic ills of society. In so far as it is directed 
to minimizing fluctuations in the general level of employment, prices and production, 
its success will depend upon its effectiveness in creating an appropriate level of 
aggregate demand within the economy. But problems of unemployment on the 
one hand, or of inflation on the other, may arise from a multitude of causes other 
than a general deficiency or excess of demand for currently produced goods and 
services. To be specific, unemployment may reflect seasonal influences or structural 
or technological changes, and government must utilize an appropriate range of 
weapons if these problems are to be solved. A ready example is provided by the 
continuing efforts of the Ontario government to reduce technological unemploy- 
ment by providing continuously expanding programs of technical and vocational 
training and retraining. The use of fiscal policy is properly viewed as a necessary 
instrument in the attainment of society's economic objectives, but it is by no means 
sufficient in itself, and its limitations must therefore be continuously borne in mind. 

5. Despite the growing acceptance of the proposition that taxation, as a major 
component of government fiscal operations, should perform not only a financial but 
a much broader economic function, and that expenditure, the other fiscal compo- 
nent, should likewise be varied to achieve desirable economic ends, support for the 
idea of an annually balanced budget dies hard. As summarized by one writer, the 
". . . deliberate unbalancing of the government budget in order to balance the 
economy as a whole conflicts with strongly held views on the part of the general 
public with respect to proper budgetary procedure. The average citizen still believes 

60 



I 



Chapter 3: Paragraphs 3-8 

— and here his view is shared by much of the daily press — that a government should 
attempt to maintain a balance between its revenues and its expenditures."^ 

6. If pursued rigidly by all levels of government, regardless of changes in 
underlying economic conditions, the policy of the annually balanced budget would 
bring higher taxes and decreased government expenditures in recession, lower taxes 
and increased expenditures in inflation, and accordingly could lead only to the 
aggravation of economic instability and eventually to economic disruption. Despite 
such consequences, the balanced-budget tradition has remained strong, even at the 
highest levels of government, and for much of the post-war period Canadian fiscal 
policy was significantly impaired by the view, apparently shared by successive 
ministers of finance, that deficits are a curse and only to be suffered most unwill- 
ingly. One authority has observed that "... even political leaders who understand 
and accept modern fiscal theory find themselves very much on the defensive when 
the budget is in deficit. "^ 

7. It is nevertheless true that since the end of World War II, many national 
governments, including that of Canada, have assumed prime responsibility for 
promoting a continuously high level of economic activity. The effective pursuit 
of this objective requires the use of their fiscal powers to achieve an appropriate 
level of aggregate demand for the goods and services that their economies are 
capable of producing. This objective is obviously well beyond the responsibility and 
the ability of private economic units. By generating a cash surplus in any period, 
the government effects a net withdrawal of funds from the private sector of the 
economy and thereby tends to ease inflationary pressures. By generating a deficit, 
the resulting net addition to private funds can stimulate demand and contribute 
to the maintenance of the desired high level of economic activity. 

8. The government of Canada cannot be said to have been either an enthusiastic 
or a consistent practitioner of counter-cyclical fiscal policy during the two decades 
since World War II. Yet in the immediate post-war years, its fiscal policies reflected 
its early explicit recognition and advocacy of the need to use the budget as a crucial 
economic instrument. Speaking in 1948, the Minister of Finance noted that 
". . . if our budget problem were simply and solely to find enough revenue this 
year to meet our expenditures defined in the narrow accounting sense, we could 
afford to reduce taxes by a substantial amount. But that is not our budget problem, 
and if we approached our affairs in such a short-sighted manner, we would betray 
our responsibility. ... I believe that all parties in this parliament and most Cana- 
dians share the view that the national budget is no longer merely a matter of the 
government accounts that should be balanced every twelve months on some finan- 
cial rule of thumb. We view the national budget now as an integral part of the 
nation's business, influenced by and having an influence upon the state of employ- 
ment, income and prices. . . ."^ 

'See Clarence L. Barber, Provincial Fiscal Policy, Toronto: Queen's Printer, 1967, p. 1. 
See also Chapter 1 of this work for a discussion of the current theory of fiscal policy. 
^See Otto Eckstein, Public Finance, Englewood Cliffs: Prentice-Hall, Inc., 1964, p. 95. 
'Canada, Minister of Finance, Budget Speech, May 18, 1948, pp. 9-10. 

61 



Provincial Fiscal Policy and Public Borrowing 

9. In Canada as elsewhere, the use of fiscal policy as an instrument of economic 
stabilization has been regarded as the sole responsibihty of the central government. 
There is no reliable evidence that any province has consciously embodied stability 
objectives as a determinant of its fiscal operations at any time since the end of 
World War II. Provincial governments have generally regarded as both unnecessary 
and impracticable the deliberate use of their own taxing and spending powers to 
minimize fluctuations in employment, production and the general price level. For 
reasons that we shall proceed to develop, it is our view that such a position is no 
longer tenable if national and provincial economic objectives are to be pursued 
most effectively. In this connection, we are encouraged by some very recent state- 
ments of policy by the Provincial Treasurer of Ontario. These appear to imply 
the gradual disappearance of an era in which the growing provincial debt has been 
viewed in purely negative terms, as an inevitable and unpleasant fact of life to be 
reluctantly tolerated. In particular, the Minister has spoken of the warranted size 
of a "planned" deficit in relation to prevailing economic and fiscal conditions 
within the province.* 

10. We note in our next chapter that during the past quarter-century, the trend 
in Ontario's provincial debt has been persistently upward and that its growth 
presents no definable cyclical pattern, such as might be expected if counter-cyclical 
fiscal policy had been adopted. The debt has grown in both prosperity and depres- 
sion, a reflection of the consistent policy of the government of Ontario to finance 
its entire ordinary expenditures and some part of its capital expenditures from 
revenues, the remainder of its capital program being financed by borrowing. This 
particular pattern of finance clearly reflects the long-held "orthodox" view that at 
least in its "ordinary" operations, the government must at all times balance its 
accounts. The terms of borrowing, and particularly the maturity of the Province's 
debt, have been customarily determined by market conditions and not by the life- 
time of the assets acquired. The practical result of this pattern of finance has been 
that during the past decade, the annual deficit of the government of Ontario has 
averaged approximately 1 per cent of provincial personal income, a ratio that is 
typical of the provincial situation in Canada.^ 

INSTRUMENTS OF ECONOMIC POLICY 

1 1 . Before providing a general assessment of the burden of Ontario's present 
debt and of its prospective development to 1974-75, we wish to develop further 
our views concerning the potential contribution of a positive provincial fiscal policy 
to the economic well-being both of Ontario and of the nation. At the level of 
national governments, it is well recognized that the two broadest or most general 
instruments available for promoting the major economic objectives of stability and 
growth are fiscal policy and monetary policy. Monetary policy encompasses all 
government decisions designed to influence the general availability and cost of credit 
within the economy, a range of activities that constitutes the major function of the 
central bank. The immediate aim of monetary policy is to induce appropriate vari- 



*See, for example, Ontario Budget Speech, February 9, 1966. 
"See Barber, Provincial Fiscal Policy, pp. 46-7. 

62 



Chapter 3: Paragraphs 9-14 

ations in the state of the economy's over-all liquidity and hence to influence the 
rate of money expenditure on goods and services. The close interrelationship 
between monetary and fiscal policies will therefore be readily apparent. 

12. Monetary and fiscal instruments are "general" in the sense that their effects 
pervade the entire economy. They may therefore be contrasted with more selective 
measures designed to improve productivity in particular sectors of the economy, 
such as those directed to the improvement of the education and technical skills of 
the labour force, the stimulation of scientific research and development, changes in 
the market structure of industry, and regional resource development. It is clear 
that the economic objectives of stability and growth are closely interrelated, in that 
success in achieving stability in the short run will at the same time further the 
longer-term objective of economic growth. Elsewhere in our Report we stress the 
crucial importance of a sound tax structure in the attainment of this latter objective. 
The particular point we wish to emphasize here is that while both general and 
selective measures of economic policy are relevant to promoting economic growth, 
the battle to minimize short-run cyclical instability must be fought mainly with 
the general weapons of monetary and fiscal pohcy. 

13. Within the Canadian federation, monetary policy has always been regarded 
as the sole prerogative of the central government, for if the concept of a "nation" 
is to be at all meaningful, the existence of a common monetary policy is surely 
one of its basic economic prerequisites. Because this policy must at any time be 
based on a consensus of the national economic interest, it will not necessarily serve 
all regional interests equally well, but in the context of a capital market that is not 
merely national but international in scope, the notion of separate regional monetary 
policies formulated and administered by a central bank must be judged completely 
impracticable. As an economic instrument, monetary policy appears capable of 
providing a more efTective contribution to long-run growth than to short-term 
stability. This circumstance arises not only from undesirably long lags inherent in 
the use of monetary policy — a weakness shared in some degree by fiscal measures 
— but from external balance-of-payments pressures and other constraints which 
have progressively impeded the orienting of Canada's monetary policy primarily to 
domestic economic objectives. As an example of this kind of difficulty, it may 
simply be impossible, given the great sensitivity of short-term capital to international 
interest-rate differentials, to lower Canadian interest rates to the levels most appro- 
priate for stimulating the economy when substantial unemployment prevails. 
Because a truly independent national monetary policy is not realistic, fiscal policy 
has become the Canadian government's major instrument of economic stabilization. 

CONFLICTS AMONG ECONOMIC OBJECTIVES 

14. In Chapter 1, we included stability and growth among the major economic 
objectives of society and we noted that government fiscal policy now provides an 
important range of instruments to be directed to the pursuit of these objectives. 
In placing major emphasis on the attainment of stability (of employment, produc- 
tion and price levels) in the following discussion, we in no way wish to minimize 
the crucial importance of generating sustained economic growth within this province 

63 



Provincial Fiscal Policy and Public Borrowing 

and the nation. On the contrary, we recognize the greatest need for providing a 
tax system that will lend maximum encouragement to continuously rising levels of 
productivity within the Canadian economy. Within our own terms of reference, we 
have sought to advance recommendations that we think will contribute to this 
result. Our view has been that the productive potential of the Ontario economy 
is based upon the quantity and quality of its available labour and marginal skills 
and capital equipment, and upon the technology at hand for embodiment in the 
productive process. A major contribution of tax policy to rising productivity and 
long-run economic growth therefore lies in its encouragement of a growing stock of 
human resources with increasingly diverse skills and in a comparable continuing 
flow of investment into technologically advanced forms of capital equipment. 
Equally important to the attainment of satisfactory growth is the formulation of tax 
measures that encourage the employment of these productive resources in their 
most efficient uses. 

15. Our review of the past performance of the Ontario economy nevertheless 
leads us to the conclusion that perhaps the most important single contribution which 
tax policy may contribute to the economic growth of the province lies in its modera- 
tion of undesirable short-term fluctuations in employment, production and price 
levels — in other words, in its contribution to economic stability. In this context, 
the importance of maintaining continuous high levels of employment and production 
is perhaps too obvious to require elaboration, but the objective of a stable general 
price level is likewise crucial, and for two reasons. When significant changes occur 
in the general price level, the prices of particular goods and services will inevitably 
change at varying rates, thereby introducing arbitrary changes in the distribution of 
income among various groups within the economy. These distortions of cost-price- 
selling-price relationships inevitably create inequities, lessen the efliciency of the 
productive process and thereby impede the attainment of economic objectives. A 
second aspect of the problem is that even if every individual price rose (or declined) 
at the same rate, thereby avoiding the distortions we have just indicated, serious 
difficulties would still arise as between lenders and borrowers within the economy, 
the dollars repaid being worth less (or more), in real terms, than the dollars 
borrowed. Here the resulting redistribution of real wealth again creates inequities 
and lessens the efficiency of the economic process. 

16. We must nevertheless recognize that at any given time in Canada, as else- 
where, the objectives of fuller employment, greater price-level stability and more 
rapid economic growth may conflict with one another, in that it may not be possible 
for all to be achieved simultaneously. Difficult choices must therefore be made, in 
the light of the "trade-offs" that appear possible among various objectives. It may 
be decided, for example, that a 4 per cent average annual rate of unemployment 
will be an acceptable object of national policy because the attainment of any lower 
rate would involve too high a price in terms of additional inflation. If this is so, 
then 4 per cent unemployment becomes the working interpretation of "full employ- 
ment" and the government's appropriate fiscal position will be that which con- 
tributes to the level of aggregate demand appropriate to sustaining the required 

64 



Chapter 3: Paragraphs 15-19 

employment level. Viewed in this general context, the continuing goal of the totality 
of government economic policy will be to improve the trade-off terms — i.e., to 
lessen the costs of pursuing particular objectives more fully, or to put it more 
directly, to lessen the degree of conflict among competing economic objectives. 

17. Having adopted some practical quantitative definition of full employment, 
the government must then attempt the difficult task of projecting the potential gross 
national product of the economy under these full-employment conditions, if appro- 
priate counter-cyclical fiscal policy is to be devised. Given the current structure 
and rates of taxation and given the current structure of its spending programs, the 
government will then be able to estimate the total revenues and expenditures that 
these would produce, at the potential full-employment level of gross national 
product. The resulting relationship is known as the government's full-employment 
surplus or deficit. 

THE NEED FOR "DISCRETIONARY" FISCAL POLICY 

18. From the point of view of economic stabilization, government revenues 
and expenditures should approximate a balance only when the nation's rate of out- 
put (gross national product) reflects a condition of full employment. It therefore 
follows that in periods of economic recession, the fiscal system should produce 
deficits, while in periods of strong inflationary pressures it should produce surpluses. 
Where the effect of current tax and expenditure programs is to produce a balance 
in the government's accounts before the full-employment level of gross national 
product has been achieved (and where a potential surplus at full employment is 
therefore indicated), this potential surplus constitutes what has become known as 
the "fiscal drag". The term is self-explanatory, in that the government's net with- 
drawal of funds from the stream of private expenditures, in an economy that has 
not yet attained the desired level of full employment, renders unattainable the 
level of aggregate demand required to reach this employment and production 
objective. 

19. It is true that government fiscal operations embody a limited degree of 
"built-in" flexibility and thereby provide some tendencies to stabilization through 
the automatic changes that occur both in revenues and expenditures as the general 
level of economic activity changes. Most striking on the revenue side are the 
automatic variations in the personal income tax receipts, a reflection of the gradu- 
ated rate structure of the tax. On the expenditure side of the government's fiscal 
operations, the built-in stabilizing effects are best displayed by the changing levels 
of unemployment insurance benefits and various welfare payments. The operation 
of fiscal drag nevertheless emphasizes the need for placing major reliance upon 
discretionary changes in revenue and expenditure programs. In a growing economy, 
with these programs remaining unchanged — i.e., with no discretionary or deliberate 
fiscal action — the effect of a continuously rising level of production in conjunction 
with a progressive tax structure will be that tax revenues represent a larger and 
larger proportion of national income, and that a larger and larger full-employment 
surplus (government revenues rising relative to expenditures) will be generated. 
This increasingly burdensome fiscal drag would restrain the rate of economic 

65 



Provincial Fiscal Policy and Public Borrowing 

growth and, as indicated, prevent the attainment of full employment at any given 
time. What is required, therefore, is the continuous exercise of fiscal discretion in 
an effort to balance government revenues and expenditures only at the continuously 
rising levels of gross national product that full employment makes possible in a 
growing economy. In so far as discretionary action is embodied in tax policy, there 
are two very important criteria of what particular taxes should be changed. These 
are the promptness and the reliability with which any rate changes will transmit their 
effects to the economy. To retain the greatest degree of tax equity, the broad lines 
of the stabilization program should have been formulated and generally agreed 
upon in advance of its utilization. 

20. Because Canadian monetary policy has in recent years been subjected to 
increasingly severe constraints, it appears that the main attack on economic 
instability must in the foreseeable future be launched with fiscal weapons. In our 
view, the national interest requires that primary responsibility in this area remain 
with the central government, for which purpose it must of course retain an 
adequate fiscal arsenal. But unlike the exercise of monetary policy, the fiscal 
operations of the provinces and their municipalities represent a strategic and 
increasingly powerful economic influence within Canada. Their combined annual 
expenditures now exceed those of the federal government, and a Canadian Minister 
of Finance has noted that ". . . changes in provincial revenues and expenditures, and 
in their budgetary balance, have a major effect upon growth and stability in the 
Canadian economy. It follows too that the timing of their expenditure measures 
can be such as to contribute to a steady growth of production and jobs, or the 
reverse. "° 

INCREASING IMPORTANCE OF PROVINCIAL AND MUNICIPAL FINANCE 

21. Since the end of World War II, the aggregate revenues and expenditures 
of all levels of government within Canada have grown rapidly, both in absolute 
terms and in relation to the financial transactions of the private sector of the 
economy. Some indication of the importance of the financial activities of all 
governments in Canada is provided by the fact that in 1964, their collective expendi- 
tures on goods and services amounted to $8.6 billion, of which the federal govern- 
ment accounted for $3.0 billion and provincial and municipal governments 
$5.6 billion. This aggregate represented some 18 per cent of Canadian gross 
national product. In addition, their transfer payments to the private sector — i.e., 
excluding intergovernmental transfers — approximated $6.0 billion, of which the 
federal government disbursed $3.5 billion and provincial and municipal govern- 
ments $2.5 billion. The resulting total government expenditure of $14.6 billion 
amounted to some 3 1 per cent of gross national product. It is particularly interest- 
ing to note that while the federal share of this total, $6.5 billion, reflects a growth 
of 56 per cent during the past decade, the provincial-municipal share, $8.1 billion, 
has grown by more than 200 per cent during the same period. 

22. During 1964, the total revenues of the federal government approximated 
$8.1 billion, of which some $1.3 billion was transferred to provincial and municipal 



'See Minister of Finance, Budget Speech, April 26, 1965, p. 8. 

66 



Chapter 3: Paragraphs 20-25 

authorities. Coupled with its foregoing transfers to the private sector and with its 
expenditures on goods and services, the federal government is therefore seen to 
have generated a modest surplus of $0.3 billion. Total combined provincial- 
municipal revenues, excluding the indicated transfer payments from the federal 
government, amounted to $7.7 billion. Their combined deficit, similarly measured 
on a national-accounts basis, therefore approximated $0.3 billion, in reality exceed- 
ing slightly the federal government surplus. The effect of the intergovernmental 
transfers was to reduce the federal government's share of combined revenues from 
56 to 47 per cent and conversely to increase the provincial-municipal share from 
44 to 53 per cent. It is interesting to note that provincial governments transfer to 
local authorities an aggregate amount almost equal to that which they receive 
from the federal government. 

NEED FOR INTERGOVERNMENTAL FISCAL CO-ORDINATION 

23. Given the magnitude of these financial transactions in the public sector 
of the Canadian economy, it may be readily appreciated that government fiscal 
policies — i.e., policies relating to the levels, composition and timing of public 
revenues and expenditures — represent a powerful and inescapable influence on the 
general level of economic activity within this country. If used effectively as one 
component of government economic policy, these fiscal instruments can contribute 
greatly to the attainment of the nation's economic objectives, whereas if they are 
not so used the objectives may be impossible of attainment. 

24. In this connection, it should be noted that the events of recent years have 
undermined the fiscal powers of the federal government, in respect of both its 
revenues and its expenditures. With regard to revenues, the provinces once again 
legislate their own rates of direct taxation (personal and corporate income taxes). 
In addition, the development of the technique of federal tax abatement has facili- 
tated the greater use of these particular tax fields by the provinces, leaving the 
federal government with a correspondingly reduced share of these fields. Both of 
these developments have substantially lessened federal control over what are 
generally recognized as the most effective instruments of economic stabilization. It 
may well be that the most important economic issue concerning the appropriate 
limits to federal-provincial fiscal arrangements and the tax areas to which they 
might be extended hinges upon the minimum requirements for the retention of 
effective fiscal control by the federal government. On the expenditure side it is 
likewise quite clear not only that provincial-municipal outlays substantially exceed 
those of the government of Canada but that their relative importance will continue 
to grow. Moreover, those particular areas of expenditure that appear to be most 
adaptable to cyclical variation — i.e., welfare, roads and housing — represent areas 
either of provincial or of constitutionally shared jurisdiction, where intergovern- 
mental co-operation therefore becomes essential for most effective action. 

25. The continuing trend toward fiscal decentralization within the Canadian 
federation is a process that may be seen, in historical perspective, as a reaction to 
the abnormal centralization of economic power that occurred during World War II 

67 



Provincial Fiscal Policy and Public Borrowing 

and to sharply and continuously rising expenditures in areas constitutionally allo- 
cated to the provinces. Such a trend points up the growing unreality of the view 
that fiscal stabilization policy should remain the exclusive responsibility of the 
federal government. The effective use of such policy implies not merely the need 
to avoid fiscal measures operating at cross-purposes but, more positively, that 
provincial action in this area be formulated with a conscious recognition of its 
stabilizing potential. This is a particularly important consideration for those 
provinces whose aggregate revenues and expenditures are large enough to exert 
significant effects upon the Canadian economy. 

26. The economic history of Canada provides repeated demonstrations of the 
fact that at any given time, the general level of economic activity may vary 
substantially from one province to another. It follows that broad stabilization 
policies originated by the federal government will not be likely to cope with 
regional problems with equal effectiveness and that co-operative provincial fiscal 
measures can sharpen the attack in particular regions. One might further hope 
that the assurance of such co-operation from the provinces would encourage the 
federal government to promote its own stabilization programs on a scale not 
heretofore thought to be practicable. 

27. It is therefore our firm view that the Province of Ontario should recognize 
its own substantial responsibility for promoting economic stabihzation and should 
therefore undertake to formulate and implement a continuing policy of counter- 
cyclical financing. Such a policy is required in the interest of both the provincial 
and the national economy. 

28. In the course of our studies in this important area of economic policy, 
we have been encouraged to learn that a number of provinces have already com- 
mitted themselves to the principle, if not yet the practice, of counter-cyclical 
finance. Discussion with provincial officials has further suggested a general willing- 
ness on the part of the provinces to complement federal policies designed to cope 
with the inequities and economic inefficiencies of these cyclical fluctuations. The 
obstacle to the initiation of effective provincial fiscal action has frequently been 
explained as lying not in any failure to recognize its desirability but in the financial 
difficulties involved. With reference to the Province of Ontario, we therefore 
now wish to shift our discussion from the desirability of counter-cyclical financing 
to the question of its practicability, noting at the outset that "practicability" 
involves both financial and technical requirements. 

FEASIBILITY OF PROVINCIAL COUNTER-CYCLICAL FISCAL POLICY 

29. The possible limitations on the ability of Ontario to adopt counter-cyclical 
financing have been discussed at some length in a study sponsored and published by 
this Committee,'^ and because we find ourselves in broad agreement with its 
findings, we wish to emphasize several aspects of that discussion. It is frequently 
suggested that in contrast to the federal government, the Province's lack of control 
over monetary poUcy will seriously limit its ability to engage in counter-cyclical 



'See Barber, Provincial Fiscal Policy. 

68 



Chapter 3: Paragraphs 26-32 

financing. It is of course true that when undertaking a program of deficit financ- 
ing to combat recession, the federal government will look to the Bank of Canada 
as the major buyer of its securities and as a source of support for the bond market. 
To the extent, however, that such a policy of monetary expansion is constrained by 
external balance-of-payments considerations (and such monetary constraints are 
likely to be substantial under our present system of fixed exchange rates to which 
we appear to be committed for the foreseeable future) the distinctive advantage 
accruing to the federal government is correspondingly diminished. 

30. On the other hand, if the Bank of Canada succeeds in estabUshing the 
easy-money, low-interest-rate conditions appropriate to domestic recession, its 
beneficial effects will certainly accrue to provincial goverimients. Given the 
international mobility of capital characteristic of the Canadian economy, monetary 
pohcy will be the relatively more effective stabilization instrument where flexible 
exchange rates prevail and fiscal policy relatively more effective under a regime of 
fixed exchange rates, as at present. 

31. It will readily be conceded that the effective provincial operation of 
counter-cyclical fiscal policy requires that appropriate monetary conditions be 
provided by the central authorities. We think that in the Canadian economy such 
conditions generally will be provided in any given period, barring the unusual 
circumstance in which regional cycUcal fluctuations vary not merely in degree but 
in their absolute direction. Were this situation to arise, it would obviously be 
financially imprudent, for example, for the Province of Ontario or any other 
province to contemplate incurring the size of deficit, with the accompanying 
expansion of its debt, likely to be effective in coping with provincial economic 
recession, at the same time as the federal government pursued a policy of tighter 
and dearer money to curb inflation that might be generally characteristic of the 
nation's economy. 

32. Because the stabilizing effects of fiscal policy are related to its impact 
upon the aggregate demand for current production, its initial objective is to alter 
the level of disposable income in the private sector of the economy. The actual 
manner of disposition of this income then becomes crucially important. If, for 
example, the effect of counter-cyclical fiscal policy during recession has been to 
increase private disposable income, the stimulating effects upon the economy may 
be disappointingly small. This may be so if much of this additional income is 
saved rather than spent, or if spent, is used to purchase goods produced elsewhere 
rather than within the domestic economy. Such savings or expenditures on "out- 
side" goods and services are commonly known as leakages from the flow of 
domestic expenditures. It will be obvious that the larger the geographic area (to 
take just one variable) in which stabilization policy is practised, the smaller the 
leakages are likely to be. Thus, for the Canadian economy as a whole, the leak- 
ages from additional income, apart from additions to saving, are represented by 
any increased expenditures directed to imports from abroad rather than to 
domestic production. For the Ontario economy, leakages encompass the spending 
of its residents not only outside Canada but anywhere outside the province. 

69 



Provincial Fiscal Policy and Public Borrowing 

For a municipal economy, the leakages from rising incomes are likely to be very 
great indeed. 

33. It is clear that of all Canadian provinces, Ontario would suffer least from 
income leakages associated with its counter-cyclical fiscal operations. The fact 
that the estimated magnitude of such leakages is less than those of many indepen- 
dent nations reflects both the size and diversification of her economy. There is no 
doubt that the Ontario economy would derive a substantial cumulative benefit from 
counter-cyclical fiscal action initiated by the provincial government. If some or 
all other provinces were encouraged to undertake co-ordinated fiscal action, the 
dimensions of leakages would be sharply diminished and the benefits accruing to 
the Canadian economy substantially increased. 

34. We support the view that "perhaps the key factor in determining whether 
a province can pursue an independent fiscal policy is the nature of the provinces' 
borrowing capacity and the extent to which they can increase their debt",*^ in order 
to finance the deficits that constitute an inherent component of such a policy. The 
appropriate magnitude of such deficits will of course be related to the severity of 
the cyclical fluctuations that beset the economy, and here it appears reasonable 
to assume, on the basis of Canadian post-war experience, that the typical recession 
will involve some relatively moderate decline or perhaps temporary cessation 
in the economy's underlying rate of economic growth. Our studies support the 
view that in such circumstances, and indeed in the somewhat less probable event 
of more serious and prolonged recession, the fiscal strength of the Province of 
Ontario makes feasible an effective program of provincial counter-cycUcal financ- 
ing. We return to some of the debt implications of such a program in later 
sections of this chapter and we wish to emphasize again our underlying assumption 
that in such periods of recession, effective monetary and fiscal leadership will be 
provided by the central government. On this latter point, we agree that ". . . it is 
virtually certain that in any future period of cyclical decline, the central bank [of 
Canada] wifl pursue a policy of monetary ease and this will benefit junior levels of 
government as well as the central government."'' 

35. At any given time, the "borrowing capacity" of a government relates both 
to the general availability and to the cost of credit, and fundamentally it rests 
upon the government's taxing potential, the measure of its ability to meet the 
debt obligations that it may incur. Availability may also be affected to an 
important degree by certain customs and preferences found in the capital market 
and in particular by the traditional views of financial intermediaries as to what 
constitutes the most appropriate distribution of their asset portfolios, i.e. of their 
patterns of lending. Such traditions are particularly strong within the Canadian 
market. As a means of escaping either the real or the assumed domestic limits 
of their borrowing capacity, provincial and municipal governments in Canada 
have frequently turned to foreign borrowing in the U.S. capital market, a process 



"Barber, Provincial Fiscal Policy, p. 27. 
'Ihid.. p. 28. 



70 



Chapter 3: Paragraphs 33-39 

that necessarily involves the assumption of exchange risks by the borrowers, who 
are committed to meeting their debt obligations in foreign currency. 

36. Because the financial community has judged Ontario's economy to be 
sound and the conduct of its financial affairs to be prudent, the Province has at 
no time during the post-war years been called upon to test the quantitative limits 
of its borrowing capacity. The most significant borrowing limitation has rather 
been found in the reaction of the government to rising rates of interest associated 
with any rapid and substantial increase in provincial debt. While the general 
level of interest rates in the economy will reflect the relationship between the 
demand for and the supply of loanable funds (the latter influenced strongly by 
the federal government's prevailing monetary policy), the cost of such funds to a 
particular province will be further influenced by the degree to which its debt 
management conforms to rather arbitrary criteria of "orthodoxy", as determined 
by the lenders. There is therefore reason to believe that a major limitation on 
provincial borrowing is not the existence of high interest rates per se but the fear 
that to proceed beyond rather arbitrary limits will involve a rise in rates relative 
to those of other provinces, an occurrence interpreted as an undesirable reflection 
upon the financial reputation of the government. 

37. In the context of counter-cyclical finance designed to combat recession in 
Canada, one may reasonably expect that a constructive complementary policy of 
monetary expansion by the federal government will lower the general level of 
interest rates and increase the money supply within the economy. Given the 
typical decline in the amount of private corporate borrowing during recession and 
the need of institutional lenders to maintain a satisfactory level and distribution 
of their earning assets, it should be possible for governments, and particularly for 
a strong provincial government such as Ontario, to expand their indebtedness 
substantially and at relatively low interest costs. 

38. Recent years have brought an encouraging growth in the general under- 
standing of the potential contribution of government counter-cyclical finance and 
particularly of the economic role of government deficits in periods of recession. It 
is nevertheless obvious that there exists a formidable problem of public education 
in this matter, and that a sustained attack by all feasible means is required, if such 
a program is to develop the broadly based support essential to its long-term 
operation. It is perhaps not too much to hope that if positively pursued by 
Ontario and other provincial governments, financial policies directed to economic 
stabilization may very soon be commonly accepted as an essential component of 
responsible provincial fiscal action. In thus promoting a new orthodoxy, such 
governments might finally win the positive support of the financial community and 
escape the traditional disfavour that the incurring of deficits has long brought 
upon them. 

39. Apart from considerations related to the availability and cost of funds, 
government debt policy is obviously conditioned by prevailing views as to the 
particular circumstances in which it will be appropriate to borrow. These views 
are formulated by provincial governments in the light of their systems of public 

71 



Provincial Fiscal Policy and Public Borrowing 

accounting which commonly distinguish "ordinary" from "capital" expenditures 
according to arbitrary and frequently changing criteria. Granted the legislative 
and administrative advantages of such a classification, it not only fails completely 
to provide any basis for, but in a sense obstructs, any analysis of the economic 
impact of government expenditures and the net financial effects that these may 
bring about. 

40. To utilize the provincial public accounts as an effective instrument for 
economic policy — and it is our view that such action should not be longer delayed 
— what is required is the addition of a national-accounts approach to the classifica- 
tion of government revenues and expenditures. In such a presentation, only (and 
all) those income and expenditure transactions of the government that provide a 
direct and immediate impact on the total flow of income and expenditure through- 
out the economy would be included in a national-accounts form of budget. Purely 
financial transactions (government borrowing and lending transactions, which 
affect only the asset and liability positions of various sectors of the economy) 
would be excluded, as would various bookkeeping items solely of internal signi- 
ficance to the government. Moreover, all national-accounts items would be entered 
on an accrual basis, to ". . . permit a more meaningful appreciation of the timing 
of changes in the surplus or deficit of the government sector in relation to 
fluctuations in economic activity."^*' 

41. In a somewhat more general context, we may say that the effectiveness of 
government economic policy will depend upon the skill with which available policy 
"instruments" are directed to the attainment of a well-defined pattern of economic 
priorities. In today's complex economy, the skilful use of fiscal and other instru- 
ments requires the prompt diagnosis of the current state of the economy and of 
its prospective trends, in relation to the public's desired goals. It also requires a 
thorough understanding of the capabilities of various instruments and of the 
particular impact of alternative policies on the functioning of the economy. In 
short, effective economic policy requires that appropriate technical expertise be 
available to government, to provide the relevant information on which sound 
policy must rest. 

42. We are greatly encouraged to observe that with its continuously growing 
responsibility for promoting provincial and national economic objectives, the 
government of Ontario has been moving to broaden its technical resources in this 
important area. We note the constructive development of a provmcial "bureau 
of statistics" to provide a range of economic data not hitherto available to the 
Province, and we think that its potential will be most fully realized through the 
establishment of close co-operation with the present Dominion Bureau and with 
other provincial centres of economic research. Such co-operation is particularly 
important in the development of complementary programs of research and of 
comparability in research concepts, techniques and choice of data. We believe 
that the continuing development of such an economics research program under the 



'"See Minister of Finance, Budget Speech, Ottawa, March 16, 1964, pp. 59-63; April 26, 
1965, pp. 31-3. See also U.S. Congress, The Federal Budget as an Economic Docu- 
ment, Washington: U.S. Government Printing Office, 1963. 

72 



Chapter 3: Paragraphs 40-46 

recently appointed provincial Chief Economist can greatly strengthen the govern- 
ment's position in weighing complex issues of economic policy. 

PHILOSOPHIES OF PUBLIC BORROWING 

43. The attitudes that underlie the borrowing practices of provincial and 
municipal authorities in Canada have recently been the subject of extensive investi- 
gation and analysis by the federal Royal Commission on Banking and Finance, 
whose findings are readily available for those readers who may wish to pursue the 
subject in some detail. ^^ They confirm the existence of several commonly held 
and somewhat conflicting "theories" of borrowing which we shall summarize very 
briefly. 

44. The "future-generations" theory holds that because the benefits of present 
capital expenditures will accrue in large measure to future generations of citizens, 
it will always be appropriate to rely heavily on borrowing as a means of financing 
such expenditures. The choice between taxation and borrowing is therefore seen 
primarily as a means of distributing the burden of cost of capital expenditures as 
between the present and future generations, and this widely held view has greatly 
influenced government borrowing decisions at many levels, times and places. 

45. It is perhaps unnecessary to point out that regardless of the means of 
finance adopted, the financial and real resources required to carry through the 
capital project must be supplied by the contemporary generation, whether through 
taxation or by lending to the government. The choice of financing will in no way 
alter the fact that the human and material resources required to construct a school, 
hospital, road or other capital facility must be contributed at the time of construc- 
tion. The real or resource cost of the project lies in the diversion of resources 
from other potential kinds of production to the particular objects of government 
expenditure, and it is quite clear that no part of this cost can be transferred from 
one generation to the next. However, it may well be that if various forms of social 
capital are constructed when the economy is afllicted by substantial unemployment, 
there may be little or no resource cost involved, since the labour and other 
resources used in public construction might very likely have remained unemployed 
had a demand not been created by government. 

46. If we define the burden of a particular policy of public finance in terms 
of its effects upon the productive capacity of any given generation, then the choice 
of financing, as between taxation and borrowing, becomes important, in that debt 
financing will involve at least some shifting of burden from the present to the 
future. In the first place, government borrowing may impinge more heavily on 
private saving, taxation more heavily on consumption. The effect of borrowing is 
therefore likely to be that current consumption is relatively little impaired, while 
the rate of private capital formation is reduced. This will in all likelihood 
reduce the capital endowment inherited by a succeeding generation and so 

"See A. W. Johnson and J. M. Andrews, "The Basis and Effects of Provincial-Municipal 
Fiscal Decisions", in Canadian Tax Foundation, Inter-Government Fiscal Relationships, 
Toronto, 1964, pp. 37-77. This study was undertaken as a part of the research pro- 
gram of the recent Canadian Royal Commission on Banking and Finance. 

73 



Provincial Fiscal Policy and Public Borrowing 

adversely affect its potential consumption. To the extent that this occurs, the 
burden of debt financing by one generation will have been shifted to the future. A 
similar shifting will occur if the higher taxation of future periods impairs the rate 
of capital formation or lessens the efficiency of production at that time. 

47. A second aspect of inter-generation shifting relates to the postponement of 
taxation which borrowing permits. It may be argued that the actual process of 
lending involves no burden upon the creditor, who has simply undertaken a 
voluntary exchange of assets. On the other hand, taxation does involve a real 
burden, because a compulsory surrender of wealth occurs. Because the related 
processes of borrowing and taxation (to service and to repay the debt) are 
distinct in time, there will be a transfer of burden from the present to the future. 
It should be noted that this will be so whether the main impact of the transfer 
of private resources borrowed by the government has been reflected in reduced 
consumption or in reduced private capital formation. One important qualification 
to this process of tax postponement and accompanying shift of burden arises 
where the tax base utilized in servicing and repaying the debt is a marketable 
asset that exists at the time the debt is incurred. This is strikingly true of 
municipalities, where real property constitutes the major tax base, but the 
qualification is much less relevant to the provincial tax system. In the municipal 
situation, it is very Hkely that the necessary future tax increases will be anticipated 
and, as the economists say, "capitalized", with a consequent fall in the present 
market value of the property on which the tax is based. The result will be that 
the current generation of real property owners will be burdened in a manner not 
greatly different from that which would have occurred had taxation been chosen 
initially as the means of financing the public capital outlays. 

48. The foregoing discussion suggests that while the withdrawal of resources 
from the private sector of the economy must occur at the time that social capital 
projects are constructed, some inter-generation transfer of burden will nevertheless 
be occasioned by debt financing. Considerations of equity suggest that this result 
will be appropriate wherever a significant inter-generation transfer of benefits is 
conferred by such projects. An obvious and inescapable consequence of the 
choice as between taxation and borrowing is that it will affect the distribution of 
the community's income in both present and future periods, until the debt has 
been repaid. The choice therefore affects the distribution of burden both within 
and among successive generations. 

49. In contrast to the foregoing position, the "pay-as-you-go" view maintains 
that government should normally finance both its operating and capital expendi- 
tures from revenues. If no exceptions are admitted, this represents the traditional 
annually-balanced-budget approach, the glaring economic weaknesses of which 
have increasingly become recognized. Proponents of this view nevertheless usually 
interpret it in sufficiently broad fashion to permit the debt financing of such self- 
liquidating capital projects as provincial and municipal utilities, local improvements 
assessed to beneficiaries, and the like. Where the "self-liquidating" criterion is 
extended to include public expenditures designed to provide rather long-run 

74 



Chapter 3: Paragraphs 47-52 

returns as, for example, in education, the practical significance of the pay-as-you- 
go formula becomes very vague indeed. 

50. It is our considered opinion that self-liquidating provincial and municipal 
capital projects — that is to say, projects that produce an early and predictable 
steady flow of income sufficient to meet their cost — may appropriately be financed 
by borrowing. We note, however, that various public utilities estabUshed with the 
intention of becoming self-liquidating frequently fail to achieve such a financial 
status or, having achieved it, fail to maintain it. This being so, it cannot be 
arbitrarily assumed that any proposed public project will most appropriately be 
financed entirely by borrowing, simply because it is conventionally regarded as 
being self-hquidating. What is required is a thorough analysis of the prospective 
cost and revenue patterns of the proposed enterprise to determine its possible cost 
to the taxpayers. Excluding the genuine self-liquidating category, we think that 
neither the future-generations argument nor the pay-as-you-go argument provides 
a satisfactory basis for financing capital expenditure. The former appears to imply 
that all such expenditures should be met by borrowing, the latter that none should 
be so met, each representing an extreme position that would preclude desirable 
fiscal flexibility in adapting to the changing requirements of the economy. 

51. If the Province of Ontario and its municipalities were confronted by the 
continuing prospect of not only high but also relatively stable levels of annual 
capital expenditures, or of rising expenditures at relatively stable rates of growth, 
we think that there would be a strong case for these governments to move towards 
a position where the major proportion of such expenditures was normally financed 
from revenues, including grants. Given this primary emphasis, the revenue-debt 
relationship adopted by any particular government would nevertheless depend on 
the one hand upon its revenue capabilities and on the other hand upon its borrow- 
ing capacity, including its ability to sustain the increased debt. In both these 
respects, the position of the municipalities is notably less satisfactory than that of 
the Province. 

52. As detailed in a later chapter of this Report, our forecasts of provincial 
and municipal expenditures in Ontario during the next decade confirm the necessity 
for rapidly escalating capital outlays in such fields as education, resource develop- 
ment, and roads and highways, if public investment is to succeed in making its 
most effective contribution to increased productivity and sustained growth within 
the provincial and the national economy. Given these spending prospects, not 
even the early attainment of an "ideal" provincial-municipal tax system would 
render feasible their financing on a pay-as-you-go basis, nor indeed would such 
a policy be defensible in principle. In any growing economy, the secular rise in 
tax capacity is accompanied by a comparable rise in capacity to carry debt and 
both sources of finance must be utilized as part and parcel of a sound fiscal policy. 
To insist in such circumstances upon an unchanging level of debt (the balanced- 
budget fallacy) is to restrict unnecessarily and undesirably the ability of govern- 
ment to finance public expenditure and to ignore the need of the economy for an 

75 



Provincial Fiscal Policy and Public Borrowing 

increasing stock of safe and liquid assets without which the incentive to save 
might well be weakened. 

53. Viewing the prospect of both provincial and municipal expenditures in 
Ontario in the years to 1975, we therefore regard a substantial absolute increase 
in debt at both levels of government not simply as an inevitable but as a 
constructive aspect of public finance. What must be carefully considered, however, 
are the tolerable limits to any heavier burden that may be involved in such 
increases, and here we think that in view of recent trends, municipal governments 
may have little room to manoeuvre. In a later chapter of our Report, we offer 
some views concerning the most appropriate behaviour of provincial and municipal 
debt during the ensuing decade. 

54. Whatever the average proportion of Ontario's capital expenditures to be 
financed by borrowing through the years to 1975, the most appropriate debt policy 
at any particular time will reflect the current state of the provincial economy and 
the indicated need for counter-cyclical fiscal measures. Moreover, in view of the 
magnitude of aggregate municipal expenditures within Ontario, the effective use 
of provincial fiscal policy will require some measures to ensure that budgetary 
changes at the municipal level complement rather than conflict with provincial 
policy. 

MUNICIPAL FINANCE 

55. In this connection, we think it quite unreahstic to expect any municipality 
to initiate counter-cycHcal fiscal measures, for it will have neither the competence, 
nor the financial resources, nor the incentive to adopt such a policy. Yet a very few 
Ontario municipalities account for a very large proportion of total municipal 
expenditures within the province, and the advantages of modifying the timing of 
such expenditures in order to achieve some stabilizing influence on the general 
level of economic activity are obvious. While the urgent need for schools, hospitals, 
roads, sewerage systems and other forms of social capital renders the postponement 
of many municipal outlays impracticable, it is reasonable to suppose that in any 
given period some of these municipal expenditures are optional and therefore 
potentially subject to deferment. Our prime emphasis is nevertheless somewhat 
different in that, given the sound planning of all such expenditures through five- 
year capital budgets, we think that sufficient flexibility might be introduced to 
make the advancement of particular projects a reaUstic possibility. 

56. As a comprehensive fiscal planning document, the five-year budget has 
been the object of considerable study by senior levels of government in recent 
years. It is viewed not as a replacement for the present one-year budgeting practice 
but as a supplementary instrument designed to improve the quality of fiscal 
decisions in regard to both taxation and expenditure. Subject to the inherent risks 
of forecasting in these areas, the multiple-year budget permits a more rational 
assessment of the implications of fiscal proposals than the one-year budget can 
possibly do, and it can be modified continuously by a process of annual revision. 
We think it entirely possible that through the extended application of the five-year 

76 



Chapter 3: Paragraphs 53-57 

budget to municipal capital planning within Ontario, significant variations in 
aggregate municipal expenditures might be achieved, in relation to changes in 
the underlying state of the provincial economy. 

57. To effect this desired integration of municipal with provincial fiscal 
policies, the municipalities will need to be provided not only with the necessary 
technical expertise but with appropriate financial assistance, and here we have no 
wish to minimize the problems involved. We think that municipal governments 
in Ontario can most effectively be made partners in the counter-cyclical timing of 
their capital projects through arrangements that permit the advancement in time 
of specified capital expenditures, without involving these municipalities in any 
corresponding advancement of the accompanying financial commitments. In 
relation to the process of five-year capital budgeting, the objective of the provincial 
government would simply be to alter the timing of capital outlays from that 
already contemplated by any municipality and its associated local boards in the 
absence of counter-cyclical considerations. The Province might therefore meet 
the cost of the municipality's temporary borrowing for a specific period of time, 
perhaps initially one year, in relation to the bringing forward of municipal capital 
projects scheduled for a later period, in order to swell the aggregate volume of 
counter-cycUcal capital investment. In addition, the Province would also need 
to advance its own grant funds for which such projects would be eligible, as 
determined by the normal criteria for grant assistance. In recent years, the federal 
government has established conditional grant programs related to capital projects 
faUing within municipal jurisdiction. In part, their objective has been to reduce 
unemployment, but they have not in practice been effectively geared to cyclical 
objectives, nor have the available financial resources been most effectively allocated. 
We think that the manifest interest of the federal government in a broadly 
co-ordinated program of social capital expenditure can best be reconciled with 
provincial-municipal priorities in this area, not by direct federal grants to the 
municipalities, but by an appropriate flow of such funds to the provinces. The 
provinces will thereby be strengthened in the financing and administering of their 
own counter-cyclical measures on behalf of themselves and their municipalities. 



77 



Chapter 

4 



The Ontario Setting: 
Patterns of Expenditure, 
Revenue and Debt 



INTRODUCTION 

1. Death and taxes appear to be inescapable facts of life. Medical science has 
done much to postpone the inevitability of death, but the fatalism with which we 
have come to accept taxation is underlined for us by the long interval of over sixty 
years that separates our inquiries from those of our most closely related prede- 
cessor, the Ontario Assessment Commission of 1900. That body, familiarly known 
as the Maclennan Commission, concentrated exclusively on municipal taxation. 
At the time, provincial taxes were few and made only moderate contributions to 
government revenue. Comprehensive taxes on income and consumption were still 
clouds no bigger than a man's hand hovering on the distant horizon. The very 
environment in which the Maclennan Commission conducted its work transports us 
into a nostalgic era. Thus the September 14, 1900, edition of the Toronto Daily 
Star, in which the appointment of the Commission was announced, carried an 
Eaton's advertisement offering good quality men's suits at $8.50 to $10. Shirt 
collars retailed at 500 to 750, and cloth-bound novels by such authors as Arthur 
Conan Doyle, James Fenimore Cooper and George Eliot were on sale at half their 
usual 200 price. Also in stock at Eaton's were 100 cuspidors of finest quality 



79 



The Ontario Setting 

granite, originally priced at 350 but selling for 150 "while they last". In another 
Star advertisement reluctant businessmen were told "The Telephone is the Business 
Agency of the Century. See that you are associated with it." 

2. Needless to say, the passing years have wrought so many changes in the 
province and in the responsibilities that governments are called upon to assume that 
we cannot use our predecessor's report as a foundation for our own findings and 
conclusions. Because the environmental setting for our investigation has altered so 
radically, it seems essential, as a prelude to our detailed studies, to sketch the 
main elements of growth and change in Ontario. It is, after all, the changing modes 
of life and employment that have so drastically affected the revenue and expenditure 
patterns of the government and so provide the main point of reference for our 
inquiry into taxation policies and practices. 

3. It is appropriate to begin what may be described as a remarkable success 
story with the province's chief resource: its people. We then proceed to observe the 
ways in which the populace has deployed its knowledge, skills and productive 
capacities throughout a territorial domain exceeding four hundred thousand square 
miles, but with a concentration of forces in a southern section that represents less 
than one-eighth of the total area. From this assessment we can identify the chang- 
ing activities and the growing social needs that have resulted in adding to the 
traditionally protective and essentially limited responsibilities of government a 
multitude of new welfare, servicing and regulatory functions. The expansion of 
government services and the population's increasing reliance on a high and efficient 
level of such services have swollen provincial and municipal expenditures and 
correspondingly tested the ingenuity of those responsible for finding the necessary 
revenues. These are the essential elements of the environment within which our 
study of taxation has been undertaken. The ways in which governments go about 
the task of raising the funds necessary to meet their growing range of commitments 
— that is, their taxation policies and practices — can have a marked impact on most 
elements of the environment. By the same token, and as this chapter seeks to 
demonstrate, the environmental setting establishes certain facts of life to which the 
system of taxation must be adapted. 

THE POPULATION OF ONTARIO 
SIZE, COMPOSITION AND DISTRIBUTION 

4. When the Maclennan Commission undertook its investigation of municipal 
taxation in 1900, the population of Ontario was less than one-third its present 
size of over seven million. In 1900, three out of every four persons lived in 
a rural setting; today, the proportion of urban dwellers has completely reversed 
the earlier picture. Even this dramatic transformation from rural to urban 
dwelling does not reveal the extent to which we have tended to congregate in a few 
large metropolitan centres. At the turn of the century, Toronto had added only 
3,000 persons over the past thirty years to bring its total population to 59,000. 
Hamilton, Ottawa and London each had less than half this figure. Today the 
metropolitan centres of Toronto and Hamilton together account for one-third of 

80 



Chapter 4: Paragraphs 2-8 

the total population of the province. Nearly one-half of the population is now 
located in the "golden horseshoe" of urban centres extending from Oshawa to 
Niagara. It is surely unnecessary to dwell on the implications of this new pattern of 
living for the municipal governments that must provide increasingly sophisticated 
and expensive services for these points of rapid urban growth. 

5. Native-bom residents of Ontario appear to find their increasingly urbanized 
mode of life congenial : at least it can be said that the proportion of them who seek 
residence elsewhere in Canada is smaller than the proportion of those from other 
provinces who migrate to Ontario. Similarly, reversing a pattern of the past, more 
than half of the immigrants who now come to Canada choose Ontario as their final 
destination. Thus today, over one in five residents of the province is foreign-bom — 
a phenomenon that has not gone unnoticed in larger metropolitan centres, whose 
character now bears a distinctly cosmopolitan imprint. 

6. Advances in medical science and public health measures have affected the 
age distribution of the population, with far-reaching consequences for the future 
labour force of the community and with immediate repercussions for the govern- 
ment in such fields as education, housing, health and welfare. In general, we are 
an older people than we were at the turn of the century, largely because relatively 
more people live out their biblical span of three score years and ten. The rate of 
family formation, which in turn govems the number of children in the population, 
is now ascending again, after a brief decline that set in after the rapid formation 
of families during the war years and the consequent "baby boom". We can antici- 
pate a repetition of the post-war cycle to bear fruit — and raise govemmental 
expenditures — in the 1970's. Meanwhile, although the proportion of young people 
in today's population is not as large as it was at the turn of the century, we are still 
faced with the fact that the number of school-age children today is nearly as large 
as was the total population of the province in 1900. 

7. An increasingly urbanized population places municipal services of all kinds 
under severe pressure, even as a growing number of elderly people focuses attention 
on health, welfare and social insurance schemes, and as the burgeoning crop of 
young people compels governments to take costly measures to provide adequate 
educational faciUties. When we add that an extraordinarily large proportion of the 
population virtually lives on wheels, spending annually over two-thirds of a billion 
dollars on new passenger automobiles, we have indeed moved a long way from the 
halcyon horse-and-buggy days of the early 1900's when fewer than two hundred 
vehicles were registered for the entire province. The design, construction and main- 
tenance of a network of highways and streets sufficient to girdle the globe more than 
twice over are but some of the direct costs of the automobile age for which govern- 
ments at all levels must find financial resources and technical skills. The indirect 
costs from pollution, congestion, and traffic accidents are only now beginning to 
take their place on the agenda of government. 

ECONOMIC ACTIVITIES 

8. Dramatic and extensive as are the changes this century has wrought in the 
size, composition and distribution of the province's population, they are in large 

81 



The Ontario Setting 

measure responses to important transformations that have been taking place in the 
economy and in the occupations that people have come to pursue. The shift to 
urban living is in an important sense a measure of the substantial decUne in the 
relative importance of agriculture as an occupation. At the turn of the century 
there were nearly twice as many people employed in agriculture as there are today. 
This greatly reduced agricultural labour force, occupying somewhat reduced acre- 
age but on many fewer farm units, has nevertheless managed to quadruple the net 
value of farm production over the last sixty years. It should also be noted that 
farm production is no longer destined for export but is used domestically to feed 
the urban population and to provide the raw materials for local food-processing 
concerns such as bakeries, packing plants, flour mills and distilleries that either did 
not exist or were very small in 1 900. On the other hand, agriculture today contrib- 
utes only 6.8 per cent to the net value generated from all commodity-producing 
industries, and its share of the labour force has declined from more than one-third 
to less than one-tenth of the total. 

9. Even as the decline in agricultural employment is an indication of the extent 
to which we have become urban dwellers, so the shift to urbanization has been 
associated with the growth of employment in other occupations. The most signifi- 
cant change has occurred in the service industries. These industries, which include 
transportation, trade, finance and public utilities, now employ more than half the 
labour force. Nearly another third of the labour force is employed in manufacturing, 
which contributes in gross value of production, after allowing for inflation of prices, 
fifteen times the amount it contributed sixty years ago. The construction industry 
now employs about two-thirds the number in agriculture, and accounts for 6 per 
cent of total employment. 

10. The significant shifts in occupation that have occurred since 1900 have 
reduced the proportion of self-employed persons as more and more members of the 
labour force find themselves employed by large concerns and paid in wages and 
salaries. This change in status may in large part account for growing public 
acceptance of the need for government intervention in labour disputes, and for new 
or expanded unemployment insurance schemes, pension plans, medical insurance 
programs and other public welfare measures. 

11. Not only has the pattern of gainful employment altered as indicated, but 
the composition of the labour force itself has undergone substantial changes. 
Perhaps the most significant of these changes is the extent to which women have 
been enabled to enter the labour force by virtue of time-saving gadgetry, com- 
munity acceptance of the altered role of women, and the growth of service industries 
more suited to female aptitudes than such formerly dominant enterprises as 
forestry and mining. In the early 1 900's women made up one-seventh of the labour 
force; today women comprise more than one-quarter of the labour force. 

12. While the labour force as a whole has grown to the point where it consti- 
tutes some 40 per cent of the total population, actually a diminishing proportion of 
the populace has been entering employment, largely because the younger age 
groups have grown in numbers and because young people tend to remain longer in 

82 



Chapter 4: Paragraphs 9-14 

school or university. The acquisition of a higher level of education and advanced 
technical training is consistent with the demands now being imposed on the labour 
force by the increased complexity of our productive system. Rising output must 
outpace population growth if we are to enjoy a continuously rising standard of 
living and have the capacity to pay for the mounting costs of more and better 
government services. For their part, educational and training facilities must keep 
up with the needs of the labour force if productivity is to be sustained. Here, in a 
nutshell, is a dramatic demonstration of the unbroken circle of mutual interdepen- 
dence of a number of interests: we all wish to enjoy a rising standard of living, 
which depends on increased productivity, which can only be secured by expanding 
the facilities and time required to acquire the necessary education and training, 
which, in turn, can be provided only by governments at increasing total cost to the 
taxpayer, who can sustain these costs only because he is enjoying a rising standard 
of living! Unfortunately, investment in the education of the young cannot be post- 
poned and, if members of the present generation are all to be given equal oppor- 
tunities, the mounting burdens on our educational resources and on governmental 
budgets are inescapable as well as desirable. 

13. The variety and scope of occupations now opened up to the populace of 
Ontario by twentieth-century developments have permitted the labour force of this 
province to enjoy the highest average real earnings in Canada. The cost of living 
today may appear to be a far cry from tum-of-the-century prices when books 
retailed for 200 and a good suit could be purchased for less than $10. On the 
other hand, we have also come a long way from the prevailing average labourer's 
wage of 230 an hour. Today's wage earner in Ontario probably works eight to ten 
hours per week less than his counterpart in 1900, has perhaps three times the 
purchasing power, enjoys greater security, and has access to more facilities with 
which to enjoy his leisure. The "average" resident of Ontario occupies his own 
five- to six-room house, which is most likely to be heated by oil or gas, and supplied 
with water through community mains. Stoves, refrigerators, radios, television sets 
and washing machines can be found in over 80 per cent of the homes, and make 
Ontario residents among the highest consumers of electrical energy in the world. 
Three-quarters of Ontario families own at least one automobile; some 11 per cent 
have two or more. Commanding the largest share of after-tax income in Canada, 
the resident of Ontario is able to indulge his growing leisure time in foreign 
travel or recreational pursuits. 

14. Our picture of the people of Ontario and their current economic activities 
as producers and consumers has had to be painted in broad brush strokes that tend 
to ignore the disparities between regions and individuals. But what this sketch does 
reveal is a province with a rapidly growing, urbanized population, a varied and 
increasingly industrialized economy showing a pronounced shift away from its 
traditional occupational base of primary and extractive industries, and a transfer 
of an ever-increasing volume of resources to all the supporting service industries 
required in such an economy. It shows a remarkable concentration of population 
and economic activity in a small southerly portion of a very large territory. It 
depicts a growing generation of young people demanding more education and 

83 



The Ontario Setting 

training with which to apply the new science and technology to our productive 
processes, thereby sustaining increased productivity. It reveals a labour force 
enjoying the fruits of rapid development, with more time and money to make the 
most of them. Above all, our sketch has demonstrated, by passing references, that 
nearly all these changes have transformed the role of government and occasioned a 
dramatic rise in the costs of government services. Since this transformation lies at 
the heart of the taxation problems confronting this Committee, we propose to 
pursue it now in greater detail. 

THE CHANGING ROLE OF GOVERNMENT 

15. The Province of Ontario is by no means unique in its exposure to the 
contemporary forces of industrialization, urbanization and secularization. Nor is 
it alone in having to adapt to the revolutionary changes in science and technology 
that have brought us in successive leaps through the eras of canals, railways and 
highways, to the jet and outer-space age of the sixties. Developments in the field 
of electronics have precipitated radical changes in communications that shrink the 
world and bring its astounding variety of events visually before us in our living 
rooms. The computer, data processing, and automation in all their complexity 
and marvellous versatility open new vistas, even as they raise such major prob- 
lems of adjustment as the retraining of the labour force. The energy potential 
locked in the atom has been released as a great power for good or ill in the world, 
and this achievement coupled with improved techniques for exploiting conventional 
sources of energy has added fresh impetus to the economy. In short, we are being 
buffeted by an unprecedented flood of innovating genius that creates fresh problems 
of adaptation and adjustment, even as it opens up new perspectives and oppor- 
tunities for a full Hfe. 

16. Increasingly, people have come to look to governments not only as key 
sponsors of change but, perhaps more importantly, as their buffer against the 
unremitting and unsettling pressures caused by change. From a somewhat passive 
protector of persons and property, a provider of law and order, government has 
been thrust into new roles as conciliator of social conflicts, guardian of health, dis- 
tributor of welfare, regulator of major sectors of the market place, and owner and 
operator of commercial enterprises. Whereas in the past representative legis- 
latures, an independent judiciary aided by a staunch local constabulary, and a tiny 
cabinet assisted by a handful of civil servants could be expected to cope with the 
functions traditionally assigned to governments, today these functions have multi- 
plied and become so complex that they command the full-time attention of 
thousands of specialists working in an ever-expanding variety of administrative 
agencies. Multi-level government, with all its departments and agencies, today 
emerges as the single largest employer, drawing into its service not only substan- 
tial numbers of clerical workers but every conceivable type of professional skill. 

17. It is not surprising that the public service of Ontario, as the focal point 
for major pressures to extend the reach and functions of government, has been 
affected more dramatically than any other compartment of government by the 

84 



Chapter 4: Paragraphs 15-20 

forces of change swirling in the community. A legislature that numbered ninety- 
four members in 1900 has since that time been increased by the addition of only 
fourteen members, while its traditional methods for the conduct of the province's 
business have remained essentially unchanged. On the other hand, a cabinet of 
nine ministers heading eight departments that was adequate for the executive 
responsibilities at the turn of the century has been progressively expanded with 
each new area of responsibility assumed by the government. Today, we find a 
cabinet comprising twenty-three ministers, responsible for twenty-two departments. 
A list of the departments created since 1915 represents a veritable catalogue of the 
new positive functions assumed by the Province of Ontario over the last fifty years. 
Beginning with a Department of Highways in 1915, there follow in chronological 
sequence departments of Labour (1919); Insurance (1924); Health (1924); 
Public Welfare (1931) (changed in 1967 to Social and Family Services); Municipal 
Affairs (1935); Planning and Development (1944) (ultimately becoming Economics 
and Development in 1962); Travel and Publicity (1946) (subsequently transformed 
in 1964 to Tourism and Information); Reform Institutions (1946); Transport 
(1957); Energy Resources (1959) (changed in 1961 to Energy and Resources 
Management); Civil Service (1962); University Affairs (1964); and most recently, 
in 1966, a Department of Financial and Commercial Affairs. 

18. Even this expansion of the executive branch does not reveal the full 
impact of the positive role now assumed by the government, for we must also 
include what were non-existent in 1900: a multitude of boards, commissions and 
public corporations. These agencies have been allotted many of those functions of 
government which were virtually unknown to the earlier civil service: regulation, 
stimulation and operation of certain segments of the province's economy; arbitra- 
tion of conflicts and supervision of markets; conservation and promotion of physi- 
cal resources; the buttressing of the weak, the dependent and the sick; and so on. 

19. Sheer growth in the number of public employees is one obvious accompani- 
ment to the expanding activities and the increasing number of government agencies. 
The total numerical strength of the public service of the province at the turn of 
the century was well under one thousand; that is to say, about one-eighth the 
size of the contemporary Department of Highways — a department that did not 
even exist in 1900. In absolute terms the expansion of the civil service has been 
in the order of an eighty-fold increase since 1900, and the great upward thrust has 
been concentrated in the years following the Second World War. This expansion, 
to be kept in perspective, should be viewed in the context of the increasing share 
of the labour force taken up today by the service industries as a whole. In relative 
terms, however, while less than one out of every thousand members of the labour 
force was a public employee in 1900, the proportion is now roughly thirty out of 
every thousand. 

20. These figures demonstrate the rapid accretion of governmental responsi- 
biUties at the provincial level but they do not take into account the equally striking 
expansion of services and staff at the municipal level. While looking at local govern- 
ment, it is well to keep in mind the point raised in the second chapter of this Report: 

85 



The Ontario Setting 

that the Province is directly responsible for municipalities and school boards. Pro- 
vincial authority over local government touches upon virtually all local activities, 
ranging from welfare administration to the form and manner of keeping accounts. 
There can be no question that the final responsibility for the level, cost and method 
of financing local services must rest with the Province. Thus no survey of provincial 
finance and growth could be complete without simultaneously taking local govern- 
ment into account, 

21. The municipal picture is so kaleidoscopic that it defies summary treatment. 
As an indication of the general situation, it may be noted that in June 1965, 
seventy-three Ontario urban municipalities with populations over 10,000 employed 
nearly 49,000 persons with gross annual payrolls running well above $200 million. 
A complete picture would have to include the many more employees hired by some 
nine hundred other municipalities, and several thousand local public bodies such as 
municipal utilities and school boards. Municipal authorities, like the Province, have 
had to cope with the scientific and technological advances that make new programs 
feasible, and that create increased public expectations for more and better services. 
This applies to sewage treatment as well as snow-plowing, to firefighting as well as 
the care of the aged. Improvements in technical capacity, as previously noted, 
necessitate a continuing drive to extend primary and secondary education, the main 
burden of which has been borne by local property. Again, the trends toward 
urbanization and the concentration of industry and population create a variety of 
social and technical problems that necessitate governmental action and increased 
public expenditures. 

PATTERNS OF GOVERNMENT FINANCE 

22. An analysis of the expenditure and revenue patterns of the provincal gov- 
ernment and local authorities can provide an indispensable outline of recent trends 
in government receipts and disbursements, together with a sketch of the manner in 
which public funds are allocated. At the same time, such an analysis can reveal the 
pressure points on our taxation system that have given rise to this inquiry. Unfor- 
tunately, however, no analysis of revenues and expenditures is possible without a 
degree of arbitrariness in the choice of figures. Data series that are consistent over 
time are, as we shall have occasion to comment upon later in this Report, all too 
difficult to assemble. After a great deal of work, we were able to come up with 
time series on general expenditures and revenues, which require brief explanation. 
General expenditures offer a tabulation of current and capital expenditures in the 
year during which spending took place. With respect to capital expenditures, this 
means that our figures purport to show whatever capital funds were spent in any 
given year, whether from general revenues or from borrowing. We have scrupu- 
lously attempted to omit allocations for debt repayment, since these would involve 
double counting, but cannot vouch for 100 per cent success, particularly in our 
presentation of municipal expenditures. The reader should note that municipalities 
are obliged by law to balance current expenditures and revenues. From time to | 
time, this creates pressures to restrain current spending below optimum levels, and 
induces a strong tendency for capital expenditures to fluctuate in accordance with 

86 



Chapter 4: Paragraphs 21-25 

the intensity of the restrictions that current revenues place on current expenditures. 
In combining current and capital, our general expenditure figures are thus only a 
rough guide to municipal fiscal trends, but they are the best we could assemble 
under the circumstances. 

23. In using figures that purport to measure general expenditures and revenues, 
we have found it advisable to make adjustments for three different types of dis- 
tortions which would otherwise all combine to exaggerate the changes that have 
taken place. First, we make a distinction between gross and net expenditures. 
Gross expenditures represent the total outlays of one level of government regardless 
of whether that government is spending funds raised by itself or funds secured by 
transfer from the revenue system of another level of government. Net expenditure, 
on the other hand, is that part of a government's total spending that is financed 
directly by the level of government in question. This distinction is obviously 
important where, in a multi-level system of government such as ours, transfers 
between federal and provincial and between provincial and municipal authorities 
constitute vital elements of public finance and indicate, for any level of govern- 
ment, the gap between its expenditure commitments and the yield of its own 
revenues and borrowing. Next, if comparisons are extended over a lengthy time 
span, allowance must be m.ade for the changing value of the dollar attributable 
to inflation. Thus, our tabulations begin with unadjusted absolute dollar figures, 
and are then converted to constant dollar figures. Finally, rising expenditures 
and revenues, even when rendered in constant dollars, do not allow for increases 
in population. Thus, an additional and more meaningful calculation can be based 
on per-capita figures. 

EXPENDITURE PATTERNS 

24. With these necessary preliminary explanations out of the way, we may 
look first at the expenditure side of the ledger. Chart 4:1 depicts the growth in 
gross and net money expenditures for the provincial government as well as for 
local governments, the latter divided between the municipalities and the school 
boards. No adjustments have been made for the changing value of the dollar or 
for population increases. 

25. An examination of Chart 4:1 provides a summary of the total picture. 
Since the end of the war, the spending patterns of the three levels of government 
have shown a continuous increase. The reader should note, however, the rather 
wide divergence between the gross and net money expenditure figures. Gross 
money expenditures reveal a substantially faster rate of growth than net money 
expenditures. The differential in the rate of growth is accounted for by the 
substantial jump in the amount of grants made available by the more senior levels 
of government. Thus Chart 4:1 emphatically underlines an eight-fold increase 
in the gross money expenditure of municipalities since 1939, a ten-fold increase 
for the provincial government and a remarkable increase, apparently in excess 
of fourteen times the 1939 level, for the school boards. 

87 



The Ontario Setting 



1600 
1400 

1200 
1000 

800 
600 

400 



O 200 



180 
160 

140 

120 

100 



60 



^ 40 



20 



Chart 4:1 
Gross and net money expenditure. Province, municipalities and school boards, 



~PROV.~ 
GROSS 




1600 
1400 
1200 

1000 
800 

600 
400 



200 g 
180 ^ 
160 i 

140 
120 



100 



60 



40 



J L 



I I I I 



1940 



1945 



1950 



1955 



1960 1963 



20 



Source: Tables 4:1 and 4:2 



88 



\ 



Chapter 4: Paragraphs 26-30 

26. This initial picture needs to be refined by taking into account the grants of 
senior governments. Thus the net expenditure figures of school boards reveal a 
sharp rate of growth, but one that is nevertheless substantially less rapid than 
indicated by the gross data in Chart 4:1. In particular, the more than fourteen- 
fold increase since 1939 in the gross expenditures of school boards is seen as less 
than a ten-fold net increase. The net expenditure figures for the province and 
municipalities display a less extreme trend, but here the distinctions between 
gross and net expenditure trends are less great than for school boards. The ten-fold 
increase in gross provincial expenditure becomes a nine-fold increase in net 
expenditure, and the eight-fold rise in gross municipal expenditure is transformed 
into a seven-fold rise in net expenditure. 

27. The index figures of Chart 4:2a reflect the general trends observed with 
respect to net expenditure. The use of index numbers enables us to have a 
precise idea of the rate of change in public expenditures. Among other things, 
for example, indexes emphasize the substantial curtailment of expenditures by the 
Province and by the municipalities during the war years. Notably, school board 
expenditures were never reduced by as much as were those of the Province and 
its municipalities. Since 1945, the expenditures of all three levels of government 
have been rising rapidly and continuously. 

28. Incorporating an allowance for the changing value of the dollar — using the 
1949 dollar as the base — puts the expenditure trends depicted in Chart 4:2a in a 
rather different perspective. From Chart 4:2b we find that provincial government 
expenditures have risen only a little more than three times their 1939 level in real 
terms, and those of the municipalities just less than three times. School board 
expenditures, though still showing the largest proportionate increase, nevertheless 
have increased less than four-fold, when measured in these constant dollar (real) 
terms during the period. 

29. Having now interpreted net government expenditures in real terms, we shall 
make one further adjustment in the original data, to recognize the important factor 
of population growth. Accordingly, we measure the net real outlays of each level 
of government in per-capita terms, and the result, as seen from Chart 4:2c, is a 
much more conservative picture of the rising costs of government. Current net 
real per-capita expenditures for the provincial government are not quite double 
the 1939 figure; for the municipalities the figure is only half as much again as in 
1939; and school board expenditures show the highest rate of increase, but are 
still less than double the figure for 1939. 

30. The above trends concern net expenditure only. It may now be desirable 
to sketch emergent trends in government expenditure not in net terms, but rather 
according to where ultimate spending is incurred by level of government. This 
is portrayed in Charts 4:3a, 4:3b and 4:3c, which deal with gross provincial 
expenditure less any grants paid to municipalities and school boards, together 
with gross municipal and school spending, that is to say including grants received 
from the Province. These charts respectively trace expenditures in the same terms 

89 



The Ontario Setting 



Chart 4:2 

Indexes of expenditure: Province, municipalities and school boards, 

1939-63. 




1940 
Source: Table 4:2 



1945 



1950 



1955 



1960 1963 



90 



Chapter 4 : Paragraph 3 1 



400 — 



- 300 



200 



100 







Chart 4:2b 


- 




Net real expenditure. ~ 


— 




SCHOOL 
BOARDS ^^ 

^ >^ROVINCE 

^'^^^^^ _. ..••''municipalities 


- 




— 




^^<^^^^ 




*^^^2A^=5>;;^^i=*' 




1 


1 1 1 1 


1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 



— 400 



— 300 - 



— 200 



100 



1940 1945 
Source: Table 4:4 



1950 



1955 



1960 



1963 



300 



200 



100 









Chart 4:2c 








Net real per-capita expenditure. ~ 










- 






- 


- 






- 


- 






SCHOOL BOARDS ^ 

^^ ^X ^X^-^PROVINCE - 


4 


^5:^5. 


s^;.::::;> 


^^^^^""^fT^..... 


<ii^'*''^ 


1 1 


1 1 


1 1 1 


i III 1 1 1 1 1 1 1 1 1 1 1 1 1 



300 



200 



100 



1940 1945 
Source: Table 4;5 



1950 



1955 



1960 



1963 



as Charts 4:2a, 4:2b and 4:2c, namely money, real, and real per capita. The 
principal ensuing diflference is to highlight the spending role of school boards and 
municipalities as the jurisdictions of ultimate disbursement, by contrast to the 
position of the Province as a major grant-disbursing agency. From Chart 4:3c, 
real per-capita school board spending is seen to be almost three times, rather than 
twice its 1939 level, while that of the municipaUties approaches twice its 1939 
level, exceeding slightly the provincial, which in turn is about one and one-half 
times its 1939 level. 

31. A somewhat different but related perspective is provided in Chart 4:4. 
Here, the net expenditures of provincial and local authorities on goods and 
services are related to the estimated provincial domestic product. From the 
chart, we can observe that combined government expenditures on goods and 
services had relatively less significance for the provincial economy during and 



91 



The Ontario Setting 



Chart 4:3 

Government expenditures by level of ultimate spending responsibility, 

1939-63. 



1500 
1400 
1300 
1200 

1100 

1000 

B 900 

1 

ON 

S 800 
700 
600 
500 
400 
300 
200 
100 






Chart 4:3a 






Indexes of money expenditures by level of ultimate spending responsibility. 




- 


/ 

• 


- 


_ 


/ 


_ 




• 

/ 

« 










/ 

• 

1 
/ 




- 


- 




SCHOOL BOARDS/ 






# 






/ 






/ 






• 

/ 




_ 




- 




/ MUNICIPALITIES 1 


— 


• 
/ 


- 


- 


- 


— 


/* ./^ 




— 


•* /y 


" 




y // 




- 


/ // 


- 




/ /'y 




_ 


/ ..••****>r 


- 




y f /province 

y y-?^ — 




— 




- 


— 


y'^y'l^'''^ 






^•^•^l.»»*^ 




1 1 


1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 


1 



1940 1945 
Source: Table 4:6a 



1950 



1955 



1960 



1963 



1500 

1400 

1300 ! 

1200 

1100 

1000 

900 S 

I 
800 S 

700 

600 

500 

400 

300 

200 

100 





92 



Chapter 4: Paragraph 31 



500 

400 

Q 
2 300 

II 

? 200 
100 






Chart 4:3b 


- 


Indexes of real expenditures by level of ultimate spending responsibility. 


— 




- 


- 


— 


SCHOOL BOARDS /* 


- 


♦ MUNICIPALITIES 


•*^5i 




1 1 


1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 



1940 
Source: Table 4:6b 



1945 



1950 



1955 



1960 



1963 



500 
400 

300 2 

II 

200 2 
100 




400 
300 
200 
100 



Chart 4:3c 
Indexes of real per-capita expenditures by level of ultimate spending responsibility. 



school board^.^ 
..—••■*' municipalities" 
province 




400 
300 
200 
100 



— o\ 



I 



1940 
Source: Table 4:6c 

immediately after the war years than in 1939. Indeed, the over-all 1939 position 
was not re-established until as late as 1957. Thereafter, combined public 
expenditures occupied a proportionally more important place, attaining in the 
sixties approximately 1 1 per cent of the real provincial domestic product. Among 
the net expenditures of the several levels of government, those of the Province not 
only made the more rapid recovery to the 1939 level, attaining it in 1954, but they 
also accounted for proportionately more of the increase than similar net local 
expenditures, which did not recover their 1939 level until 1961. We already know 
from Charts 4:3a, 4:3b and 4:3c that the inclusion of grants in the expenditures 
of the level of government ultimately spending the funds has the effect of deflating 
provincial spending, boosting the municipal rate of spending increase to second 
place, and accentuating stiU further the relative rise in school board outlays. We 
restrict ourselves to the net expenditure concept in Chart 4:4 only because our 

93 



The Ontario Setting 



10 



- \ 



— \ 



a 
< 

^ 5 
u 
u 
a: 

u 



Chart 4:4 

Provincial and local net expenditure on goods and services as a percentage 
of provincial domestic product, 1939-63. 






/•'" 



1 — 



\ ^* 



PROVINCIAL 
AND LOCAL 




I I I 



I I I I I 



1940 1945 

Source: Table 4:7 



1950 



1955 



1960 1963 



94 



Chapter 4: Paragraphs 32-34 

prime concern is to distinguish the proportion of their expenditure programs that 
provincial and local governments are able to finance out of their own resources 
from that for which they are dependent upon transfers of funds from the federal 
government. 

32. The conclusions that may be derived from the foregoing analysis of the 
general expenditure pattern of provincial and local governments in Ontario may 
now be quickly summarized. Unadjusted gross money figures, which show a 
respective ten-fold, eight-fold and fourteen-fold increase in provincial, municipal 
and school board spending, greatly exaggerate the picture. This is in part because 
they count government grants twice. Account may be taken of grants by referring 
either to net government expenditure, or to government spending by the level of 
jurisdiction ultimately disbursing funds. The latter method shows that school 
board and municipal spending has increased at a somewhat faster rate than that 
of the Province, the former places the Province ahead of the municipalities. 
When further allowance is made for changes in the value of the dollar and popula- 
tion growth, we find that at no level of government has per-capita expenditure more 
than doubled, save for school boards if their expenditures include grant receipts. 
Finally, if provincial, municipal and school board net real expenditures are com- 
bined and taken as a percentage of provincial domestic product, there is no 
dramatic shift from the 1939 situation. There has, in fact, been a rise over the 
whole period of only 2 percentage points, that is from approximately 9 to 1 1 per 
cent. 

33. While these conclusions set the combined provincial and local government 
expenditures in proper perspective, one cannot discount their impact on govern- 
ment services. The significance of the two-fold increase in net real expenditure 
per capita for the various services can be demonstrated by breaking down money 
figures into their several components. 

EXPENDITURE BY FUNCTION 

34. A functional classification of provincial government net expenditures is 
presented in Charts 4:5a and 4:5b. Three major areas of spending that leap 
immediately to the eye are education, health and highways. In the two decades 
following the end of the war, education and highways have vied with one another 
in claiming the major share of the provincial budget, a rise in the proportion 
secured by one seeming to produce reductions in the share allocated to the other. 
In 1945, over one-third of the budget was devoted to these two functions; twenty 
years later they together accounted for considerably more than half the budget. 
Education alone, if expenditures on universities are included, has come to account 
for more than one-third of the Province's net ordinary expenditures. Highways, 
after holding first place uninterruptedly from 1947 to 1961, are now entrenched 
in second, accounting for between one-quarter and one-fifth of provincial expendi- 
ture. Among the remaining major functions, health, under the impetus of provincial 
contributions to hospital and medical insurance, has moved firmly into third 
place, a position it has held since 1958, with between 10 and 15 per cent of recent 

95 



The Ontario Setting 



40 



35 



30 



25 

ui 
O 
< 

Z 

UJ 

y 20 

UJ 



10 



Chart 4:5a 

Percentage analysis of net expenditure for major provincial 

functions, fiscal years ending March 31, 1945-64. 



EDUCATION 




40 



35 



30 



25 

UJ 

a 
< 

H 
Z 

UJ 

20 ^ 

ID 









HEALTH 
/ \ 



V. 



.•'public debt 



\ 



I I I I I I I I 



I I I I 



I I I 



1945 1950 

Source: Table 4:9 



1955 



1960 



1964 



96 



Chapter 4: Charts 4:5a-4:5b 



10 



Chart 4:5b 

Percentage analysis of net expenditure for other provincial 
functions, fiscal years ending March 31, 1945-64. 



• .•• 








/\ 


* ,* 








• » 


*....•* 


• 






/ \ 


NATURAL 
RESOURCES 


', 






/ 




• 


*W 




J 




• 


/ ' 


V 






I L 



I I I I 



I I I I I 



1945 1950 

Source: Table 4:9 



1955 



1960 



1964 



10 



5 < 



97 



The Ontario Setting 

budgets allocated to it. The proportion of the budget absorbed by interest on the 
public debt has dropped over a period of twenty years from first place to a low 
fourth place. Despite the fact that welfare currently occupies fifth place in the 
order of spending, its proportional share of the budget has declined from roughly 
10 per cent to 5 per cent of the total. 

35. Although there has been a steady increase in the absolute sums devoted to 
the other segments of government expenditure, the proportion of the total each 
enjoys has tended to decline or remain relatively static. From Chart 4:5b, we 
observe that the traditional functions of law enforcement and reform have enjoyed 
a modest share of the budget, ranging between 3.5 and 4.5 per cent of the total. 
Similarly, municipal affairs spending has averaged about 3.5 per cent; that for 
pubUc works has been less stable, ranging from a high of 7.5 to a low of 1 per 
cent and now standing at roughly 3.5 per cent. Natural resources, for their part, 
have experienced a fairly steady decline in their relative share of the budget. 

36. Shifting to the local scene, we present in Charts 4:6a and 4:6b two 
closely related sketches of local spending by function. Chart 4:6a depicts the 
relative position of major local functions as a percentage of net expenditure; 
Chart 4:6b traces relative position as a percentage of gross expenditure. Read 
Together, the two charts enable the reader to grasp the impact of provincial grants 
on local spending responsibilities. Whether as a proportion of net or gross local 
expenditure, education and roads persistently tower above all others. Since the 
early fifties, these two together have generally accounted for 50 per cent or more 
of net local expenditures, and for 60 per cent or more of gross expenditure. That 
these two functions constitute a relatively larger share of gross than of net 
expenditure is testimony to the much larger provincial grant funds allocated to 
these purposes than to others. Of the remaining functions, all but health and 
welfare, where grant funds also concentrate, constitute a smaller share of gross 
than of net expenditure. 

37. In general, it can be said that the relative shares of net expenditure 
allocated to each of the major local functions have tended to remain rather more 
stable than either the relative shares of gross expenditure or, for that matter, the 
corresponding items in the provincial budget. This, of course, is because provincial 
grants change from time to time in accordance with new poHcy commitments, 
with consequent time lags and fluctuations that are reflected, for example, in the 
noticeably wider swing of the education line in Chart 4:6b than in Chart 4:6a. 
The relative stability of proportional commitments in terms of local net expendi- 
ture underlines the residual nature of the responsibilities municipalities and school 
boards shoulder as the level of government closest to the people. 

COMPARISON WITH OTHER PROVINCES 

38. Before turning our attention to the revenue sources from which govern- 
ments have sought to meet the rising expenditures described above, it will be 
useful to place Ontario's spending pattern in a broader, national perspective. 
Chart 4:7 enables us to relate increasing provincial and local expenditure to the 

98 



Chapter 4: Paragraphs 35-38 



50 



45 



40 



35 



30 



"J 25 

< 

l- 
z. 

LL) 
U 
Oi 
O! 

0- 20 



15 



10 



Chart 4:6a 

Percentage analysis of net local expenditure by function, 
1951-63. 



/^. 



V- — " 



. EDUCATION 



.- "S 



V H1GHWAYS^__. 



MISCELLANEOUS 




_, .SANITATION AND 

"* WASTE REMOVAL 



DEBT 



50 



45 



40 



35 



30 



25 g 

Z 

Ul 

u 
a: 

20 S 



10 



1951 1953 

Source: Table 4:11 



1955 



1957 



1959 



1961 



1963 



99 



The Ontario Setting 



50 



45 



40 



35 



30 



25 



< 

i- 
z 
tu 

Qi 20 

UJ 



15 



10 



Chart 4:6b 

Percentage analysis of gross local expenditure by function, 
1952-63. 



\ 



EDUCATION 



/^^X/ 



/ HIGHWAYS 



^^/ 



••.SANITATION AND 
/ \ WASTE REMOVAL 




1952 
Source: Table 4:13 



1954 



1956 



1958 



1960 



1962 1963 



100 



Chapter 4: Charts 4:6b-4:7 



20 



16 



10 



Chart 4:7 

Combined provincial and local expenditure as a percentage of 

gross domestic product in Ontario and in rest of Canada, 

1945-62. 



REST OF 
CANADA 




I I I I I 



20 



18 



1945 1950 

Source: Table 4:14 



1955 



1960 1962 



101 



The Ontario Setting 



PERCENTAGE 



3-§ 
■■B " 
u in 

c > 

H U O 



< ^ 



c^ 



o o 

— o 

■o.S 

c _ 

c 



9 



PERCENTAGE 



102 



Chapter 4: Paragraphs 39-42 

growing productivity of the country. It is apparent from the chart that spending 
by all Canadian provinces and local authorities has increasingly outpaced the 
rate of growth in provincial domestic product. In Ontario, combined provincial 
and local net general expenditures, taken as a percentage of provincial domestic 
product, have risen almost without remission from 5.8 per cent in 1945 to 14.9 
percent in 1962. 

39. A related point is that the combined provincial and local net general 
expenditures of the Province of Ontario have consistently represented a lower 
proportion of the provincial domestic product than the average for all other 
provinces combined. This differential is attributable to the high productivity of the 
Province of Ontario, whose domestic product represents approximately 40 per 
cent of the total production of all Canadian provinces. Nevertheless, it should be 
noted that Ontario's net general expenditures have apparently been growing at a 
slightly more rapid rate than the combined expenditures of the other provinces. 

40. Chart 4:8 provides another measure of Ontario's position relative to that 
of the other provinces. In so far as total personal income can be used as a measure 
of the capacity of the public to sustain a particular level of government spending, 
we may note two points that emerge from this chart. First, all provinces, Ontario 
not excepted, have been raising their governmental expenditures at a rate faster 
than the growth of total personal incomes within their respective jurisdictions. 
However, both in 1952 and in 1962, only Manitoba's net general government 
expenditure taken as a percentage of personal income was lower than Ontario's. 

41. It would thus appear that government expenditure in all provinces has 
been increasing at a rate faster than the growth rate of either provincial domestic 
product or total personal incomes. However, the relatively larger domestic product 
and higher personal incomes in Ontario have meant that government expenditure 
as a percentage of these two factors has not been as high as in all other provinces 
taken together. Over against this conclusion we must set out the fact, which may 
be verified in the appendix (Table 4:16), that the per-capita net general expenditure 
in Ontario is the third highest in Canada, exceeded only by Alberta and British 
Columbia. 

REVENUE PATTERNS 

42. Governments, of course, are not only spenders but, as all legislators are 
aware, must concern themselves with finding "ways and means" to finance their 
expenditure programs. Consequently, we now turn to the revenue sources — both 
provincial and local — that have had to be tapped to keep pace with the mounting 
costs of government in Ontario. For the Province there are hundreds of these 
revenue sources, ranging from innumerable minor items such as fees charged for 
the registration of jockeys, the licensing of elevators and the sale of publications 
to a few major ones such as taxes on income and on various classes of expenditure. 
For their part, municipalities and school boards enjoy only one major revenue 
source, the property tax, supplemented for municipalities by a host of minor 
revenues. 

103 



The Ontario Setting 



2000 

1800 
1600 
1400 
1200 

1000 
800 

600 



400 



200 
I 180 
I ISO 
^ 140 

120 

100 
80 



60 



40 



20 



Chart 4:9 



Gross and net revenue, Province, municipalities and school boards, 
1939-63. 




2000 
1800 
1600 
1400 
1200 

tlOOO 
800 

600 



400 



200 
180 
160 

140 

120 

100 
80 

60 



40 



J L 



I I I 



I I 



20 



1940 1945 

Source: Tables 4:20 and 4:21 



1950 



1955 



1960 



1963 



104 



Chapter 4: Charts 4:9-4: 10a 



Chart 4:10 

Indexes of revenue; Province, municipalities and school boards, 
1939-63. 



1300 



1200 



1100 



1000 



900 



800 



700 



600 



500 



400 



300 



200 



100 



Chart 4:10a 
Net money revenue. 



PROVINCE • 
/ 



/ SCHOOL BOARDS 



/ 



MUNICIPALITIES 



1300 



1200 



1100 



1000 



900 



800 



700 



600 



500 



400 



300 



200 



— .'^ 



■J&*MM^£*^^^ 



I I I I I I 1 I I I I I I \ L_L 



I I I I 



100 



1940 1945 
Source: Table 4:21 



1950 



1955 



1960 1963 



105 



The Ontario Setting 

600 



500 



400 



Jl 300 



200 



100 



Chart 4:10b 
Net real revenue. 



PROVINCE • 



SCHOOL BOARDS 



MUNICIPALITIES 



I I I 



I I I I I I I I 



600 



500 



400 



300 



200 



100 



1940 1945 

Source: Table 4:22 



1950 



1955 



1960 



1963 



bUU 



500 



400 



300 



200 



100 



Chart 4:10c 
Net real revenue per capita. 



PROVINCE, X 

SCHOOL BOARDS 




»M ** 



I I I I 



I I I I 



-L_L 



MUNICIPALITIES 



I I I I I 



600 



500 



400 



300 



200 



100 



1940 
Source: 4:23 



1945 



1950 



1955 



1960 



1963 



43. Chart 4:9 reveals that the gross revenue of the Province, which reflects 
the yield from the provincial revenue system plus transfers of federal funds, has 
increased thirteen-fold since 1939. The growing divergence that the chart reveals 
between gross and net provincial revenue attests the enhanced importance of 
federal transfer payments. Provincial net revenue, a measure that excludes federal 
transfers, has multiplied twelve-fold over the same period. This appreciable in- 

106 



Chapter 4: Paragraphs 43-47 

crease underlines the point that, despite constitutional limitations to use only 
"direct taxation within the Province", flexible interpretations and official ingenuity 
have managed to devise a variety of taxes designed to generate revenues sufficient 
to meet expenditure programs. 

44. On the municipal and school front, Chart 4:9 reveals that between 1939 
and 1963 gross money revenue of municipalities increased almost six-fold, while 
school board revenue increased more than ten-fold. However, because of extensive 
reliance on grants from the Province, municipal and school net revenues show a 
much less marked increase: less than a five-fold rise for municipalities and only 
a seven-fold rise for the school boards. 

45. The rate at which provincial, municipal and school revenues have been 
increasing is depicted in Charts 4:10a, 4:10b and 4:10c, which indicate indexes 
of net money revenue, net real revenue and net real revenue per capita. As with 
expenditures, taking account of changing dollar values and population growth 
sharply reduces the upward trend of net revenue when reported in simple money 
terms. From Chart 4:10c, it will be observed that on a net real per-capita basis, 
provincial revenue is barely 250 per cent of its 1939 level, and did not double its 
1939 mark until 1961. Municipal revenue, meanwhile, actually experienced a 
substantial relative decline after 1939, returning to the 1939 level only as recently 
as 1961. School board revenue, for its part, displayed an even more marked 
decline but recovered its 1939 position in 1956 and has now expanded to nearly 
half as much again as the 1939 mark. 

SOURCES OF REVENUE 

46. Turning now to the major classes of provincial revenue, we find from 
Chart 4:11a that expenditure taxes have persistently dominated the picture, never 
falling below 40 per cent of net ordinary revenue, and on occasion approaching 
or even passing the 50 per cent mark. Taxes on personal and corporate income, 
partly under the impetus of increasingly favourable federal-provincial arrangements, 
have consolidated an ever firmer grip on second place. The introduction of the 
retail sales tax barely depressed their 1961 peak of 41 per cent, reducing it to 
between 35 and 38 per cent. Wealth taxes in the form of death duties are 
a poor third. They exhibit a pattern of steady decline in relative importance, 
and have hovered at or slightly below 5 per cent of net ordinary revenue since 
1959. Natural resource revenues, recently in the order of 3.5 per cent of the total, 
stand an unimpressive fourth. The host of miscellaneous provincial revenues 
tend to fluctuate in the 10 to 15 per cent range, before dipping to roughly 8 per 
cent after 1962. 

47. Chart 4:11b offers a detailed look at the principal components of 
expenditure-based provincial revenues. These, of course, are the retail sales tax, 
introduced in 1961, and the much older gasoline tax, motor vehicle permits and 
Liquor Control Board profit. The retail sales tax rivalled the gasoline tax in 
importance from the moment of its inception, and will achieve unchallenged 
pre-eminence at roughly 22 per cent of total revenue in the wake of the 1966 

107 



The Ontario Setting 

rate increase. As is to be expected, gasoline tax, liquor and motor vehicle revenues 
all declined in relative importance after the introduction of the sales tax, and now 
represent approximately 15, 8 and 5 per cent of ordinary revenue respectively. 
The reader will observe that, generally speaking, a rough 1:2 ratio between liquor 
and gasoline tax revenues has been sustained. 

48. With respect to provincial taxes on personal and corporate income, second 
in importance only to the expenditure-based revenues, it should be noted that 
during the war years, the provinces surrendered their taxing jurisdiction to Ottawa 
in return for unconditional payments, which are included in Chart 4:11a. Follow- 
ing the return of peace, the Province of Ontario refused to sign the 1947 tax-rental 
agreements. Throughout the ensuing five-year period, Ontario did not collect any 
provincial personal income tax, but did impose a 7 per cent tax on corporation 
income. The Province subsequently decided to adhere to the 1952 tax-rental 
agreements, and for the following five years the category of personal and corporate 
income taxes shown in Chart 4:11a combines rental revenues paid in lieu of tax 
with grants received under the escalator clause. Ontario reimposed its own 
corporation income tax in 1957, and has since derived personal income tax 
revenue which the federal government rebates to its taxpayers under the abatement 
provisions of the tax-sharing and fiscal arrangements. 

49. As previously noted, the Province of Ontario receives substantial transfer 
payments from the federal government. A portion of these — moneys collected by 
Ottawa under various tax agreements — have been included in the ordinary revenues 
of the Province examined in Chart 4:11a, because federal tax collectors act as 
agents of the Province and, since 1962, have operated under the authority of a 
provincial statute. Also included in ordinary provincial revenue are the Province's 
25 per cent share of the federal estate tax, an additional amount of sHghtly over 
$1 million representing the provincial share of federal income tax collected from 
privately owned public utility corporations, and the fixed annual statutory subsidies 
of about $5 million granted at the time of Confederation. Much larger than any 
of these are the federal transfers made under conditional grant and shared-cost 
programs. They amounted to $282 million in 1963-64 and are expected to be in 
the neighbourhood of $350 million in 1966-67, rivalling provincial revenue from 
the personal income tax. These transfers are excluded from ordinary revenue, but 
their existence is attested by the gap between gross and net provincial revenues. 

50. One major source of provincial revenue that has not been mentioned thus 
far because it is not entered in the Public Accounts is the hospital premium levied 
by the Ontario Hospital Services Commission. The premium, which may be thought 
of either as a tax or as a service charge, currently raises about $157 million 
annually. No broad survey of government revenue can overlook this important 
though somewhat isolated source of funds that has the merit of growing steadily 
with the expansion of population, and responding immediately and predictably to 
any administered alteration in the size of premiums. 

108 



Chapter 4: Paragraphs 48-50 



55 



50 



45 



40 



35 



Chart 4:11a 

Percentage analysis of major classes of ordinary provincial revenue, 
1939-67. 



A 



v^\ 



/ \ 






\ EXPENDITURE-BASED / 

REVENUES X 

* .* \ * 



A/ 



/\ 



f V 

f PERSONAL INCOME AND 



^^^^ 



J' 



CORPORATE TAXES 



55 



50 



45 



40 



35 




1940 1945 

Source: Table 4:18 



1950 



1955 



1960 



1965 1967 



109 



The Ontario Setting 



55 



50 



45 



40 



35 



UJ 

!^ 30 

H 

z 

U 
0£ 
U 

CL, 

25 



Chart 4:11b 
Percentage analysis of principal components of expenditure-based provincial revenues, 

1939-67. 



20 — 



15 



10 



/\ 



1— / 

* 

/ 
/ 



; V. 



/gasoline tax V* 



* * L.C.B.O. • 



>J 



**•«•• \ 




55 



50 



45 



40 



35 



30 ^ 

H 
Z 

u 
u 
u. 
u 

a. 
25 



20 



RETAIL 
'SALES TAX 



-/' 



\ MOTOR VEHICLE / \ ^..^ 

jm.^,^ PERMITS AND LICENCES/ ^— -^^*^, 



I I I I I I I I 



I I I I I I I I 



1940 1945 

Source: Table 4:18 



1950 



1955 



1960 



1965 1967 



110 



Chapter 4: Charts 4:llb-4-13 



100 
90 
80 
70 



w 60 

O 

< 

z 50 

m 
u 
oi 

S 40 



Chart 4:12 

Percentage analysis of gross municipal revenues, 
1939-63. 






\--s 



TOTAL MUNICIPAL TAX LEVY 



TOTAL GRANTS _-*— 



/ 



OTHER REVENUES 



I I I I 



I I I 



I I I I 1 I 



1940 1945 

Source: Table 4:24 



1950 



1955 



1960 1963 



100 
90 
80 
70 



60 uj 
o 
< 

50 § 

u 

Oi 

40 0- 



30 

20 

10 





100 I — 



90 



70 



ud 


60 


a 




< 




t- 




7. 


Wl 


UJ 




U 




Bi 




0^ 


40 



30 



20 



Chart 4:13 
Percentage analysis of gross school board revenues, 
1939-63. 









TOTAL GRANTS 



TOTAL SCHOOL TAX LEVY 

y" — ^'' 



\---^--._ - 



/^ 



J_L 



■ III 



'■1 • -I. ■■ ]♦••'! V 



r-i.-r 



OTHER REVENUES 



I I I 



1940 1945 

Source: Table 4:25 



1950 



1955 



1960 



100 
90 
80 
70 



60 UJ 
a 
< 

50 z 

u 
en 

An U-' 

40 a. 



30 
20 
10 





1963 



111 



The Ontario Setting 

51. There remains for brief consideration a breakdown of municipal and 
school revenues. Charts 4:12 and 4:13 indicate that the major source of gross 
revenue for both municipalities and school boards has been the real property tax. 
For the municipalities, this source has in the past provided between 75 and 80 
per cent of the total, but has more recently declined to about 64 per cent. Revenues 
from sundry fees, fines and licences have ranged between 10 and 15 per cent of 
the total, but in recent years have remained steady at somewhat less than 10 per 
cent of all revenue. Clearly, the relative decline in contributions from local 
sources has necessitated a steady, substantial increase in the transfer of funds from 
the Province. The result has been that grants from senior levels of government 
now account for more than one-quarter of the gross revenues of the municipalities. 

52. Chart 4:13 reveals that school board revenues have followed municipal 
revenue patterns in somewhat parallel fashion. The property tax has dominated 
the sources of school board revenue, although it has always provided a lower 
proportion of school than of municipal revenue, seldom rising above two-thirds 
of the total and in recent years dropping to about 57 per cent. At the same time, 
there has been a more significant decline in revenues from other local sources; in 
1939 they accounted for 17.5 per cent of total revenues and have now dropped 
below 4 per cent of the total. These particular revenues are composed in large 
part of tuition fees paid to school boards by other local authorities, including other 
school boards.^ Their decline can be attributed in no small measure to the strides 
that have been made in consolidating local school organization. 

53. The gap produced by the proportional decline in school revenue from 
local tax and other sources has had to be filled, even more than has been true 
for the municipalities, by grants from the Province. Their contribution to school 
board revenues, always proportionally more than their contribution to municipal 
resources, hovers around 40 per cent of the total. 

54. As a final note, it is interesting to observe that despite the necessity for 
continuously rising levels of government revenue to further the provision of a 
constantly expanding range of public services, the combined real net revenues of 
provincial and local authorities in Ontario in 1963 represented no greater propor- 
tion of the value of provincial domestic product than in 1939. (See Chart 4:14.) 
This should nevertheless not obscure the fact that during World War II the share 
of annual real production claimed by these governments declined sharply, to rise 
again strikingly after 1945. It appears quite clear that if the public continues to 
demand more and more services from government — and one can scarcely doubt 
that it will — the financial capacity of government must be correspondingly increased. 
The burden will obviously be least under conditions of sustained economic growth. 

55. Throughout the foregoing analysis we have concentrated on the ordinary 
revenue and expenditure patterns of government. A portion of the costs of capital 



'To the extent that fees are paid by other boards, an inevitable degree of double 
counting creeps into our figures, since tuition fees that are paid by school boards are 
financed through property taxation, and thus appear once as property tax revenues 
of fee-paying boards and again as tuition revenue of recipient boards. 

112 



Chapter 4: Paragraphs 51-55 



o 
< fi 

Z 

u 
u 



Chart 4; 14 

Provincial, municipal and school board net revenues as a percentage of 
provincial domestic product, 1939-63. 




SCHOOL BOARD 



'S^ ^ 



I I I I 



I I I I I I 1 I I I I I I 



C 

6 H 
Z 

UJ 

U 
a: 

UJ 



1940 1945 

Source: Table 4:26 



1950 



1955 



1960 1963 



113 



The Ontario Setting 



o 




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$ 




z 


o 


>. 




Uj 


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^ 




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H 


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PQ 


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114 



Chapter 4: Paragraphs 56-58 

programs is regularly carried on the ordinary budget but over the years govern- 
ments have had to borrow in order to meet growing needs for capital expenditures. 
It is therefore appropriate that in concluding this historical survey, we should 
turn to the main characteristics of the debt structure that has been built up in 
response to this residual but important segment of governmental operations. 

DEBT PATTERNS 

56. In the foregoing sections, we have tried to outline the main trends in 
provincial, municipal and school board general expenditures and revenues in 
Ontario since 1939, and we have measured these expenditures and revenues in 
a number of ways that appear to us useful. If, for example, the reader will compare 
Charts 4:2c and 4:10c, he will find that, except for the experience of the school 
board during World War II, and of the Province in occasional post-war years, the 
net real per-capita expenditures of the three levels of government with which we 
are concerned have at almost all times exceeded their net real per-capita revenues. 
Indeed, an examination of other appropriate charts in this chapter will indicate 
that, as we have measured it, an excess of expenditure over revenue has been 
persistent at all levels of government, regardless of the particular measurement 
applied. The result, particularly since the end of the war, has been a continuous 
growth in government debt, a summary of which is provided in Charts 4:15 
and 4:16. 

57. Among the ratios frequently employed to obtain a useful if rough indica- 
tion of the burden of public debt are those of gross debt/provincial domestic 
product, gross debt/provincial personal income, net interest costs/provincial 
domestic product, and net interest costs/ordinary revenue. When apphed to the 
post-war public debt of provincial and local governments in Ontario, all of these 
ratios indicate much the same pattern of debt behaviour. The Table suggests that 
the burden of Ontario government debt declined modestly from the end of World 
War II to the early 1950's, and then rose until, by the mid-sixties, the approximate 
conditions of 1945 were restored. It should be noted, however, that the proportion 
of provincial ordinary revenues required for servicing this debt has decUned 
greatly, being in recent years less than half that of 1945. By contrast, the post-war 
burden of local (municipal and school board) debt has increased sharply. For 
the municipaUties, the burden appears to have remained relatively stable until the 
early 1950's and then to have more than doubled by the mid-sixties. Even more 
striking has been the continuous rise in school board debt throughout the post-war 
years, with a resulting four-fold increase in debt burden during that period of two 
decades. 

58. We now proceed to illustrate in greater detail the trend of Ontario's 
indebtedness in terms of its net direct capital debt, a measurement particularly 
appropriate in any discussion of the "burden" of public borrowing. This magnitude 
represents the total of the Province's bonded debt (less accumulated sinking fund), 
plus its unfunded Habilities, less the total of provincial revenue-producing and 
realizable assets — the latter being deemed to be self-sustaining. Net direct capital 

115 



The Ontario Setting 

debt therefore represents the aggregate of provincial borrowing that must be 
serviced by the taxpayers of the province, and when it is related to some appropri- 
ate variable such as provincial domestic product, the resulting ratio provides a 
measure of the burden of debt. 

59. It is interesting to note that the persistent upward trend in Ontario's net 
capital debt since early in this century appears to display no marked cychcal 
pattern; debt has grown apace both in prosperity and depression. Thus, the periods 
of most rapid debt expansion have been : 

(1) during the early 1920's, when the need for large-scale investment in social 
capital brought a doubling of the debt within five years; 

(2) during the mid-1930's, when the catastrophic economic effects of the 
depression necessitated a great expansion in welfare payments; and 

(3) since the early 1950's, when the requirements of an expanding economy, 
together with changing concepts of equity, resulted in rapidly rising public 
investment and transfer payments. 

Beginning with any year in the early 1950's, the net capital debt has typically 
doubled within the decade. It can be seen from Chart 4:15a that by 1966 net 
capital debt had reached almost $1.5 billion. 

60. In relation to provincial domestic product, net debt has varied rather 
widely in the course of the past several decades. The resulting ratio is obviously 
affected from year to year not only by the dollar increase in provincial debt but 
also by the uneven growth in provincial product, a variable influenced by economic 
conditions both inside and outside Ontario and indeed outside Canada. As a useful 
measure of debt burden, the capital debt/domestic product ratio stood at the 
relatively low level of 8 per cent during the prosperous years of the late 1920's, 
rose to an all-time peak of almost 30 per cent during the depths of the depression, 
when the value of Ontario's annual production fell by one-half within four years, 
and then declined continuously to its lowest level of 7 per cent during the peak of 
the post-war boom in 1956. A subsequent moderate rise has been in part reversed, 
thanks to the province's recent very rapid economic growth, so that in 1965 the 
ratio approximated 8 per cent. It is worthy of note that by historical standards, 
the present burden of provincial debt is near its lowest point. 

61. By contrast, the post-war trends of both municipal and school board debt 
in Ontario present some disturbing features. Chart 4:16 reveals that municipal 
gross debt, after declining during the expenditure-rationed years of World War II, 
resumed its upward trend shortly thereafter and in 1964 stood at between four 
and five times its 1939 level, with accelerated increases in recent years. The Table 
indicates that as a proportion of provincial domestic product, municipal debt has 
risen steeply from an abnormally low post-war level of 2.9 per cent to approximately 
5.4 per cent two decades later. The latter ratio is, admittedly, less than half the 
1939 level of 10.8 per cent, a level that, of course, was unacceptably high by any 
standard. 

116 



Chapter 4: Table 4:1 — Chart 4:15b 



Provin< 
domes 
produ 

billioj 
of doUi 




1 1 II 


1 


1 1 1 1 


1 1 1 1 


till 


-, 


\ 




_ 


















*» 


1 






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1 




— 


\ 


1 








\\ 




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H". 


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u; 


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Q : 


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117 



The Ontario Setting 



MILLIONS OF DOLLARS 



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MILLIONS OF DOLLARS 

118 



Chapter 4: Paragraphs 59-66 

62. As we emphasize in later parts of this Report, the financial flexibility of 
Ontario municipalities is severely limited, both by fiscal and by legal considerations. 
Restricted by overwhelming reliance upon the real property tax as the major com- 
ponent of their revenue system, and obliged by law to balance current expenditures 
with revenues, many municipalities have been driven to questionable spending 
decisions. In particular, there have been persistent pressures to restrain current 
spending below what might be established as optimum levels and, more immediately 
relevant to the present summary, there has been a strong tendency to broaden the 
category and increase the level of capital expenditures, outlays largely financed 
through the incurring of debt. In short, the municipal revenue system has been 
hard pressed in the face of the mushrooming demands of the post-war years. 

63. Again referring to Chart 4:16, the trend of school board gross debt is seen 
to be even less satisfactory. It has increased more than eleven-fold since 1939, 
although as a percentage of provincial domestic product it has in recent years 
become stabilized at approximately 4 per cent — significantly higher than the 1939 
level of 3 per cent and very much above the (once again) abnormal war-time low 
point of 1 per cent. 

64. We have chosen to refer to municipal and school board debt in gross 
terms only because of the difiiculty in distributing the accumulated sinking fund 
between the two categories. While the burden of their combined net debt is by 
definition less than that of their combined gross debt, the differences are seen 
from Chart 4:16 to be sUght in many instances and the same basic underlying 
trends are obtained regardless of which of these measures is employed. 

65. The measurement of the burden of municipal and school board debt in 
terms of the relationship of debt to provincial domestic product is much less satis- 
factory than is that of provincial debt, for the obvious reason that provincial 
domestic product cannot possibly reflect satisfactorily the widely differing economic 
circumstances of individual municipalities and school boards. While some such 
procedure is essential if any generaUzations are to be offered concerning the burden 
of aggregate debt, the problem can be discussed realistically only in terms of the 
burden of a particular municipality or a particular school board. 

CONCLUSION 

66. This chapter will have accomplished its objective if it has oriented the 
reader with respect to the remarkable fiscal environment that we have been called 
upon to examine. We have stressed the changes that have taken place since the 
turn of the century, in no small part because change is indeed the keynote to what 
has happened in Ontario since our immediate predecessor, the Maclennan Com- 
mission, took stock of fiscal affairs. Needs have multiplied as income has risen, 
sophisticated forms of taxation have been devised to meet burgeoning expenditures, 
and debt has assumed a new order of magnitude. But not all is changed, and the 
Toronto Daily Star of September 14, 1900, constitutes a forceful reminder. In the 
realm of international affairs, a geographically remote conflict kept the appoint- 
ment of the Maclennan Commission from the front page. Lord Roberts, announc- 
ing the flight of Kruger from his Boers, was quoted as saying: "The British Empire 

119 



The Ontario Setting 

is determined to complete the work which has already cost so many lives, and 
carry to a conclusion the war declared against her by the late sons of Transvaal 
and the Orange Free State, a war to which there can be only one ending." Mean- 
while, on the municipal front, it was reported that the Toronto Public Library 
Board would discuss what action should be taken as a result of the recent pruning 
of $2,000 from their estimates by Board of Control. Apparently the Library Board 
had earlier threatened legal action to compel payment of the full amount of their 
estimates, which were within the statutory limits. Last but not least, in the world 
of sports, the Toronto Argonauts expected "plenty of first-class players" to turn out 
for the opening practice. The Hamilton Tigers were already in training. 



120 



Appendix 



Appendix to Chapter 4 

Table 4:1 
PROVINCE OF ONTARIO 

GROSS MONEY EXPENDITURES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-63 







(thousands of dollars) 






Indexes (1939 


= 100) 






(1) 


(2) 


(3) 


(4) 


(5) 


(6) 


(7) 


(8) 




Provincial 




School 


Total local 


Provincial 




School 


Total local 


Year 


government 


Municipalities 


boards 


expenditure 


government 


Municipalities 


boards 


expenditure 




* 


** 


** 


(2 +3) 
171,361 










1939.,.. 


144,776 


119,622 


51,739 


100.00 


100.00 


100.00 


100.00 


1940 


135,937 


105,078 


50,114 


155,192 


93.89 


87.84 


96.86 


90.56 


1941 


118,096 


97,955 


50,556 


148,511 


81.57 


81.89 


97.71 


86.67 


1942 


128,911 


92,296 


51,545 


143,841 


89.04 


77.16 


99.63 


83.94 


1943 


113,221 


93,715 


53,711 


147,426 


78.20 


78.34 


103.81 


86.03 


1944 


122,772 


86,398 


57,313 


143,711 


84.80 


72.23 


110.77 


83.86 


1945 


134,973 


103,280 


65,263 


168,543 


93.23 


86.34 


126.14 


98.36 


1946 


148.531 


120,656 


71,060 


191,716 


102.59 


100.86 


137.34 


111.88 


1947 


183,462 


145,273 


85,508 


230,781 


126.72 


121.44 


165.27 


134.68 


1948 


222,749 


179,417 


106,299 


285,716 


153.86 


149.99 


205.45 


166.73 


1949 


276,307 


186,129 


125,192 


311,321 


190.85 


155.60 


241.97 


181.68 


1950 


317,346 


206,425 


142,121 


348,546 


219.20 


172.56 


274.69 


203.40 


1951 


344,873 


227,963 


172,910 


400,873 


238.21 


190.57 


334.20 


233.93 


1952. . .. 


410,828 


253,793 


206,411 


460,204 


283.76 


212.16 


398.95 


268.56 


1953 


425,404 


279,779 


219,225 


499,004 


293.83 


233.89 


423.71 


291.20 


1954 


437,446 


388,930 


248,138 


637,068 


302.15 


325.13 


479.60 


371.77 


1955 


464,415 


419,500 


277,590 


697,090 


320.78 


350.69 


536.52 


406.80 


1956 


543,628 


459,349 


310,800 


770,149 


375.49 


384.00 


600.71 


449.43 


1957. ... 


617,736 


524,694 


358,063 


882,757 


426.68 


438.63 


692.06 


515.14 


19.'58. . .. 


707,893 


574,165 


391,484 


965,649 


488.95 


479.98 


756.65 


563.52 


1959 


818,981 


641,172 


458,323 


1,099,495 


565.69 


536.00 


885.84 


641.62 


1960. . .. 


982,759 


711,349 


527,853 


1,239.202 


678.81 


594.66 


1,020.22 


723.15 


1961 


. . . 1,026,211 


755,514 


548,255 


1,303,769 


708.83 


631.58 


1,059.66 


760.83 


1962 


. . . 1,164,509 


845,050 


672,221 


1,517,271 


804.35 


706.43 


1,299.25 


885.42 


1963 


. . . 1,425,102 


919,330 


737,281 


1,656,611 


984.35 


768.53 


1.425.00 


966.74 


1964 


... 1,462,986 








1,010.52 









Source: Ontario. Department of Municipal Affairs, Annual Report of Municipal Statistics, 1939-1963. Canada' 
Dominion Bureau of Statistics, Financial Statistics of Municipal Governments, 1944-1962. Ontario, Department of 
Education, Report of the Minister 1939-1964. Canada, Department of Finance, Federal-Provincial Conditional 
Grant and Shared-Cost Programs, 1962. Ontario, Public Accounts, 1939-1964. 

♦Fiscal years ending March 31. 

♦♦Municipal and school board data include a small degree of double counting. 



121 



The Ontario Setting 



Table 4:2 

PROVINCE OF ONTARIO 

NET MONEY EXPENDITURES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-63 







(thousands of dollars) 






Indexes (1939 


= 100) 






(1) 


(2) 


(3) 


(4) 


(5) 


(6) 


(7) 


(8) 




Provincial 




School 


Total local 


Provincial 




School 


Total local 


Year 


government 


Municipalities 


boards 


expenditure 
(2 +3) 

149,839 


government 


Municipalities 


boards 


ex5>enditure 


1939 


127,762 


105,116 


44,723 


100.00 


100.00 


100.00 


100.00 


1940 


118,447 


93,273 


43,140 


136,413 


92.70 


88.73 


96.46 


91.04 


1941 


104,575 


88.711 


42,902 


131,613 


81.85 


84.39 


95.93 


87.84 


1942 


115,930 


83,522 


43,715 


127,237 


90.73 


79.46 


97.75 


84.92 


1943 


100,202 


85,914 


45,434 


131,348 


78.42 


81.73 


101.59 


87.66 


1944 


109,717 


77,353 


48,328 


125,681 


85.87 


73.59 


108.06 


83.88 


1945 


120,712 


97,290 


38,656 


135,946 


94.48 


92.55 


86.43 


90.73 


1946 


132,301 


112,439 


41,770 


154,209 


103.55 


106.97 


93.40 


102.92 


1947 


163,891 


129,147 


55,304 


184,451 


128.27 


122.86 


123.66 


123.10 


1948 


201,134 


155,368 


73,721 


229,089 


157.42 


147.81 


164.84 


152.89 


1949 


253,131 


157,520 


87,599 


245,119 


198.12 


149.85 


195.87 


163.59 


1950 


282,801 


174,977 


99,460 


274,437 


221.34 


166.46 


222.39 


183.15 


1951 


305,384 


191,828 


125,555 


317,383 


239.02 


182.49 


280.74 


211.82 


1952 


372,315 


212,294 


152,442 


364,736 


291.41 


201.96 


340.86 


243.42 


1953 


404,593 


236,184 


161,344 


397,528 


316.67 


224.69 


360.76 


265.30 


1954 


419,713 


332,567 


180,182 


512,749 


328.51 


316.38 


402.89 


342.20 


1955 


441,268 


352,367 


203,940 


556,307 


345.38 


335.22 


456.01 


371.27 


1956 


522,300 


386,306 


230,511 


616,817 


408.80 


367.50 


515.42 


411.65 


1957 


592,290 


433.650 


259,880 


693,530 


463.58 


412.54 


581.09 


462.85 


1958 


671,329 


467,721 


261,932 


729,653 


525.45 


444.96 


585.68 


486.96 


1959 


750,138 


518,697 


308,167 


826,864 


587.13 


493.45 


689.06 


551.83 


1960 


842,341 


575,860 


367,063 


942,923 


659.30 


547.83 


820.75 


629.29 


1961 


871,578 


611,458 


363,130 


974,588 


682.18 


581.70 


811.96 


650.42 


1962 


977.479 


689,494 


405,026 


1,094,520 


765.08 


655.94 


905.63 


730.46 


1963 


1,106,542 


753,793 


432,696 


1,186,489 


866.10 


717.11 


967.50 


791.84 


1964 


1,180,745 








924.18 









Source: Canada, Dominion Bureau of Statistics, Financial Statistics of Municipal Governments, 1944-1962. Ontario, 
Department of Municipal Affairs, Annua! Reports of Municipal Statistics, 1939-1963 Ontario, Department of 
Education, Report of the Minister, 1939-1964. Ontario, Public Accounts, 1939-1964. 

♦Fiscal years ending March 31. 

♦♦Municipal and school board data include a small degree of double counting. 



122 



Chapter 4: Appendix 

Table 4:3 
PROVINCE OF ONTARIO 

NET MONEY EXPENDITURES AS A PERCENTAGE OF GROSS MONEY EXPENDITURES, 
PROVINCIAL GOVERNMENT, MUNICIPALITIES AND SCHOOL BOARDS. 1939-63 



Year 


(1) 
Provincial 
government* 


(2) 

Municipalities 

87.87% 


(3) 
School boards 


1939 


88.25% 


86.44% 


1940 


87.13 


88.77 


86.08 


1941 


88.55 


90.56 


84.86 


1942 


89.93 


90.49 


84.81 


1943 


88.50 


91.68 


84.59 


1944 


89.37 


89.53 


84.32 


1945..- 


89.43 


94.20 


59.23 


1946 


89.07 


93.19 


58.78 


1947 


89.33 


88.90 


64.68 


1948 


90.30 


86.60 


69.35 


1949 


91.61 


84.63 


69.97 


1950 


89.11 


84.77 


69.98 


1951 


88.55 


84.15 


72.61 


1952 


90.63 


83.65 


73.85 


1963 


95.11 


84.42 


73.60 


1964 


95.95 


85.51 


72.61 


1955 


95.02 


84.00 


73.47 


1956 


96.08 


84.10 


74.17 


1957 


95.88 


82.65 


72.58 


1958 


94.83 


81.46 


66.91 


1959 


91.59 


80.90 


67.24 


1960 


85.71 


80.95 


69.54 


1961 


84.93 


80.93 


66.23 


1962 


83.94 


81.59 


60.25 


1963 


77.65 


81.99 


58.69 


1964 


80.71 







Source : Tables 4 : 1 and 4 : 2 
♦Fiscal years ending March 31. 



123 



The Ontario Setting 



Table 4:4 

PROVINCE OF ONTARIO 

NET REAL EXPENDITURES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-63* 





(thousands of 1949 dollars) 






Indexes (1939 


= 100) 




Year 


(1) 
Provincial 
government 

♦* 


(2) 
Municipalities 


(3) 
School 
boards 


(4) 
Total local 
expenditure 

(2+3) 

251,867 


(5) 
Provincial 
government 


(6) 
Municipalities 


(7) 
School 
boards 


(8) 
Total local 
expenditure 


1939 


213,737 


176,634 


75,233 


100.00 


100.00 


100.00 


100.00 


1940 


195,735 


148,710 


69,042 


217,752 


91.58 


84.19 


91.77 


86.46 


1941 


164,688 


135,299 


65,776 


201,075 


77.05 


76.60 


87.43 


79.83 


1942 


173,070 


118,087 


61,646 


179,733 


80.97 


66.85 


81.94 


71.36 


1943 


139.999 


117,372 


62,101 


179,473 


65.50 


66.45 


82.54 


71.26 


1944 


148,920 


101,742 


63,350 


165,092 


69.67 


57.60 


84.21 


65.55 


1945 


157,570 


124,303 


49,078 


173,381 


73.72 


70.37 


65.23 


68.84 


1946 


167,964 


144,385 


53,505 


197,890 


78.58 


81.74 


71.12 


78.57 


1947 


205,953 


154,039 


65,966 


220,005 


96.36 


87.21 


87.68 


87.35 


1948 


232,637 


160,355 


77,593 


237,948 


108.84 


90.78 


103.14 


94.47 


1949 


263,222 


1.57,520 


87,599 


245,119 


123.15 


89.18 


116.44 


97.32 


1950 


275,487 


167,673 


95,068 


262,741 


128.89 


94.93 


126.36 


104.32 


1951 


285,298 


165,123 


107,911 


273,034 


133.48 


93.48 


143.44 


108.40 


1952 


313,609 


175,543 


125,599 


301,142 


146.73 


99.38 


166.95 


119.56 


1953 


330,740 


189,305 


128,943 


318,248 


154.74 


107.17 


171.39 


126.36 


1954 


332,903 


258,815 


140,110 


398,925 


155.75 


146.53 


186.23 


158.39 


1956 


341,089 


268,026 


154.220 


422,246 


159.58 


151.74 


204.99 


167.65 


1956 


395,357 


279,735 


165,897 


445,632 


184.97 


158.37 


220.51 


176.93 


1957 


425,786 


299,876 


178,477 


478,353 


199.21 


169.77 


237.23 


189.92 


1958 


458,936 


325,928 


179,271 


505,199 


214.72 


184.52 


238.29 


200.58 


1959 


504,174 


350,849 


204,219 


555,068 


235.88 


198.63 


271.45 


220.38 


1960 


547,645 


384,112 


238,198 


622,310 


256.22 


217.46 


316.61 


247.08 


1961 


547,074 


410,623 


230,596 


641,219 


255.95 


232.47 


306.51 


254.59 


1962 


615,904 


442,977 


246,498 


689,475 


288.16 


250.79 


327.65 


273.75 


1963 


665,700 


462,421 


253,250 


715,671 


306.78 


261.80 


336.62 


284.15 


1964 


684,250 








320.13 









Source: Canada, Dominion Bureau of Statistics, National Accounts, 1938-1964, and Table 4:2. 

*The index used in this table and in subsequent tables for deflation is a composite index based on an estimated dis- 
tribution between expenditure on current goods and services (index of current government expenditure), gross 
fixed capital formation (with its own price index in the National Accounts); and transfer payments to individuals 
(index for personal spending on consumer goods and services) . 

**Fi8cal years ending March 31. 



124 



Chapter 4: Appendix 



Table 4:5 
PROVINCE OF ONTARIO 

NET REAL PER-CAPITA EXPENDITURES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-63 



Year Provincial government* 

1949 

dollars Index** 

1939 S 58.21 100.00 

1940 52.79 90.69 

1941 43.95 75.50 

1942 45.69 78.49 

1943 36.05 61.93 

1944 38.04 65.35 

1945 39.76 68.30 

1946 41.99 72.14 

1947 50.32 86.45 

1948 55.71 95.71 

1949 61.57 105.77 

1950 62.93 108.11 

1951 63.81 109.62 

1952 68.21 117.18 

1953 69.08 118.67 

1954 67.38 115.75 

1955 66.68 114.55 

1956 75.08 128.98 

1957 78.78 135.34 

1958 81.43 139.89 

1959 86.61 148.79 

1960 91.75 157.62 

1961 89.52 153.79 

1962 98.77 169.68 

1963 104.97 180.33 

1964 106.12 182.31 



Munic 


ipalities 
Index*** 


School boards 


1949 
dollars 


1949 
dollars 


Index*** 


$47.63 


100.00 


$20.29 


100.00 


39.69 


83.33 


18.43 


90.83 


35.72 


74.99 


17.36 


85.56 


30.40 


63.83 


15.87 


78,22 


29.98 


62.94 


15.86 


78.17 


25.67 


53.89 


15.99 


78.81 


31.08 


65.25 


12.27 


60.47 


35.28 


74.07 


13.07 


64.42 


36.89 


77.45 


15.80 


77.87 


38.21 


80.22 


18.15 


89.45 


35.98 


75.54 


20.01 


98.62 


37.50 


78.73 


21.26 


104.78 


35.91 


75.39 


23.47 


115.67 


36.66 


76.97 


26.23 


129.28 


38.31 


80.43 


26.10 


128.63 


50.60 


106.24 


27.39 


134.99 


50.90 


106.87 


29.29 


144.36 


51.75 


108.65 


30.69 


151.26 


53.20 


111.69 


31.67 


156.09 


55.99 


117.55 


30.80 


151.80 


58.78 


123.41 


34.21 


168.61 


62.56 


131.35 


38.98 


192.11 


65.44 


137.39 


36.98 


18226 


69.54 


146.00 


38.87 


191.57 


71.53 


150.18 


39.28 


193.59 



Source: Canada, Dominion Bureau of Statistics, National Accounts, 1938-1964, and Table 4:4. 

♦Fiscal years ending March 31. 

**1938-39 = 100. *** 1939 = 100. 

Provincial figures based on population at June 1 of years preceding indicated years. 



125 



The Ontario Setting 

Table 4:6a 
PROVINCE OF ONTARIO 

GOVERNMENT EXPENDITURE BY LEVEL OF ULTIMATE SPENDING RESPONSIBILITY, 1939-63 

MONEY EXPENDITURES 





(thousands of dollars) 






Indexes (1939= 


= 100) 


Year 


Provincial 
government* 


Municipalities 
119,622 


School boards 


Provincial 
government 

100.00 


Municipalities 
100.00 


School boards 


1939 


119,958 


51,739 


100.00 


1940 
1941 
1942 
1943 
1944 


114,425 
99,317 

112,019 
96,917 

106.694 


105,078 
97,955 
92.296 
93,715 
86,398 


50,114 
50,556 
51.545 
53.711 
57,313 


95.39 
82.79 
93.38 
80.79 
88.94 


87.84 
81.89 
77.16 
78.34 
72.23 


96.86 

97.71 

99.63 

103.81 

110.77 


1945 
1946 
1947 
1948 
1949 


116,943 
115.934 
144,912 
170,574 
216.355 


103,280 
120,656 
145,273 
179,417 
186,129 


65,263 
71,060 
85,508 
106,299 
125,192 


97.49 
96.65 
120.80 
142.19 
180.36 


86.34 
100.86 
121.44 
149.99 
155.60 


126.14 
137.34 
165.27 
205.45 
241.97 


1950 
1951 
1952 
1953 
1954 


246.199 
266,503 
324,180 
328,115 
335,427 


206,425 
227,963 
253,793 
279,779 
388,930 


142,121 
172,910 
206,411 
219,225 
248,138 


205.24 
222.16 
270.24 
273.52 
279.62 


172.56 
190.57 
212.16 
233.89 
325.13 


274.69 
334.20 
398.95 
423.71 
479.60 


1955 
1956 
1957 
1958 
1959 


337.078 
408,477 
462,297 
513,916 
584,340 


419,500 
459,349 
524.694 
574,165 
641,172 


277,590 
310,800 
358,063 
391,484 
458,323 


281.00 
340.52 
385.38 
428.41 
487.12 


350.69 
384.00 
438.63 
479.98 
536.00 


536.52 
600.71 
692.06 
756.65 
885.84 


1960 
1961 
1962 
1963 


709,813 
722,731 
819,702 
889,766 


711,349 
755,514 
845,050 
919,330 


527,853 
548,255 
672,221 
737,281 


591.72 
602.49 
683.32 
741.73 


594.66 
631.58 
706.43 
768.53 


1,020 22 
1,059.66 
1,299.25 
1,425.00 



Source: Table 4:1; Canada, Dominion Bureau of Statistics, Historical Review, Financial Statistics of Governments in 
Canada, 1962-62, and data supplied by the Ontario Department of Economics and Development. 
♦Fiscal years ending March 31. 

Table 4:6b 
PROVINCE OF ONTARIO 

GOVERNMENT EXPENDITURE BY LEVEL OF ULTIMATE SPENDING RESPONSIBILITY. 1939-63 

REAL EXPENDITURES 





(thousands of 1949 dollars) 






Indexes (1939 = 


= 100) 


Year 


Provincial 
government* 


Municipalities 
201,012 


School boards 


Provincial 
government 


Municipalities 
100.00 


School boards 


1939 


200,666 


87,029 


100.00 


100.00 


1940 
1941 
1942 
1943 
1944 


189,038 
156,405 
167,242 
135,416 
144,807 


167,535 
149,390 
130,491 
128.026 
113,637 


80,208 
77,516 
72,691 
73.416 
75,125 


94.21 
77.94 
83.34 
67.48 
72.16 


83.35 
74.32 
64.92 
63.69 
56.53 


92.16 
89.07 
83.53 
84.36 
86.32 


1945 
1946 
1947 
1948 
1949 


152,647 
147,180 
182.096 
197,287 
224,971 


131,953 
154,945 
173,274 
185,176 
186,129 


82,863 
91.021 
101,990 
111,882 
125,192 


76.07 
73.35 
90.75 
98.32 
112.11 


65.64 
77.08 
86.20 
92.12 
92.60 


95.21 
104.59 
117.19 
128.56 
143.85 


1960 
1951 
1952 
1953 
1954 


239,843 
248,975 
273,063 
268,227 
266,043 


197,801 
196,232 
209,850 
224,254 
302,669 


135,832 
148,612 
170,068 
175,198 
192,953 


119.52 
124.07 
136.08 
133.67 
132.58 


98.40 

97.62 

104.40 

111.56 

150.57 


156.08 
170.76 
195.42 
201.31 
221.71 


1955 
1966 
1957 
1958 
1969 


260,553 
309,195 
332,325 
351,323 
392,728 


319,084 
332,621 
362,834 
400,115 
433,693 


209,914 
223,678 
245,906 
267,938 
303,726 


129.84 
154.08 
165.61 
175.08 
195.71 


158.74 
165.47 
180,50 
199.05 
215.75 


241.20 
257.02 
282.56 
307.87 
348.99 


1960 
1961 
1962 
1963 


461,487 
453,635 
516,478 
527,237 


474,486 
507,363 
542,917 
563,972 


342,539 
348,164 
409,118 
431,512 


229.98 
226.06 
257.38 
262.74 


236.05 
252.40 
270.09 
280.57 


393.59 
400.06 
470.09 
495.83 



Source: Table 4:6a. 

♦Fiscal years ending March 31. 



126 



Chapter 4: Appendix 

Table 4:6c 
PROVINCE OF ONTARIO 

GOVERNMENT EXPENDITURE BY LEVEL OF ULTIMATE SPENDING RESPONSIBILITY, 1939-63 
REAL PER-CAPITA EXPENDITURES 







(1949 dollars) 






Indexes (1939= 


= 100) 




Provincial 






Provincial 






Year 


government* 


Municipalities 
54.21 


School boards 


government 
100.00 


Municipalities 
100.00 


School boards 


1939 


54.65 


23.47 


100.00 


1940 


50.98 


44.71 


21.41 


93.28 


82.48 


91.22 


1941 


41.74 


39.44 


20.46 


76.38 


72.75 


87.18 


1942 


44.15 


33.60 


18.72 


80.79 


61.98 


79.76 


1943 


34.87 


32.70 


18.75 


63.81 


60.32 


79.89 


1944 


36.99 


28.67 


18.96 


67.69 


52.89 


80.78 


1945 


38.52 


32.99 


20.72 


70.48 


60.86 


88.28 


1946 


36.80 


37.86 


22.24 


67.34 


69.84 


94.76 


1947 


44.49 


41.49 


24.42 


81.41 


76.54 


104.05 


1948 . 


47.24 


43.32 


26.17 


86.44 


79.91 


111.50 


1949 


52.62 


42.51 


28.60 


96.29 


78.42 


121.86 


1950 


54.78 


44.24 


30.38 


100.24 


81.61 


129.44 


1951 


55.69 


42.68 


32.32 


101.90 


78.73 


137.71 


1952 


59.39 


43.83 


35.52 


108.67 


80.85 


151.34 


1953 


66.02 


45.39 


35.46 


102.51 


83.73 


151.09 


1954 


53.84 


59.17 


37.72 


98.52 


109.15 


160.72 


1955 


50.94 


60.59 


39.86 


93.21 


111.77 


169.83 


1956 


58.72 


61.54 


41.38 


107.45 


113.52 


176.31 


1957 


61.48 


64.38 


43.63 


112.50 


118.76 


185.90 


1958 


62.34 


68.74 


46.03 


114.07 


126.80 


196.12 


1959 


67.47 


72.66 


50.88 


123.46 


134.03 


216.79 


1960 


77.31 


77.64 


56.05 


141.46 


143.22 


238.82 


1961 


74.23 


81.36 


55.83 


135.83 


150.08 


237.88 


1962 


82.82 


85.61 


64.51 


151.55 


157.92 


274.86 


1963 


83.13 


87.46 


66.92 


152.11 


161.34 


285.13 



Source: Tables 4:6a and 4:6b. 
♦Fiscal years ending March 31. 



Table 4:7 
PROVINCE OF ONTARIO 

PROVINCIAL AND LOCAL NET REAL EXPENDITURE 
ON GOODS AND SERVICES; NATIONAL ACCOUNTS BASIS, 1939-63 



(1) 



(2) 



(thousands of 1949 dollars) 

(3) (4) 



(5) 



(6) 



Year 
1939. 

1940. 
1941. 
1942. 
1943. 
1944. 

1945. 
1946. 
1947. 
1948. 
1949. 

1950. 
1951. 
1952. 
1953. 
1954. 

1955. 
1956. 
1957. 
1958. 
1959. 

1960. 
1961. 
1962. 
1963. 



Provincial 
expenditure* 


Local 
expenditure 


Estimated 

real provincial 

domestic product 


(1) as a 

percentage 

of (3) 


(2) as a 

percentage 

of (3) 


(l)-h(2)asa 

percentage 

of (3) 


142,874 


180,242 


3,538,000 


4.04 


5.09 


9.13 


119,383 
125,885 
104,418 
100,624 
108,678 


165,221 
164,851 
149,995 
153,023 
143,802 


4,076,000 
4,745,000 
5,377,000 
5.712,000 
5,750,000 


2.93 
2.65 
1.94 
1.76 
1.89 


4.05 
3.47 
2.79 
2.68 
2.50 


6.98 
6.12 
4.73 
4.44 
4.39 


118,319 
155,269 
190,972 
209,740 
225,149 


128,948 
143,692 
177,095 
198,979 
213,567 


5,691,000 
5,341,000 
5,388,000 
5,473,000 
5,776,000 


2.08 
2.91 
3.54 
3.83 
3.90 


2.27 
2.69 
3.29 
3.64 
3.70 


4.35 
5.60 
6.83 
7.47 
760 


234,836 
249,008 
273,275 
280,018 
289,971 


229,390 
238,008 
262,363 
274,602 
347,396 


6,283,000 
6,454,000 
6,912,000 
7,258,000 
7,240,000 


3.74 
3.86 
3.95 
3.86 
4.01 


3.65 
3.69 
3.80 
3.78 
4.80 


7.39 
7.55 
7.75 
7.64 
8.80 


327,320 
356,231 
397,515 
453,663 
483,831 


365,143 
380,120 
405,218 
413,666 
446,922 


7,915,000 
8,376,000 
8,757,000 
8,845,000 
9,147,000 


4.14 
4.25 
4.54 
5.13 
5.29 


4.61 
4.54 
4.63 
4.68 
4.89 


8.75 
8.79 
9.17 
9.81 
10.18 


483,456 
522,544 
561.118 
579,980 


459,076 
510,058 
540,123 
549,739 


9,256,000 

9,507,000 

9,905,000 

10,390,000 


5.22 
5.50 
5.66 
5.58 


4.96 
5.37 
5.45 
5.29 


10.18 
10.86 
11.11 
10.87 



Source: Canada, Dominion Bureau of Statistics, National Accounts. 1926-1956, Table 49; 1955-1964, Table 49. 
Canada, Dominion Bureau of Statistics, unpublished tables provided to The Ontario Committee on Taxation. 
♦Fiscal years ending March 31. 



127 



The Ontario Setting 



Table 4:8 
PROVINCE OF ONTARIO 

FUNCTIONAL CLASSIFICATION OF NET EXPENDITURES 
OF PROVINCIAL GOVERNMENT, 1945-64* 













(thousands of dollars) 






















enforce- 












Fiscal 
year 


Educa- 
tion 


Health 


Welfare 

12.826 
12,908 
13,490 
13,700 
17,718 


Highways 

18,290 
22,619 
45,378 
62,026 
67,790 


Natural 
resources 

9.706 
10.427 
12,371 
13,702 
17,373 


ment 

and 

reform 


Munici- 
pal 
affairs 


Public 
debt 


Public 
works 


Power 
bonus 


Miscel- 
laneous 


1945. 
1946. 
1947. 
1948. 
1949. 


25.748 
32,258 
34,134 
41,431 
49,418 


11.632 
12,631 
15,551 
20.119 
28.650 


4,538 
6,177 
6,200 
8,217 
11,311 


6,417 
3,361 
3,453 
3.695 
3.952 


26,109 
25.447 
24.812 
22,872 
34,422 


1,219 
1,390 
2,554 
5,431 
7,703 


1,310 
1,680 
1,660 
4,565 
8,028 


2,917 
3,403 
4,288 
5,376 
6,766 


1950. 
1951. 
1952. 
1953. 
1954. 


53,935 
60,894 
71,014 
79,676 
86,094 


32,265 
33.768 
44,509 
50,530 
52,245 


21,650 
23.938 
24.637 
21,909 
23.700 


72,042 

82.280 

102,180 

120,213 

113,967 


20,748 
18.343 
19.215 
20.634 
19,902 


11,204 
12.315 
17.040 
16.084 
17,320 


4.009 
4,480 
5.214 
7.622 
9.353 


38,975 
41,457 
54,726 
52.903 
52.456 


8,914 
11,753 
12,152 
12,693 
22,211 


10,622 
7,297 

10,224 
8,826 
9,412 


8.437 

8,859 

11.404 

13.503 

13.053 


1955. 
1956. 
1957. 
1958. 
1959. 


96,209 
105,038 
112.891 
147,933 
183,661 


57,019 
59,193 
62.303 
65.965 
77,323 


26.054 
27,000 
29.303 
36.143 
41,920 


110,169 
156,353 
197,915 
214.197 
229,459 


19,025 
24.765 
24.002 
27.822 
29,719 


19,031 
21.976 
22.412 
27,019 
30,113 


18,333 
15.869 
16,875 
25,788 
28,079 


47,014 
58.094 
67.005 
46,959 
50.285 


26,652 
30,366 
35,485 
50,368 
49,505 


7,297 
7,976 
6,144 
7,359 
1,454 


14.465 
15.670 
17.955 
21,776 
28,620 


1960. 
1961. 
1962. 
1963. 
1964. 


211.908 
235,069 
270,623 
357,695 
391,038 


84,060 
88.960 
130,316 
144.303 
122.026 


44.624 
51,019 
54,447 
56,676 
60,690 


250,930 
239,641 
245.000 
252,143 
281.382 


33.888 
33.356 
37,178 
38,213 
42.048 


34,562 
33,854 
36.603 
39,623 

47,878 


32,414 
36,856 
39,530 
41,771 
44,955 


68,210 
78,233 
86.116 
96.407 
102,239 


49,813 
42.019 
39.621 
37,381 
40,651 


1,324 
511 
544 
922 
824 


30,608 
32,060 
37,501 
41,408 
47.014 



Source: Ontario, Public Accounts, 1945-1964. 
♦Net ordinary and net capital expenditures. 



Table 4:9 

PROVINCE OF ONTARIO 

PERCENTAGE DISTRIBUTION OF FUNCTIONAL CLASSIFICATION OF NET EXPENDITURES 
OF PROVINCIAL GOVERNMENT, 1945-64* 













(percentages) 
























Law 
























enforce- 
























ment 


Munici- 










Fiscal 


Educa- 






High- 


Natural 


and 


pal 


Public 


Public 


Power 


Miscel- 


year 


tion 


Health 


Welfare 


ways 


resources 


reform 


affairs 


debt 


works 


bonus 


laneous 


1945 


21.33 


9.63 


10.63 


15.15 


8.04 


3.76 


5.32 


21.63 


1.01 


1.08 


2.42 


1946.... 


24.38 


9.55 


9.76 


17.10 


7.88 


4.67 


2.54 


19.23 


1.05 


1.27 


2.57 


1947.... 


20.83 


9.49 


8.23 


27.69 


7.55 


3.78 


2.11 


15.14 


1.56 


1.01 


2.61 


1948. . . . 


20.60 


10.00 


6.81 


30.84 


6.81 


4.09 


1.84 


11.37 


2.70 


2.27 


2.67 


1949.... 


. 19.52 


11.32 


7.00 


26.78 


6.86 


4.47 


1.56 


13.60 


3.04 


3.18 


2.67 


1950.... 


19.07 


11.41 


7.66 


25.47 


7.34 


3.96 


1.42 


13.78 


3.15 


3.76 


2.98 


1951.... 


19.94 


11.06 


7.84 


26.94 


6.00 


4.03 


1.47 


13.58 


3.85 


2.39 


2.90 


1952.... 


19.07 


11.96 


6.62 


27.44 


5.16 


4.58 


1.40 


14.70 


3.26 


2.75 


3.06 


1953. . . . 


. 19.69 


12.49 


5.42 


29.71 


5.09 


3.98 


1.88 


13.08 


3.14 


2.18 


3.34 


1954.... 


20.51 


12.45 


5.65 


27.15 


4.74 


4.13 


2.23 


12.50 


5.29 


2.24 


3.11 


1955... 


21.80 


12.92 


5.91 


24.97 


4.31 


4.31 


4.16 


10.65 


6.04 


1.65 


3.28 


1956.... 


20.11 


11.33 


5.17 


29.94 


4.74 


4.21 


3.04 


11.12 


5.81 


1.53 


3.00 


1957.... 


19.06 


10.52 


4.95 


3342 


4.05 


3.78 


2.85 


11.31 


5.99 


1.04 


3.03 


1958. . . . 


. 22.04 


9.83 


5.38 


31.91 


4.15 


4.02 


3.84 


6.99 


7.50 


1.10 


3.24 


1959.... 


24.48 


1031 


5.59 


30.59 


3.96 


4.02 


3.74 


6.70 


6.60 


0.19 


3.82 


1960. . . . 


25.16 


9.98 


5.30 


29.79 


4.02 


4.10 


3.85 


8.10 


5.91 


0.16 


3.63 


1961.... 


. 26.97 


10.21 


5.85 


27.50 


3.83 


3.88 


4.23 


8.98 


4.82 


0.06 


3.67 


1962.... 


. 27.69 


1333 


5.57 


25.07 


3.80 


3.74 


4.04 


8.81 


4.05 


0.06 


3.84 


1963.... 


. 32 33 


13.04 


5.12 


22.79 


3.45 


3.58 


3.78 


8.71 


3.>38 


0.08 


3.74 


1964.. .. 


33.12 


10.34 


5.14 


23.83 


3.56 


4.05 


3.81 


8.66 


3.44 


0.07 


3.98 



Source: Table 4:8. 

*Net ordinary and net capital expenditures. 



128 



Chapter 4: Appendix 



Table 4:10 
PROVINCE OF ONTARIO 

FUNCTIONAL CLASSIFICATION OF NET 
GENERAL EXPENDITURES OF LOCAL GOVERNMENTS, 1951-63 



(thousands of dollars) 



Protection 
Sanitation to 

Highways and persons General 

Educa- and waste and govern- 

Year tion roads removal property ment 



Social 
Health welfare 



1945.. 34,517 20,189 
1946-1950 not available 



Debt 



Deficits 
of 
municipal 
enter- Miscel- 
prises laneous Total 



8,010 18,293 14,438 11,005 5,283 5,965 



804 



7,187 125,691 



1951. . 


111,443 


36,184 


21,716 


47,304 


17,883 


13,917 


12,275 


9,977 


821 


22,185 


293,705 


1952. . 


136,353 


43,786 


21,877 


43,180 


22,948 


18,548 


13,486 


12,422 


1,558 


25,041 


339,199 


1953.. 


144,261 


50,713 


32,107 


46,358 


26,838 


19,936 


14,348 


15,754 


1,677 


27,076 


379,068 


1954.. 


160,999 


71,031 


92,046 


56,528 


31,293 


25,917 


17,262 


20,443 


1,756 


27,720 


504,995 


1955.. 


174,362 


104,156 


57,315 


70,684 


39,050 


22,429 


18,848 


22,172 


1,819 


29,610 


540,445 


1956.. 


198,699 


100,190 


73,356 


72,190 


46,239 


27,080 


20,367 


26,791 


4,205 


32,552 


601,669 


1957. . 


229,190 


152,635 


64,040 


77,510 


46,068 


30,049 


18,960 


36,307 


2,112 


41,903 


698,774 


1958.. 


225,630 


158,959 


68,851 


85,678 


50,772 


27,679 


21,715 


38,651 


2,562 


46,766 


727,263 


1959.. 


263,830 


180,558 


77,192 


95,430 


54,560 


24,989 


22,101 


45,759 


3,011 


52,756 


820.186 


I960.. 


306,307 


188,433 


84,993 


102,289 


60,199 


31,209 


25,363 


56,557 


10,953 


63,282 


929,585 


1961.. 


318,378 


167.861 


109,413 


113,457 


58,066 


29,693 


24,406 


65,479 


10,888 


58,239 


955,880 


1962. . 


330,527 


204,499 


101,742 


122,211 


65,094 


38,369 


24,944 


70,889 


12,158 


72,264 


1,042,697 


1963. . 


360,659 


209,143 


111,152 


127,364 


77,646 


22,100 


25,008 


79,146 


15,134 


75,426 


1,102,778 



Source: Federal-Provincial Conference 1955, Comparative Statistics of Public Finance, Vol. I. Canada, Dominion Bureau 
of Statistics, Historical Review, Financial Statistics of Governments in Canada, 1952-6Z; Municipal Government Finance, 
1963. 



Table 4:11 
PROVINCE OF ONTARIO 

PERCENTAGE DISTRIBUTION OF FUNCTIONAL CLASSIFICATION 
OF NET GENERAL EXPENDITURES OF LOCAL GOVERNMENTS, 1951-63 



(percentages) 
Protection 
Sanitation to 

Highways and persons General 

and waste and govern- 

Year Education roads removal property ment Health 

1945 27.5 16.1 6.4 14.6 11.5 8.8 

1946-1950 not available 

1951 37.9 12.3 7.4 16.1 6.1 4.7 

1952 40.2 12.9 6.4 12.7 6.8 5.5 

1953 38.1 13.4 8.5 12.2 7.1 5.3 

1954 31.9 14.1 18.2 11.2 6.2 5.1 

1955 32.3 19.3 10.6 13 1 7.2 4.2 

1956 33.0 16.7 12.2 12.0 7.7 4.5 

1957 32.8 21.8 9.2 11.1 6.6 4.3 

1958 31.0 21.9 9.5 11.8 7.0 3.8 

1959 32.2 22.0 9.4 11.6 6.7 3.0 

1960 33.0 20.3 9.1 11.0 6.5 3.4 

1961 33.3 17.6 11.4 11.9 6.1 3.1 

1962 31.7 19.6 9.8 11.7 6.2 3.7 

1963 32.7 19.0 10.1 11.5 7.0 2.0 



Deficits 
of 
municipal 
Social Debt enter- Miscel- 
welfare charges prises laneous 



4.2 



4.7 



5.6 



Total 



100.0 



4.2 


3.4 


.3 


7.6 


100.0 


4.0 


3.7 


.5 


7.3 


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3.8 


4.2 


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7.0 


100.0 


3.4 


4.0 


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5.6 


100.0 


3.5 


4.1 


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5.4 


100.0 


3.4 


4.5 


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100.0 


2.7 


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3.0 


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5.6 


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6.7 


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6.8 


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2.4 


6.8 


1.2 


6.9 


100.0 


2.3 


7.2 


1.4 


6.8 


100.0 



Source: Table 4:10. 



129 



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130 



Chapter 4: Appendix 

Table 4:14 
PROVINCE OF ONTARIO 

COMBINED PROVINCIAL AND LOCAL NET GENERAL EXPENDITURE AND 
PROVINCIAL DOMESTIC PRODUCT. ONTARIO AND REST OF CANADA, 1945-62 



Year 



1945 


252,734 


1946 


326,635 


1947 


369,354 


1948 


455,023 


1949 


474,615 


1950 


518,454 


1951 


627,722 


1952 


707,992 


1953 


759,739 


1954 


907,975 


1955 


1,014,089 


1956 


1,137,633 


1957 


1,330,627 


1958 


1,443,863 


1959 


1,689,090 


1960 


1,834,405 


1961 


1,959,369 


1962 


2,180,839 



(1) (2) 

Provincial and local 

net general expenditure 

Ontario Rest of Canada 

(thousands of dollars) 



466,832 
575,500 
725,000 
871,524 
947,231 

1,036,527 
1,210,749 
1,384,442 
1,480,307 
1,665,573 

1,825,252 
2,041,256 
2,298,335 
2,444,596 
2,771,230 



(3) 



(4) 



Provincial domestic product 
Ontario Rest of Canada 
(millions of dollars) 



3,145,854 
3,347,435 
3,662,402 



4,331 
4,150 
4,591 
5,260 
5,776 

6,478 
7,364 
8,281 
8,731 
8,920 

9,799 
10,784 
11,717 
12,047 
12.844 

13,150 
13,670 
14,605 



6,473 
6,641 
7,266 
8,439 
9,109 

9,980 
11,762 
13,063 
13,475 
13,293 

14,527 
16,405 
16,581 
16.998 
18,054 

19,186 
19,661 
21,245 



(1) as a 

percentage 

of (3) 

5.8 
7.9 
8.0 
8.7 
8.2 

8.0 
8.5 
8.5 
8.7 
10.2 

10.3 
10.5 
11.4 
12.0 
13.2 

13.9 
14.3 
14.9 



(2) as a 

percentage 

of (4) 

7.2 

8.7 

9.9 
10.3 
10.4 

10.4 
10.3 
10.6 
11.0 
12.5 

12.6 
12.4 
13.9 
14.4 
15.3 

16.4 
17.0 
17.2 



Source: Canada, Dominion Bureau of Statistics, Historical Review, Financial Statistics of Governments in Canada, 1 95£-6£; 
NatioTuU Accounts, 1926-56, 1963; and datasuppliedbythe Ontario Department of Economics and Development. 



Table 4:15 
PROVINCE OF ONTARIO 

COMBINED PROVINCIAL AND LOCAL NET GENERAL EXPENDITURE 
AND PERSONAL INCOME, BY PROVINCE, 1952 AND 1962 



Province 



British Columbia 

Alberta 

Saskatchewan 

Manitoba 

Ontario 

Quebec 

New Brunswick 

Nova Scotia 

Prince Edward Island. 
Newfoundland 

All Provinces 2,091,438 



1952 



(thousands of dollars) 



1962 



Net general 
expenditure 


Personal 
income 


(1) as a 

percentage 

of (2) 

(3) 


Net general 
expenditure 

(4) 


Personal 
income 

(5) 


(3) as a 

percentage 

of (4) 


(1) 


(2) 


(6) 


237,827 


1,728,000 


13.8 


581.034 


3,112,000 


18.7 


188,247 


1,328,000 


14.2 


491,053 


2,307,000 


21.3 


133,873 


1,209,000 


11 1 


309,042 


1.571,000 


19.7 


90,954 


934,000 


9.7 


276,676 


1,563,000 


17.7 


707,992 


6,749,000 


10.5 


2,180,83y 


12,227,000 


17.8 


553,536 


4,152,000 


13.3 


1,541,898 


7,749,000 


19.9 


66,887 


406,000 


16.5 


144,280 


672,000 


21.5 


72,301 


553,000 


13.1 


172,201 


925,000 


18.6 


8,880 


71,000 


12.5 


30,280 


109,000 


27.8 


30,941 


219,000 


14.1 


106,303 


460,000 


23.1 



5,833,606 



30,695,000 



19.0 



Source: Canada, Dominion Bureau of Statistics, Historical Review, Financial Statistics of Governments in Canada, 
1962-62; National Accounts, 1926-1956, 1963. 



131 



The Ontario Setting 

Table 4:16 

PROVINCE OF ONTARIO 

COMBINED PROVINCIAL AND LOCAL NET GENERAL EXPENDITURE 
PER CAPITA, BY PROVINCE. 1952 AND 1962 

(dollars) 
Province 1952 1962 

British Columbia 197.37 350.23 

Alberta 193.47 358.43 

Saskatchewan 158.81 332.30 

Manitoba 113.98 295.91 

Ontario 147.87 343.87 

Quebec 132.62 287.35 

New Brunswick 127.16 237.69 

Nova Scotia 110.72 230.83 

Prince Edward Island 88.80 285.66 

Newfoundland 82.73 226.18 

All Provinces 144.90 314.80 

All Provinces, excluding Ontario 143.42 299.68 

Source: Canada, Dominion Bureau of Statistics, Historical Review, Financial Statistics of Governments in Canada, 
196£-6e; National Accounts, 19H6-1966, 1963. 



132 



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134 



Chapter 4: Appendix 

Table 4:19 

PROVINCE OF ONTARIO 

PROVINCIAL GOVERNMENT RECEIPTS FROM THE GOVERNMENT OF CANADA 
FOR SHARED-COST PROGRAMS AND GRANTS-IN-AID, 1939-64 



Fiscal 
year 



(thousands of dollars) 
Ordinary Capital 



Total 



1939 17,014 

1940 17,490 

1941 13,521 

1942 12,981 

1943 12,851 

1944 12,953 

1945 14,261 

1946 . " 16,230 

1947 19,571 

1948 21,615 

1949." 23,176 

1950 34,545 

1951 36,699 

1952 31,504 

1953 15,888 

1954 14,387 

1955 16,410 

1956 19,226 

1957 19,289 

1958 22,594 

1959 49,560 

1960 1 18,850 

1961 132,050 

1962 160,611 

1963 190,926 

1964 210,368 





17.014 


69 
102 


17,490 
13,521 
12,981 
12,920 
13,055 




14,261 
16,230 
19,571 
21,615 
23,176 


2,790 
7,009 
4,923 
3,253 


34,545 
39,489 
38,513 
20,811 
17,640 


6,684 

3,651 

6,157 

13,970 

19,283 


23,094 
22,877 
25,446 
36,564 
68,843 


21,571 
22,583 
26,452 
130,908 
71,873 


140,421 
154,633 
187,063 
321,834 
282,241 



Source: Canada, Dominion Bureau of Statistics, Financial Statistics of Provincial Governments, 1941-1962. Ontario, 
Public Accounts, 1939-1964. Canada, Department of Finance, Federal-Provincial Conditional Grant and Shared-Cost 
Programs, 1962. 

Table 4:20 

PROVINCE OF ONTARIO 

GROSS MONEY REVENUES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-64 



(thousands of dollars) 

Provincial 

Year government* Municipalities School boards 

1939 103,857 109,811 57,795 

1940 105,663 105,687 59,777 

1941 117,323 99,857 59,833 

1942 124,477 95,390 60,460 

1943 121,134 94,927 62,795 

1944 131,152 100,495 66,466 

1945 131,385 106,664 63,413 

1946 144,599 119,353 67,734 

1947 162,447 120,974 77,607 

1948 213,314 138,728 93,534 

1949 238,646 156,205 107,843 

1950 263,095 170,875 118,242 

1951 304,761 196,235 141,667 

1952 340,834 223,492 156,122 

1953 370,311 237,400 180,290 

1954 390,613 265,714 203,383 

1955 422,487 295,762 234,397 

1956 450,846 326,889 260,577 

1957 505,229 372,839 298,140 

1958 628,413 415,725 346,488 

1959 711,217 459,334 395,645 

1960 842,891 507,758 436,280 

1961 894,024 545,897 487,573 

1962 1,012,415 590,143 545,129 

1963 1,315,446 632,457 596,307 

1964 1,361,377 



Indexes (1939=100) 



Source: Tables 4:17, 4:19, 4:24 and 4:25. 
*Fiscal years ending March 31. 



Provincial 






government 


Municipalities School boards 


100.0 


100.0 


100.0 


101.7 


96.2 


103.4 


113.0 


90.9 


103.5 


119.9 


86.9 


104.6 


116.6 


86.4 


108.7 


126.3 


91.5 


115.0 


126.5 


97.1 


109.7 


139.2 


108.7 


117.2 


156.4 


110.2 


134.3 


205.4 


126.3 


161.8 


229.8 


142.2 


186.6 


253.3 


155.6 


204.6 


293.4 


178.7 


245.1 


328.2 


203.5 


270.1 


356.6 


216.2 


311.9 


376.1 


242.0 


351.9 


406.8 


269.3 


405.6 


434.1 


297.7 


450.9 


486.5 


339.6 


515.9 


605.1 


378.6 


599.5 


684.8 


418.3 


684.6 


811.6 


462.4 


754.9 


860.8 


497.1 


843.6 


974.8 


537.4 


943.2 


1,266.6 


576.0 


1,031.8 


1,310.8 







135 



The Ontario Setting 



Table 4:21 

PROVINCE OF ONTARIO 

NET MONEY REVENUES OF PROVINCIAL GOVERNMENT, 

MUNICIPALITIES AND SCHOOL BOARDS, 1939-64 





(thousands of dollars) 






Indexes (1939 = 


100) 


Year 


Provincial 
government* 

83,902 


Municipalities 
95,305 


School boards 


Provincial 
government 


Municipalities 
100.0 


School boards 


1939 


49,402 


100.0 


100.0 


1940 
1941 
1942 
1943 
1944 


85,232 
100,861 
108,360 
105,040 
114,942 


93,882 
90,713 
86,916 
87,126 
91,450 


50.610 
49,822 
50,270 
52,148 
55.002 


101.6 
120.2 
129.2 
125.2 
137.0 


98.5 
95.2 
91.2 
91.4 
96.0 


102.4 
100.9 
101.8 
105.6 
111.3 


1945 
1946 
1947 
1948 
1949 


113,969 
125,214 
139.721 
188.544 
212.315 


97,674 
108,136 
104,848 
114,679 
127,596 


34,485 
37,125 
46,156 
56,407 
65,907 


135.8 
1492 
166.5 
224.7 
253.1 


102.5 
113.5 
110.0 
120.3 
133.9 


69.8 

75.1 

93.4 

114.2 

133.4 


1950 
1951 
1952 
1953 
1954 


225.395 
261.631 
298,680 
345,859 
369,332 


139,427 
160,100 
181,993 
193,805 
209.351 


71,462 
90,162 
101,455 
118,154 
131,364 


268.6 
311.8 
356.0 
412.2 
440.2 


146.3 
168.0 
191.0 
203.4 
219.7 


144.7 
182.5 
205.4 
239.2 
265 9 


1955 
1956 
1957 
1958 
1959 


395,752 
424,328 
476,142 
588,208 
638,733 


228,844 
253,846 
281.795 
309,281 
336,859 


152,787 
176,419 
197,178 
212,795 
245,488 


471.7 
505.7 
567.5 
701.1 
761.3 


240.1 
266.4 
295.7 
324.5 
353.5 


309.3 
357.1 
399.1 
430.7 
496.9 


1960 
1961 
1962 
1963 
1964 


698,829 
735,750 
820,728 
988,988 
1,074,512 


372,269 
401,841 
434,587 
466,920 


275,490 
303,686 
340,713 
361,523 


832.9 

876.9 

978.2 

1,178.7 

1,280.7 


390.6 
421.6 
456.0 
489.9 


557.6 
614.7 
689.7 
731.8 



Source: Ontario, Public Accounts, 1939-1964, and Tables 4:24 and 4:25. 
*Fiscal years ending March 31. 



Table 4:22 

PROVINCE OF ONTARIO 

NET REAL REVENUES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-64 





(thousands of 1949 dollars) 






Indexes (1939 = 


100) 


Year 


Provincial 
government* 


Municipalities 
160,150 


School boards 


Provincial 
government 

100.0 


Municipalities 


School boards 


1939 


140,351 


83,098 


100.0 


100.0 


1940 
1941 
1942 
1943 
1944 


140,810 
158,836 
161,780 
146,765 
156,002 


149,684 
138,345 
122,884 
119,025 
120,281 


81,002 
76,391 
70,893 
71,279 
72,096 


100.3 
113.2 
115.3 
104.6 
111.2 


93.5 
86.4 
76.7 
74.3 
75.1 


97.5 
91.9 
85.3 
85.8 
86.8 


1945 
1946 
1947 
1948 
1949 


148,765 
158,962 
17.5,573 
218,071 
220,771 


124,791 
138,867 
125,057 
118.360 
127,596 


43,785 
47,553 
55,052 
59,370 
65,907 


106.0 
113.3 
125.1 
155.4 
157.3 


77.9 
86.7 
78.1 
73.9 
79.7 


52.7 
57.2 
66.2 
71.4 
79.3 


1950 
1951 
1952 
1953 
1954 


219,576 
244,424 
251,584 
282,726 
292,935 


133,602 
137,815 
150,482 
155,342 
162,919 


68,300 
77,492 
83,591 
94,425 
102,149 


156.4 
174.2 
179.3 
201.4 
208.7 


83.4 
86.1 
94.0 
97.0 
101.7 


82.2 
93.3 
1006 
113.6 
122.9 


1955 
1956 
1957 
1958 
1959 


305,907 
321,193 
342,277 
402,111 
429,285 


174,066 
183,813 
194,866 
215,527 
227,854 


115,538 
126,966 
135,415 
145,640 
162,683 


218.0 
228.8 
243.9 
286.5 
305.9 


108.7 
114.8 
121.7 
134.6 
142.3 


139.0 
152.8 
163.0 
175.3 
195.8 


1960 
1961 
1962 
1963 
1964 


4 54.. 346 
461.806 
517.124 
586.032 
622,689 


248,312 
269,855 
279,208 
286,436 


178,773 
192,853 
207,360 
211.590 


323.7 
329.0 
368.5 
417.5 
443.7 


155.0 
168.5 
174.3 
178.9 


215.1 
232.1 
249.5 
254.6 



Source: Table 4:21. 

♦Fiscal years ending March 31. 



136 



Chapter 4: Appendix 



Table 4:23 

PROVINCE OF ONTARIO 

NET REAL PER-CAPITA REVENUES OF PROVINCIAL GOVERNMENT, 
MUNICIPALITIES AND SCHOOL BOARDS, 1939-64 







(1949 dollars) 






Indexes (1939 = 100) 




Provincial 






Provincial 






Year 
1939 


government* 
38.22 


Municipalities 
43.19 


School boards 


government 
100.0 


Municipalities 
100.0 


School boards 


22.41 


100.0 


1940 


37.97 


39.95 


21.62 


99.3 


92.5 


96.5 


1941 


42.39 


36.52 


20.17 


110.9 


84.6 


90.0 


1942 


42.71 


31.64 


18.25 


111.7 


73.3 


81.4 


1943 


37.79 


30.40 


18.21 


9S.9 


70.4 


81.3 


1944 


39.85 


30.35 


18.19 


104.3 


70.3 


81.2 


1945 


37.54 


31.20 


10.95 


98.2 


72.2 


48.9 


1946 . 


39.74 


33.93 


11.62 


104.0 


78.6 


51.9 


1947 


42.90 


29.95 


13.18 


112.2 


69.3 


58.8 


1948 


52.22 


27.69 


13.89 


136.6 


64.1 


62.0 


1949 


51.64 


29.14 


15.05 


135.1 


67.5 


67.2 


1950 


50.15 


29.88 


15.28 


131.2 


69.2 


68.2 


1951 


54.67 


29.97 


16.85 


143.0 


69.4 


75.2 


1952 


54.72 


31.43 


17.46 


143.2 


72.8 


77.9 


1953 


59.05 


31.44 


19.11 


154.5 


72.8 


85.3 


1954 


59.29 


31.85 


19.97 


155.1 


73.7 


89 1 


1955 


59.81 


33.05 


21.94 


156.5 


76.5 


97.9 


1956 


60.99 


34.01 


23.49 


159.6 


78.7 


104.8 


1957 


63.33 


34.58 


24.03 


165.7 


80.1 


107.2 


1958 


7135 


37.03 


25.02 


186.7 


85.7 


111.6 


1959 


73.75 


38.17 


27.25 


193.0 


88.4 


121.6 


1960 


76.12 


40.63 


29.25 


199.2 


94.1 


130.5 


1961 


75.57 


43.27 


30.93 


197.7 


100.2 


138.0 


1962 


82.93 


44.03 


32.70 


217.0 


101.9 


145.9 


1963 


92.40 


44.42 


32.81 


241.8 


102.8 


146.4 


1964 


96.57 






252.7 







Source: Tables 4:21 and 4:22. 
♦Fiscal years ending March 31. 



Table 4:24 

PROVINCE OF ONTARIO 

CURRENT REVENUES OF MUNICIPALITIES, 1939-63 



(thousands of dollars) 



percentage distribution 



Year 



1939. 

1940. 
1941. 
1942. 
1943. 
1944. 

1945. 
1946. 
1947. 
1948. 
1949. 

1950. 
1951. 
1952. 
1953. 
1954. 

1955. 
1956. 
1957. 
1958. 
1959. 

1960. 
1961. 
1962. 
1963. 



Total 
grants 

14,506 

11,805 
9.144 
8,474 
7,801 
9,045 

8,990 
11,217 
16,126 
24,049 
28,609 

31,448 
36,135 
41,499 
43,595 
56,363 

67,133 
73,043 
91,044 
106,444 
122,475 

135,489 
144,056 
155,556 
165,537 



Total 

municipal 

tax levy 

84,327 

84,024 
80,675 
77,892 
77,609 
77,249 

83,469 
89,628 
89,222 
96,362 
108,526 

119,850 
139,897 
158,597 
167,112 
179,610 

194,395 
216,574 
243,118 
265,386 
291,049 



323,699 
350,212 
376,328 
404,284 



Other 
revenues 

10,978 

9,858 
10,038 
9,024 
9,517 
14,201 

14,205 
18,508 
15,626 
18,317 
19,070 

19,577 
20,203 
23,396 
26,693 
29,741 

34,234 
37,272 
38,677 
43,895 
45,810 



48,570 
51,629 
58,259 
62,636 





Total 




Total 


municipal 


Other 


grants 


tax levy 
76.79 


revenues 


13.21 


10.00 


11.17 


79.50 


9.33 


9.16 


80.79 


10.05 


8.88 


81.66 


9.46 


8.22 


81.76 


10.02 


9.00 


76.87 


14.13 


8.43 


78.25 


13.32 


9.40 


75.09 


15.51 


13.33 


73.75 


12.92 


17.34 


69.46 


13.20 


18.31 


69.48 


12.21 


18.40 


70.14 


11.46 


18.41 


71.29 


10.30 


18.57 


70.96 


10.47 


18.36 


70.39 


11.25 


21.21 


67.60 


11.19 


22.70 


65.73 


11.57 


22.35 


66.25 


11.40 


24.42 


65.21 


10.37 


25.60 


63.84 


10.56 


26.66 


63.36 


9.98 


26.68 


63.75 


9.57 


26.39 


64.15 


9.46 


26.36 


63.77 


9.87 


26.17 


63.92 


9.91 



Source: Ontario, Department of Municipal Affairs, Annual Report of Municipal Statistics, 1939-1963. 

137 



The Ontario Setting 



Table 4:25 

PROVINCE OF ONTARIO 

CURRENT REVENUES OF SCHOOL BOARDS. 1939-63 



(thousands of dollars) 



Year 


Total 
grants 


Total 
school 
tax levy 

39.298 


Other 
revenues 


1939 


8.393 


10,104 


1940 

1941 

1942 

1943 

1944 


9.167 
10.011 
10.190 
10,647 
11.464 


40,288 
40,852 
41,420 
43,023 
43,502 


10.322 
8,970 
8,850 
9,125 

11,500 


1945 

1946 

1947 

1948 

1949 


28.928 
30,609 
31,451 
. . . 37.127 
41.936 


34,485 
37,125 
46,156 
52,450 
61,432 


N.A. 
N.A. 
N.A. 
3,957 
4,475 


1950 

1951 

1952 

1953 

1954 


46,780 
51.505 
54.667 
62,136 
72.019 


68,555 

86,386 

101,455 

112,862 

126,509 


2,907 
3,776 

N.A. 
5,292 
4.855 


1955 

1956 

1957 

1958 

1959 


81,610 

84,158 

100.962 

133,693 

150,157 


141,879 
165,797 
188,394 
200,442 
234,538 


10,908 
10,622 
8,784 
12,353 
10,950 


1960 

1961 

1962 

1963 


160.790 
183,887 
204,416 
234,787 


263,196 
291,098 
313,679 
341,611 


12,294 
12,588 
27,034 
19,909 



percentage distribution 





Total 




Total 


school 


Other 


grants 


tax levy 
68.00 


revenues 


14.52 


17.48 


15.33 


67.40 


17.27 


16.73 


68.28 


14.99 


16.85 


68.51 


14.64 


16.96 


68.51 


14.53 


17.25 


65.45 


17.30 


45.62 


54.38 





45.19 


54.81 


. — 


40.53 


59.47 


— 


39.69 


56.08 


4.23 


38.89 


56.96 


4.15 


39.56 


57.98 


2.46 


36.36 


60.98 


2.66 


35.02 


64.98 


— 


34.46 


62.60 


2.94 


35.41 


62.20 


2.39 


34.82 


60.53 


4.65 


32.30 


63.63 


4.07 


33.86 


63.19 


2.95 


38.59 


57.85 


3.56 


37.95 


59.28 


2.77 


36.85 


60.33 


2.82 


37.71 


59.70 


2.59 


37.50 


57.54 


4.96 


39.37 


57.29 


3.34 



Source: Ontario, Department of Education, Report of the Minister, 1939-1963; Department of Municipal Affairs, 
Annual Report of Municipal Statistics, 1939-1963. 







Table 4:26 










PROVINCE OF ONTARIO 








PROVINCIAL, MUNICIPAL AND SCHOOL BOARD NET REAL REVENUES 






AS A PERCENTAGE OF REAL PROVINCIAL 


DOMESTIC PRODUCT, 1939-63 








(based on 1949 dollars) 






Year 


(1) 

Provincial 
government* 


(2) (3) 
Municipalities School boards 


(4) 

Local 

(2-1-3) 

6.88% 


(5) 
Provincial 
and local 

(1+4) 


1939 


3.97% 


4.53% 


2.35% 


10.85% 


1940 

1941 

1942 

1943 

1944 


3.45 

3.35 

3.01 

2.57 

2.71 


3.67 
2.92 
2.28 
2.08 
2.09 


1.99 
1.61 
1.32 
1.25 
1.25 


5.66 
4.53 
3.60 
3.33 
3.34 


9.11 
7.88 
6.61 
6.90 
6.05 


1945 

1946 

1947 

1948 

1949 


2.61 

2.98 

3.26 

3.98 

3.82 


2.19 
2.60 
2.32 
2.16 
2.21 


0.77 
0.89 
1.02 
1.08 
1.14 


2.96 
3.49 
3,34 
3.24 
3.35 


5.57 
6.47 
6.60 
7.22 
7.17 


1950 

1951 

1952 

1953 

1954 


3.49 

3.79 

3.64 

3.90 

4.05 


2,13 
2.14 
2.18 
2.14 
2.25 


1.09 
1.20 
1.21 
1.30 
1.41 


3.22 
3.34 
3.39 
3.44 
3.66 


6.71 
7.13 
7.03 
7.34 
7.71 


1955 

1956 

1957 

1958 

1959 


3.86 

3.83 

3.91 

4. .55 

4.69 


2.20 
2.19 
2.23 
2.44 
2.49 


1.46 
1.52 
1.55 
1 65 
1.78 


3.66 
3.71 
3.78 
4.09 
4.27 


7.52 
7.54 
7.68 
8.64 
8.96 


1960 

1961 

1962 

1963 


4.91 

4.86 

5.22 

5.64 


2.68 
2.84 
2.82 
2.75 


1.93 
2.03 
2.09 
2.04 


4.61 
4.87 
4.91 
4.79 


9.52 
9.73 
10.13 
10.43 



Source: Tables 4:7 and 4:22. 
♦Fiscal years ending March 31. 



138 



Chapter 4: Appendix 



Table 4:27 
PROVINCE OF ONTARIO 

NET CAPITAL DEBT OF PROVINCIAL GOVERNMENT AND 
PROVINCIAL DOMESTIC PRODUCT, 1943-66 



Provincial government Net capital debt 

Fiscal net capital debt Provincial domestic product* as a percentage of 

year (millions of dollars) (billions of dollars) domestic product** 



1943 500 3.7 13.5 

1944 486 4.1 11.9 

1945 483 4.3 11.2 

1946 480 4.3 11.2 

1947 494 4.2 11.8 

1948 468 4.6 10.2 

1949 486 5.3 9.2 

1950 610 5.8 8.8 

1951 623 6.5 8.0 

1952 664 7.4 7.5 

1953 605 8.3 7.3 

1954 630 8.7 7.2 

1955 661 8.9 7.4 

1956 706 9.8 7.2 

1957 758 10.8 7.0 

1958 819 11.7 7.0 

1959 901 12.0 7.5 

1960 994 12.8 7.8 

1961 1,093 13.2 8.3 

1962 1,209 13.7 8.8 

1963 1,284 14.6 8.8 

1964 1,345 15 6 8.6 

1965 1,365 17.0 8.0 

1966 1,464 18.5 7.9 



Source: Treasurer of Ontario, Budget Speech, Table A-6, selected years 

♦Figure for the calendar year ending on the preceding Decembe 
Economics and Development. 

**Ratio of debt of fiscal year to P.D.P. of nearest calendar year. 



♦Figure for the calendar year ending on the preceding December 31. Estimates derived by Ontario Department of 
Economics and Development. 



139 



The Ontario Setting 



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140 



Chapter 
5 



The Incidence of 
Government Revenue 
and Expenditure 



INTRODUCTION 

1. In this chapter we present a summary analysis of the patterns in which 
the burdens of taxation and the benefits of government expenditure are allocated 
among Ontario residents, classified according to size of income. As will soon 
become abundantly clear, the task of determining the net incidence of fiscal 
operations is fraught with difficulty, particularly since we have attempted to 
recognize the effects of the revenue and expenditure programs of all levels of 
government within Canada. The reader is therefore cautioned that our results 
should be regarded not as empirically verified facts but as logical conclusions 
derived from the application of appropriate operating assumptions to the available 
data.^ To the extent that our assumptions are reasonable, our study of tax and 
expenditure incidence will yield results that approximate the actual distribution of 



'It is not possible within the confines of this chapter to set forth the multiplicity of 
assumptions that must be made to undertake an empirical investigation of this sort. 
These are spelled out in detail in the supporting monograph by J. A. Johnson, The 
Incidence of Government Revenues and Expenditures, on which this chapter is based; 
the interested reader is referred to this source for a more extensive treatment of the 
subject. This monograph is one of several background studies being published by 
The Ontario Committee on Taxation. 

141 



Incidence of Government Revenue and Expenditure 

tax burdens and expenditure benefits, by income classes, among Ontario taxpayers. 
Such knowledge is fundamental in our search for equity in the Ontario fiscal 
system. 

2. In the light of the difficulties involved in any analysis of fiscal incidence, 
one may well ask why such a study has been undertaken. The answer is found in 
the basic importance of determining even an approximation of the patterns of tax 
burdens and expenditure benefits among Ontario citizens. Without this information, 
the government's continuing task of improving the equity and the economic efficiency 
of its fiscal operations becomes virtually impossible. On the other hand, an aware- 
ness of the broad incidence of its revenue and expenditure programs will enable the 
government to formulate policies directed to greater equity and to a more efficient 
allocation of resources, judged in accordance with democratically determined 
objectives. It is in the light of these broad objectives that the Ontario government 
must make decisions relating to changes in the aggregate level and composition of 
both its revenues and its expenditures and to the consequent changes in the 
distribution of income among the residents of the province. 

3. Ideally, our study should measure, as among these income groups, welfare 
losses and gains that are related to government taxation and expenditure programs. 
But welfare being a most elusive concept, we must resort to what is at best an 
imperfect measuring-rod, namely the money burdens and money benefits associated 
with the government's fiscal operations. To illustrate the difficulties associated 
with this particular yardstick of welfare, two points may be emphasized. The 
first is that dollar transfers cannot be assumed to provide a quantitative measure- 
ment of underlying welfare — the public expenditure of $1 million on education 
may yield social benefits that are valued far in excess of this amount.^ The second 
point is that a tax burden of a specified dollar amount will involve significantly 
different real burdens, depending on whom it falls upon — i.e., according to its 
particular distribution both as among income groups and within each income 
group. These differential effects likewise relate to the real benefits from govern- 
ment expenditure. 

4. In theory, the incidence of money burdens and benefits arising from 
government taxation and expenditure programs could be determined by comparing 
the present distribution of income with the hypothetical distribution that would 
prevail in the absence of taxes and governmental services. Unfortunately, this 
second distribution cannot be determined because tax and expenditure programs 
change the supplies and demands both of factors of production and of goods and 
services. As a consequence, the level and distribution of national income may be 
significantly different from what they would be in the hypothetical situation from 
which government is absent. The most that can therefore be done in this kind of 
study is to relate the actual dollar amounts of taxes paid by each income class and 
the actual dollar amount of expenditures deemed to benefit the members of that 



"Recent empirical work would seem to indicate that property values tend to rise 
when local improvements are undertaken. This suggests that the benefits to be derived 
from improvements are valued more highly than the taxes necessary to pay for them, 
the difference in the valuation being capitalized and reflected in higher property values. 

142 



Chapter 5 : Paragraphs 2-7 

class. Because these amounts will typically not be equal, the revenue and expendi- 
ture programs of government occasion a redistribution of income as among income 
classes. The main purpose of this study is to estimate the extent of this redistribu- 
tion, recognizing that even rough approximations will appreciably advance our 
present knowledge in this crucial aspect of government finance. 

5. As already explained, we shall appraise the tax and expenditure programs 
that impinge upon Ontario residents solely in terms of their impact upon the income 
distribution of these residents. We recognize that the dimensions of economic 
welfare embrace much more than income and include such additional factors as 
asset holdings, asset liquidity, regularity of income receipt, and access to lending 
facilities. The distributional implications of tax and expenditure programs could 
undoubtedly be investigated with respect to one or other of these dimensions of 
welfare, but we think that the use of income as our criterion is readily defended. 
In the first place, income is now widely regarded as the best single index of rela- 
tive economic welfare. Second, and more important, it may be argued that all 
taxes are ultimately paid out of the incomes of individuals, whatever the initial 
assessment formula. Finally, the use of this base is in accordance with the practice 
of comparable studies that have been conducted in other countries. For these 
reasons, the impact of government on the distribution of income has been the 
primary subject of this investigation. 

6. The taxpaying unit that we utilize is the "economic family", defined as "a 
group of two or more persons living together and related to each other by blood, 
marriage, or adoption".^ To this type of unit must be added non-famUy individuals 
who reside either by themselves or with an unrelated household. The use of the 
economic-family concept may be justified on two distinct grounds. First, such a 
family typically pools its resources and behaves economically as a single unit. 
Similarly, the unattached individual is an economically separate decision-making 
unit. Second, the use of these units finds practical justification in the fact that 
much of the available relevant data are classified with respect to them. The pro- 
cedure adopted in the study is therefore to classify Ontario residents first as 
families and unattached individuals and then to classify these categories with respect 
to size of income. 

7. The particular income concept that we utilize in classifying families and 
unattached individuals is money income, the major components of which are wages 
and salaries, farm income, investment income, income from self-employment, and 
transfer payments. This concept conforms rather closely to what most families 
generally regard as their "income". Moreover, many of the basic data series used in 
the study are classified with respect to this interpretation. In some respects, 
however, it is not a totally satisfactory measure. It ignores the imputed rental 
value of owner-occupied housing, food and fuel produced and consumed on the 
farm, and other income components that undoubtedly contribute to taxable capacity. 
It also fails to treat tax burdens and governmental benefits in a symmetrical 



^Dominion Bureau of Statistics, Census Division, Characteristics of Economic Families, 
Ottawa: Queen's Printer, 1959. 

143 



Incidence of Government Revenue and Expenditure 

fashion, which would necessitate viewing the former as a subtraction from, and the 
latter as an addition to, income. In consequence, although we have determined 
the basic income distribution used in the study with reference to money income, 
when we turn to the estimating of effective rates of taxation and of benefits, we 
introduce a somewhat more comprehensive measure of income. 

8. In the following sections of this chapter, we first consider the methods of 
estimating tax and expenditure incidence. We then determine the net burdens and 
benefits relating to each money-income class, and use the results to develop the 
concept of Adjusted Broad Income, this being more comprehensive than that of 
money income. For each income class, the rates of net burden and benefit are 
then determined by dividing their dollar amounts by the amounts of adjusted 
income in each money-income class. Finally, we analyse the distributional impact 
of government finance by reference to the resulting effective burden and benefit 
rates. 

THE BASIS OF ESTIMATING INCIDENCE 

9. The following paragraphs provide no more than a summary statement of 
the techniques that we have used in allocating tax revenues to the various income 
groups within this province. The reader who wishes to ascertain precisely how our 
results were obtained is referred to the monograph on which this chapter is based.* 
Here we simply outline our general procedure and list our major assumptions 
relating to the shifting and incidence of taxation. 

10. The funds allocated by income group encompass virtually all sources of 
governmental revenue. In addition to tax revenues, they include revenues from 
licences and fees, fines and penalties, and profits from the sale of alcoholic 
beverages. This inclusive coverage is dictated by our desire to treat revenues as 
comprehensively as expenditures — all of which are included in our study — and by 
the difficulty of justifying any particular dividing line between those revenues that 
might be included and those excluded. 

1 1 . The allocation of taxes to particular income groups involves the formula- 
tion of reasonable assumptions regarding their shifting and incidence. Is the 
burden of a particular tax likely to rest with the legal taxpayer or will it in some 
degree be shifted forward to purchasers of the legal taxpayer's products or services, 
or back to those from whom the legal taxpayer makes purchases? Such shifting 
as in fact occurs is determined both by the type of tax levied and by the position 
of the taxpayer in the market-place. We observe that the "openness" of the Ontario 
economy considerably complicates our analysis, in that traditional incidence theory 
has been concerned mainly with the problem of identifying tax burdens in the 
context of a self-contained economy. The complications of determining incidence 
in a jurisdiction having extensive external economic transactions are substantial. 

12. Having formulated the most appropriate assumptions concerning tax 
incidence, it then becomes possible to allocate the various tax burdens to the 

*See Johnson, Incidence of Government Revenues and Expenditures. 

144 



Chapter 5: Paragraphs 8-13 

appropriate economic groups. A consideration of the extent to which these economic 
groups are resident in Ontario then permits a division of the tax burdens between 
provincial residents and non-residents. Finally, when it has been decided how 
much of each tax or other revenue source should be imputed to each of the resident 
economic groups, this amount must be converted into a distribution of burdens 
among the various income classes. Thus, if it has been determined that a particular 
levy burdens the consumers of a specific class of commodities, consumption studies 
may indicate the division, by income classes, of total expenditure on this class of 
commodities. The total levy may then be allocated among the income classes in 
proportion to total expenditure on the commodities in question. 

- 13. We have already observed that some part of the burden of taxation initially 
imposed upon Ontario taxpayers is shifted to non-residents. This process is effected 
either through purchases that non-residents make within Ontario — as for example 



Table 5 : 1 

GOVERNMENTAL REVENUES BY SOURCE, 1961 

(millions of dollars) 

Other 
Ontario Provincial Provincial and 

and Municipal Federal Municipal ^ 

. Total 

Ontario Ontario Ontario Ontario 

Revenue Item Total Share* Total Share* Share* Payments 

Personalincome tax 120.7 120.7 1,850.0 847.4 — 968.1 

Corporation income tax 151.8t 56.2 1,232.0 373.3 56.9 486.4 

General sales tax 141.2t 127.9 1,045.0 352.0 — 479.9 

Highway-user revenues 247.1 146.8 — — 48.6 195.4 

Selective excise taxes 94.7§ 83.0 623.0** 181.4 — 264.4 

Succession duties 40.4 39.0 71.0 34.5 — 73.5 

Import duties — — 535.0 180.1 — 180.1 

Property tax 644.8tt 456.1 — — 90.1 546.2 

Natural-resource revenue 43.1 17.0 — — 65.6 82.6 

Social insurance contributions . 89.0 72.0 394.0 163.0 — 235.0 

Other taxes and miscellaneous 
revenue 186.5|| 164.7 107.8 38.1 21.1 223.9 

Total 1,759.3 1,283.4 5,857.8 2,169.8 282.3 3,735.5 

Sources: Dominion Bureau of Statistics, Financial Statistics of the Government of 
Canada, 1961; Financial Statistics of Provincial Governments, 1961: Financial 
Statistics of Municipal Governments, 1961. Municipal data refer to calendar 
years, federal and provincial data to nearest fiscal years. 

*The amount paid by non-residents of Ontario is estimated utilizing the assumptions 
made regarding the shifting of taxes to non-residents. 

flncludes small amount of tax, collected under The Corporations Tax Act, that is not 
based on income. 

JThe figure shown represents an estimate of the yield of this tax for 12 months. Since 
it was actually in effect for only 7 months of the year, the annual revenue is obtained 
by multiplying the actual yield by 12/7. 

§Includes amusement taxes and revenue from liquor sales and licences. 
**Includes excises on liquor, tobacco, automobiles, and other commodities, 
t flncludes the business levy as well as the property tax. 

ttThe largest item is hospital premiums ($89.5 million). Includes licences (other than 
liquor and motor vehicle), fines, tax on premium income of insurance companies. 

145 



Incidence of Government Revenue and Expenditure 



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147 



Incidence of Government Revenue and Expenditure 

in tourists' purchases — or through the higher prices, reflecting the forward shifting 
of taxes, that must be paid for the exports of the province. The extent to which 
tax burdens may be shifted to non-residents will depend upon the competitive 
position of Ontario producers in outside markets, these encompassing markets 
in other provinces as well as in other nations. Where producers are able to exercise 
significant control over prices, shifting possibilities will exist in external markets in 
the same way as in markets within this province. On the other hand, if trade must 
be carried on at established world prices, there will be little room for shifting tax 
burdens to non-residents. 

14. Given the present diversity of markets and market structures in which 
Ontario production is sold, it is extremely difficult to determine the extent to which 
those tax burdens, reflected in higher prices, are in fact exported to non-residents. 
A thorough analysis would require an examination of the internal and external 
market conditions for each class of commodities, a task far beyond the compass of 
this study. In consequence, we have found it necessary to make several rather 
arbitrary assumptions. The first relates to federal taxation, and indicates that 
18 per cent of that part of the burden reflected in higher prices is exported to 
non-residents of Canada. This selected percentage reflects the ratio of the dollar 
value of exported goods to Gross Domestic Product. The remainder of the shifted 
federal tax burden is then allocated as among Ontario and the other provinces in 
proportion to the aggregate consumption expenditure of their residents. Similar 
computations were then made concerning the proportions of the various provincial 
and municipal burdens shifted forward through higher prices, and for each of 
these levels of government comparable assumptions were formulated concerning 
the distribution of the shifted burden as between residents and non-residents of the 
province. In summary, the percentage shares of the total Canadian burden of these 
forward-shifted taxes which are assumed to be borne by Ontario residents are as 
follows : 

(1) Federal taxes , . . . . 37% 

(2) Ontario provincial and municipal taxes .... 50% 

( 3 ) Other provincial and municipal taxes . . . . 3 1 % 

15. Another possible mechanism by means of which tax burdens may be trans- 
ferred to non-residents is through tax-reduced rates of return on capital invested in 
the taxing jurisdiction. The unshifted portions of the corporate income tax and of 
property taxes both reduce the net rate of return to capital, and thereby cause 
some part of their burden to be transferred to non-residents, the actual transfer 
being roughly proportional to the ratio of non-resident to resident capital holdings 
subject to taxation. Because foreign investment accounted for approximately 34 
per cent of total investment in Canada in 1961, we assigned to Canadian residents 
66 per cent of the burdens on profits. The Ontario share of this burden was deter- 
mined as the proportion of dividends received by Canadians that accrued to resi- 
dents of this province. 

16. By methods similar to those used to estimate the extent to which taxes 
imposed in Ontario were exported to non-residents, the burdens imported into 

148 



Chapter 5: Paragraphs 14-21 

Ontario from other jurisdictions were also estimated. Table 5:1, which summarizes 
these results, shows, for the federal government, the Ontario government and 
municipal governments within Ontario, the total receipts from each revenue source 
and the share of these receipts borne by Ontario residents. Also shown are the 
burdens of taxes of other jurisdictions borne by Ontario residents. 

17. When revenue burdens have been assigned to the various economic groups 
and categories in accordance with our assumptions regarding shifting and incidence, 
we then distribute these burdens among the family money-income classes. The 
results obtained by this procedure are summarized in Table 5:2, where the dollar 
amounts assigned to each family money-income class are shown. 

THE METHOD OF ESTIMATING THE INCIDENCE OF GOVERNMENT 
EXPENDITURES 

18. Any analysis of the impact of government finance on income distribution 
would be incomplete without a consideration of the manner in which the benefits 
derived from governmental expenditures accrue to different income classes. 
Unfortunately, this subject has received less attention in the literature of public 
finance than has the comparable problem of tax incidence, which suggests that the 
results obtained here should be considered more tentative than those in our 
preceding section. 

19. In analysing the incidence of governmental expenditures, it is useful to 
distinguish between transfer payments (for example, old age security and family 
allowance payments) and expenditures on goods and services. We treat the former 
as negative taxes which are assumed to augment the income of the recipients by 
the amount of the transfers received. Expenditures on goods and services are more 
difficult to deal with. Ideally, it is desirable to consider the distribution of welfare 
gains generated by the expenditure programs. In practice, however, we have noted 
that this is impossible. Public expenditure programs that satisfy social wants 
usually do not involve direct sales to consumers and there is therefore no market 
price that can be used as a money measure of the welfare gained by the consumer. 
Lacking such an indicator, we have found it necessary to adopt the alternative 
approach of determining the distribution, by income class, of costs incurred on 
behalf of families and unattached individuals. These costs are viewed as com- 
ponents of the real incomes of the beneficiaries — components that should be added 
to their money incomes in arriving at a more comprehensive income concept. 

20. In allocating to various income classes the costs incurred on behalf of 
their members, we take account only of the direct beneficiaries. While we recognize 
that educational expenditures, for example, yield benefits to virtually all citizens, 
the procedure that we have adopted allocates the total expenditure upon education 
among families in proportion to student members. This approach is dictated by the 
lack of available data on the distribution of indirect benefits by income class. 

21. The technique used to estimate the distributional impact of government 
expenditures is similar to that used in the determination of tax incidence. Having 
classified the expenditure items to be included in our analysis, we then formulated 

149 



Incidence of Government Revenue and Expenditure 

assumptions concerning the likelihood of the shifting of benefits, and these results 
were used to determine the beneficiaries on whose behalf the expenditures were 
made.^ A consideration of the composition of the beneficiary groups then permitted 
the non-resident share of each type of expenditure to be deducted from the total. 
Finally, the remaining benefits accruing to residents were allocated to the various 
income classes by reference to the distribution of the beneficiary groups among the 
income classes. 

22. In addition to distinguishing between transfer payments and governmental 
expenditures on goods and services, we also found it necessary to differentiate 
between specific and general governmental expenditures. The former category 
includes those expenditure items whose beneficiaries are readily identifiable. 
Approximately 70 per cent of total expenditures fall into the specific category. The 
remaining 30 per cent comprises expenditure items, such as those on national 
defence, general government and protection, that benefit the entire population but 
whose benefit pattern is ill-defined. While there is no generally accepted best 
method by which these expenditures may be allocated to different income classes, 
such an allocation must be made if the net distributional impact of government is 
to be determined. To omit these items while including revenue sources in their 
entirety would understate the net benefits of government and misrepresent the dis- 
tributive impact of its fiscal operations. 

23. In the literature of public finance, a number of alternative assumptions 
have been developed as the basis for allocating the benefits of general expenditures. 
Thus, it has been assumed in some studies that all individuals benefit equally from 
such expenditures. In others, the assumption that families rather than individuals 
benefit equally has been preferred. A third assumption occasionally encountered 
is that families benefit from general expenditures in proportion to their total income. 
Lastly, some studies have assumed that families benefit from such expenditures in 
a manner proportional to their investment income. 

24. While for some types of general expenditures some one of these hypo- 
theses may be preferable to the others, we think that there are no clear grounds for 
any over-all priority. We therefore have made no attempt in this study to vary our 
assumptions with the type of general outlay. We have chosen to apply each of the 
four hypotheses to the entire range of general expenditure and the distribution that 
we employ reflects the average of the results obtained by using each assumption 
in turn. 

25. The reader should note particularly that unconditional grants from one 
level of government to another are omitted from the expenditures of the paying 
level of government, and from the income of the recipient level. This practice is 
dictated by the desire to avoid double counting and an overstatement of the total 
burden of government. Conditional grants, on the other hand, are shown as 
expenditures of the paying government. 

'Some of the more important of the assumptions regarding shifting are listed in the 
appendix to this chapter. 

150 



Chapter 5: Paragraphs 22-27 

Table 5:3 

ALLOCATION OF GOVERNMENTAL EXPENDITURES, 1961 

(millions of dollars) 

Ontario Other 

~ Provincial and 

Provincial Municipal Federal Municipal Total 

Ontario Ontario Ontario Ontario Ontario 

Expenditure item Total Share* Total Share* Total Share* Share* Receipts 

Highways, roads and 

bridges 246.2 174.0 134.2 96.5 89.0 34.9 39.8 345.2 

Other transportation 

and communicationt — — — — 305.0 80.4 — 80.4 

Education 271.0 271.0 343.6 343.6 93.0 36.0 — 650.6 

Health and sanitation . 228.4 228.4 139.1 114.6 366.0 125.3 6.5 474.8 

Interest 49.4 17.6 40.2 12.9 653.4 240.8 19.5 290.8 

Social welfare t 116.8 116.8 27.3 27.3 2,266.0 772.2 — 916.3 

Agriculture 9.5 9.5 — — 295.0 118.1 — 127.6 

General expenditure§. 142.5 118.6 274.4 229.5 2,678.4 945.7 55.9 1,349.7 

Total 1,063.8 935.9 958.8 824.4 6,745.8 2,353.4 121.7 4,235.4 

Sources: Dominion Bureau of Statistics, Financial Statistics of the Government of 
Canada, 1961; Financial Statistics of Provincial Governments, 1961; Financial 
Statistics of Municipal Governments, 1961. Municipal data refer to calendar 
years, federal and provincial data to nearest fiscal years. 

*The amounts of the various expenditures received by non-residents are estimated with 
the aid of the assumptions regarding the incidence of each type of expenditure. 

tincludes expenditure on air, water and rail transport. 

^Includes old age security payments, family allowances, government pensions, payments 
to veterans, unemployment insurance and other miscellaneous transfer payments. 

§The major components in this general category are defence services and mutual aid, 
general government, protection of persons and property, recreation and cultural 
services, natural resources and primary industries and payments to government 
enterprises. 

26. As indicated above, some of the benefits of governmental expenditures 
accrue to non-residents. Foreign ownership of businesses located in Canada is the 
primary vehicle by means of which this exportation occurs. The various expendi- 
ture items allocated in the study are presented in summary form in Table 5:3, 
while their distribution among family income classes is shown in Table 5:4. 



BURDENS AND BENEFITS, BY MONEY-INCOME CLASSES 

27. Our analysis has now been developed to the point where it is possible to 
present, in Tables 5 : 2 and 5 : 4, the aggregate monetary burden imposed upon each 
family money-income class of Ontario residents and the aggregate money benefits 
accruing from expenditures on their behalf. We emphasize that this distribution 
encompasses the fiscal operations of all levels of government within Canada. 
Because the number of economic units — i.e., families and unattached individuals — 
varies among money-income classes, the data in Tables 5:2 and 5:4 do not directly 
indicate the manner in which tax burdens and expenditure benefits vary in relation 
to money income. For this purpose, the dollar amounts of burden and benefit must 
be converted to effective rates, an objective easily achieved by dividing the dollar 

151 



Incidence of Government Revenue and Expenditure 



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152 



Chapter 5: Table 5:4 



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153 



Incidence of Government Revenue and Expenditure 

amounts assigned to each money-income class by the total income enjoyed by the 
members of that class. 

28. It will be readily apparent that the resulting effective rates for the several 
income classes and the pattern of variation in rates from class to class will depend 
upon the concept of income that is chosen. It is therefore most important that an 
appropriate index of income be devised and, in particular, that the effects of 
government revenues and expenditures upon the distribution of income be treated 
in symmetrical fashion. This will be achieved where the income base is defined as 
including all fiscal operations of the public sector and where, as a result, the 
distributive effects of revenues and expenditures will be expressed as percentages 
of an income base in which payments to government have been subtracted and 
benefits from government added. 

ADJUSTED BROAD INCOME 

29. In Table 5:5, we present an income distribution that satisfies these 
requirements. Family money income has been adjusted to include the following 
elements of imputed income: the rental value of owner-occupied homes, interest 
income, food and fuel produced and consumed on farms, and the investment 
income of life insurance companies. In addition, the retained earnings of companies, 
together with the unshifted portion of the corporate income tax and those parts of 
the property tax and government natural resource revenue that are borne by stock- 
holders, are assigned to the income classes in proportion to dividends received. 
These last adjustments are necessary since, where unshifted taxes on business are 
allocated to the owners of business, consistency requires that the income from which 
the taxes are paid also be assigned to them. From the resultant income distribution, 
payments to government are then subtracted and benefits received are added. 
Because it includes the governmental sector, and to distinguish it from other 
income concepts, we refer to what emerges from these adjustments as the distribu- 
tion of adjusted broad income. The desired tax and benefit rates then are obtained 
by dividing the dollar amounts of payments and benefits for each income class, 
as shown in Tables 5 : 2 and 5:4, by the corresponding amounts of adjusted broad 
income shown in Table 5:5. Finally, the results so obtained are summarized in 
Tables 5:6 and 5:7.® 

EFFECTIVE RATES OF INCIDENCE 
EFFECTIVE TAX RATES 

30. In discussing the variation in effective tax and benefit rates that emerges 
from our study, we shall use the terms "progressive" and "regressive" to describe 
the pattern. Where rate variations reflect a reduction in income inequality, the 
pattern is described as progressive. Thus, if effective tax rates rise, or benefit rates 
fall, in moving from a lower to a higher income class, the pattern of rates will be 



"Because families and individuals customarily think of income in money terms, we relate 
our following discussion of effective rates of taxation (burden), expenditure (benefit), 
and net fiscal incidence to the money-income classification of Ontario residents. It 
should nevertheless be clearly understood that an "effective" rate for any money- 
income class is the rate that prevails in relation to the adjusted broad income of the 
money-income class. 

154 



Chapter 5 : Paragraphs 28-30 



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155 



Incidence of Government Revenue and Expenditure 



Effective 

tax rate 

(%) 

20 I- 



Chart 5:1 

Effective tax (burden) rates of provincial and municipal governments in 

Ontario, 1961 



15 h 

10 

5 



PROVINCIAL GOVERNMENT 



under $2000- $3000- $4000- $5000- $7000- $10,000 

$2000 2999 3999 4999 6999 9999 and over 

Family income class 



Effective 

tax rate 

(%) 

20 



Effective 
tax rate 

20 



15 h 

10 



MUNICIPAL GOVERNMENT 



Effective 
tax rate 

(%) 

20 



H 15 
10 



5 



5 



Effective 

tax rate 

(%) 

20 I- 



15 



under 
$2000 



$2000- $3000- $4000- $5000- $7000- $10,000 

2999 3999 4999 6999 9999 and over 

Family income class 



COMBINED PROVINCIAL AND MUNICIPAL GOVERNMENTS 



Effective 
tax rate 

(%) 
-1 20 



$3000- $4000- $5000- 

3999 4999 6999 

Family income class 



$7000- $10,000 

9999 and over 



under $2000- 

$2000 2999 

Source: Table 5:6 

Thcic rales arc based on the allocation holh of lax revenues and of "other" revenues. See Tabic 5:6. 



156 



Chapter 5: Paragraph 31 

Table 5:6 

EFFECTIVE REVENUE RATES FOR SELECTED GOVERNMENTS IN CANADA, 1961 

(percentage of adjusted broad income) 

Family Money Income Class 

Under $2,000- $3,000- $4,000- $5,000- $7,000- $10,000 

$2,000 2,999 3,999 4,999 6,999 9,999 and over 
Provincial Revenues (Ontario) 

Personal income tax 0.1 0.1 0.5 0.7 1.2 1.3 1.8 

Corporation income tax 0.5 0.4 0.4 0.4 0.4 0.4 1.0 

General sales tax 0.9 0.9 1.2 1.1 1.2 1.3 0.9 

Highway-user revenues 0.5 0.7 1.1 1.4 1.5 1.5 1.1 

Excise taxes 0.6 0.3 0.7 0.8 0.8 0.9 0.5 

Succession duties 2.1 

Natural-resource revenue 0.2 0.1 0.1 0.1 0.1 0.1 0.3 

Social insurance contributions 0.3 0.4 0.6 0.6 0.7 0.7 0.5 

Hospital premiums 2.1 1.1 1.0 0.9 0.8 0.6 0.3 

Other taxes and misc. revenu e 0.4 0.3 0.3 0.3 0.3 0.3 0.3 

Total 5.6 4.3 5.9 6.3 7.0 7.1 8.8 

Municipal Revenues (Ontario) 

Property tax 7.0 3.9 4.1 3.8 3.6 3.2 3.4 

Business tax 0.3 0.2 0.3 0.2 0.2 0.2 0.4 

Miscellaneous revenue 0.7 04 04 04 04 03 0.3 

Total 8.0 4.5 4.8 4.4 4.2 3.7 4.1 

Total Ontario Provincial and 

Municipal Revenue 13.6 8.8 107 10.7 11.2 108 12.9 

Provincial and Municipal Revenue 

(Other than Ontario) 2.5 2.0 2.1 1.9 1.9 2.0 4.7 

Total Provincial and Municipal 

Revenue (All Canada) 16.1 108 12.8 12.6 13.1 12.8 17.6 

Federal Revenues 

Personal income tax 0.8 1.0 3.4 4.8 8.1 9.3 12.6 

Corporation income tax 3.1 2.6 2.7 2.3 2.3 2.5 7.3 

General sales tax 2.8 2.4 3.1 3.3 3.4 3.3 2.4 

Other excises 1.7 1.3 1.8 1.8 1.9 1.6 0.9 

Estate tax 1-8 

Social insurance contributions 1.3 1.9 2.8 2.8 1.3 0.8 0.6 

Import duties 2.0 1.4 1.7 1.7 1.7 1.6 1.1 

Miscellaneous revenue 0.5 0.4 0.3 0.3 0.3 0.3 0.4 

Total 12.2 11.0 15.8 17.0 19.0 19.4 27.1 

Total Government Revenues.... 28.3 21.8 28.6 29.6 32.1 32.2 44.7 

Source : J. A. Johnson, Incidence of Government Revenues and Expenditures. 



described as progressive. Conversely, should effective tax rates fall, or benefit rates 
rise, in moving from a lower to a higher income class, the pattern will be described 
as regressive, since such patterns imply increased inequality of income distribution. 
In addition to indicating the effective tax rates on Ontario residents for each source 
of revenue at each of the three levels of government and for all three levels 
combined. Table 5:6 presents the effective rates on Ontario residents for all 
provincial and municipal sources combined, for all federal sources, and for all 
sources for all levels of government combined. 



31. An examination of the effective combined provincial tax rate reveals 
that, apart from a regressive fall between the two lowest income classes, the 
structure is mildly progressive. This is in contrast to the municipal rate structure, 

157 



Incidence of Government Revenue and Expenditure 

the burden pattern of which is decidedly regressive, with the effective rates falling 
from 8.0 per cent in the lowest income class to 4.1 per cent in the highest class. 
This regressiveness is largely explained by the very high proportion of income that 
low-income families are forced to spend upon accommodation, an expenditure 
that is heavily burdened by the real property tax. Chart 5 : 1 reveals that when the 
provincial and municipal burdens are combined, a somewhat U-shaped distribution 
emerges, with high rates for the lowest and highest income classes, and more modest 
rates for the intervening classes. This particular configuration of rates is largely 
attributable to the regressiveness of the property tax at low-income levels and to 
the progressiveness of the corporate and personal income taxes at high-income 
levels. The addition of the revenue burdens imported into Ontario from other 
provincial and municipal tax jurisdictions does not alter the basic nature of this 
U-shaped pattern, merely raising its level in each income class. This increase is 
most significant for the highest income class, where stock ownership by Ontario 
residents causes substantial importation of business taxes, the total effective rate 
being raised from 12.9 to 17.6 per cent. 

32. Given the federal government's heavy reliance upon corporate and 
personal income taxation, it is not surprising that its combined effective rate pattern 
is more progressive than those of the other two levels of government. Various 
federal taxes levied on consumption nevertheless give rise to some regression 
between the two lowest income classes, the effective rate being 12.2 per cent in the 
lowest income class and 11.0 per cent in the next. This regressiveness results from 
people in the lowest income class spending proportionately more of their incomes 
on goods subject to consumption taxes. It is aggravated by a greater tendency on 
the part of these families to spend in excess of their incomes compared to people 
in higher income classes. From the low point of 11.0 per cent, the effective rate 
continuously rises for successive income classes and reaches 27.1 per cent for those 
with money incomes in excess of $10,000. 

33. When all three levels of government are combined, including the taxes 
paid by Ontario residents to other provincial and municipal governments, the rate 
pattern that emerges is progressive for all but the lowest income ranges. The 
substantial reduction of the overall effective rate between the lowest and second- 
lowest income classes (from 28.3 per cent to 21.8 per cent) is not necessarily 
evidence of an inappropriate tax structure. Viewed in isolation, both the level and 
pattern of these rates appear to be unsatisfactory, but when taken in conjunction 
with the expenditure benefits conferred upon the members of these income classes, 
the net effect of government fiscal activities appears in quite a different light. It is 
therefore necessary to defer judgment until the pattern of benefit rates has been 
examined and combined with the tax rate pattern. 

EFFECTIVE BENEFIT RATES 

34. Just as the over-all pattern of effective tax rates is with few exceptions 
progressive, so too is that of effective benefit rates. A comparison of the effective 
benefit rates of each of the three levels of government, as shown in Table 5:7, 
reveals an even greater degree of similarity than that found in the effective tax 

158 



Chapter 5 : Paragraphs 32-34 



Chart 5:2 

Effective expenditure (benefit) rates of provincial and municipal governments 

in Ontario, 1961 



Effective 

expenditure 

rate 

(%) 

15 



Effective 

expenditure 

rate 

(%) 



10 



Effective 

expenditure 

rate 

(%) 

15 



10 













PROVINCIAL GOVERNMENT 




























1 



































under $2000- $3000- $4000- $5000- $7000- $10,000 

$2000 2999 3999 4999 6999 9999 and over 

Family income class 



Effective 

expenditure 

rate 

(%) 

15 













MUNICIPAL GOVERNMENT 
























1 


















1 













































under $2000- $3000- $4000- $5000- $7000- $10,000 

$2000 2999 3999 4999 6999 9999 and over 

Family income class 



EfTeclive 

expenditure 

rate 



(%) 



30 

25 - 
20 
15 
10 
5 h 



Effective 

expenditure 

rate 

(%) 



25 







COMBINED PROVINCIAL AND MUNICIPAL GOVERNMENTS 


















1 














1 










































- 
















- 



under 
$2000 


$2000- 
2999 


$3000- $4000- $5000- 

3999 4999 6999 

Family income class 


$7000- 
9999 


$10,000 
and over 


: Table 5: 7 











159 



Incidence of Government Revenue and Expenditure 

Table 5:7 

EFFECTIVE EXPENDITURE RATES FOR SELECTED GOVERNMENTS IN CANADA, 1961 
(percentage of adjusted broad income) 

Family Money Income Class 

Under $2,000- $3,000- $4,000- 55,000- $7,000- $10,000 

$2,000 2,999 3,999 4,999 6,999 9,999 and over 
Provincial Expenditures (Ontario) 

Highways, roads and bridges 1.2 1.2 1.5 1.6 1.8 1.6 1.2 

Education 1.7 2.2 2.9 3.3 2.7 2.0 1.5 

Health and sanitation 4.0 2.5 2.6 2.5 2.2 1.6 0.8 

Interest 0.3 0.1 0.1 0.1 0.1 0.1 0.2 

Social welfare 4.6 2.4 1.2 0.9 0.7 0.7 0.4 

Agriculture 0.7 0.2 0.1 0.1 — — — 

General expenditures 1.9 L2 K2 M LO 0^9 l.Q 

Total 14.4 9.8 9.6 9.6 8.5 6.9 5.1 

Municipal Expenditures (Ontario) 

Highways, roads and bridges . 0.8 0.7 0.8 0.9 0.9 0.8 0.7 

Education 2.1 2.9 4.1 4.6 3.6 2.5 1.1 

Health and sanitation 2.6 1.4 1.3 1.1 1.0 0.8 0.4 

Interest 0.2 0.1 0.1 0.1 0.1 0.1 0.2 

Social welfare 1.0 0.6 0.3 0.2 0.2 0.2 0.1 

General expenditures 3.8 2J 22 2J L9 1/7 1.9 

Total 10.5 8.0 8.8 9.0 7.7 6.1 4.4 

Total Ontario Provincial and 

Municipal Expenditures 24.9 17.8 18.4 18.6 16.2 13.0 9.5 

Provincial and Municipal 

Expenditures (Other than 

Ontario) 1.0 0.8 0.8 0.7 0.7 0.8 2.5 

Total Provincial and Municipal 

Expenditures (All Canada) . . . 25.9 18.6 19.2 19.3 16.9 13.8 12.0 

Federal Expenditures 

Highways, roads and bridges. 0.3 0.2 0.3 0.3 0.3 0.3 0.2 

Other transportation 1.0 0.7 0.9 0.7 0.7 0.7 0.5 

Education 0.2 0.3 0.3 0.4 0.3 0.3 0.4 

Health and sanitation 2.2 1.4 1.4 1.4 1.2 0.8 0.4 

Interest 4.5 2.2 1.5 1.3 1.6 1.8 3.6 

Social welfare 33.8 13.5 7.5 6.0 5.2 4.3 2.2 

Agriculture 1.5 2.6 2.0 1.0 0.7 0.6 0.9 

General expenditures 13.7 8.7 8.5 7.8 7.2 6.5 10.9 

Total 57.2 29.6 22.4 18.9 17.2 15.3 19.1 

Total Government Expenditures 83.1 48.2 41.6 38.2 34.1 29.1 31.1 

Source : J. A. Johnson, Incidence of Government Revenues and Expenditures. 

rates. For each level of government the basic pattern is progressive, with benefit 
rates falling as income increases. Only in two instances does some regression 
occur, one in the federal and one in the municipal structure. 

35. As Table 5:7 indicates, for all three levels of government combined, and 
including benefits enjoyed by Ontario residents but provided by other provincial 
and municipal governments, the progression in benefits is quite pronounced, the 
effective rate falling from 83.1 per cent in the lowest income class to 31.1 per cent 
in the highest. Regression is encountered only as between the highest income 
classes. If federal general governmental expenditures were omitted, even this 
regression would be eliminated, because it is mainly attributable to having allocated 
one-quarter of federal general expenditures in proportion to dividend income. 

160 



I 



Chapter 5: Paragraphs 35-40 

36. The provincial pattern of benefit rates is progressive over all income 
classes, the actual rates varying between 14.4 per cent in the lowest income class 
and 5.1 per cent in the highest. The total municipal pattern is somewhat less 
regular, with some regression being encountered in the middle income classes. 
Here the main explanation is found in the pattern of education benefits, these in 
turn being determined by the incidence of age distribution of children among the 
various classes. These effective benefit rates for the provincial and municipal 
governments in Ontario are presented pictorially in Chart 5:2. 

37. An examination of individual categories of expenditure reveals that social 
welfare expenditures are the most important source of progression in benefit rates. 
This is especially true at the federal level, where these expenditures account for 
33.8 per cent of the adjusted broad income of the lowest income classes but only 
2.2 per cent of those with money incomes of $10,000 or more. For the provincial 
and municipal levels of government, the benefit rates from welfare expenditure are 
lower but the relative differences between the highest and lowest income classes are 
comparable. Another source of progression in benefit rates, especially at provincial 
and municipal levels, is expenditure on health and sanitation. 

THE CONCEPT OF NET FISCAL INCIDENCE 

38. While it is very useful to determine effective tax and benefit rates for each 
income class of Ontario residents, we have already warned that the appraisal of 
these rates requires an examination of their net impact. For this purpose, we have 
constructed a rate of net fiscal incidence for each income class, this being obtained 
by subtracting the effective tax rate of the class from the effective benefit rate. 
Where the benefit rate exceeds the tax rate, the resulting rate of net fiscal incidence 
is positive and government, on balance, is causing a redistribution of income in 
favour of the members of those income classes enjoying positive rates. On the 
other hand, where taxes exceed benefits, the rate of net fiscal incidence is negative, 
the fiscal process redistributing income away from the members of those income 
classes subject to negative rates. 

39. If rates of net fiscal incidence are positive but decrease with income and 
possibly become negative at higher income levels, the pattern of rates is described 
as progressive. Similarly, where rates are negative and fall to even larger negative 
values as income rises, the pattern is described as progressive. Conversely, patterns 
involving positive net rates that increase with income, or negative net rates that 
assume smaller negative values, or even become positive as income increases, are 
described as regressive. It is consistent with our earlier usage that the terms 
"progressive" and "regressive" describe rates of net fiscal incidence that respectively 
decrease and increase the inequality of income distribution. 

40. Before we present and analyse our findings concerning the rates of net 
fiscal incidence among Ontario residents, we wish to review several of their 
limitations. First and possibly most important, the amount of redistribution 
indicated by the net rates is not a comprehensive measure of the redistributive 
impact of all government policies. In arriving at these rates, no allowance whatever 

161 



Incidence of Government Revenue and Expenditure 

is made for the redistribution undoubtedly occasioned by monetary policy, tariff 
policy, combines policy, minimum wage legislation and a myriad of other 
governmental activities. A second limitation is that with respect to the revenue 
and expenditure programs that we have explicitly examined in our study, it is only 
the actual monetary receipts and outlays that have been taken into consideration. 
Changes in the level and distribution of income caused by the adjustments to these 
programs have been ignored. While it would be highly desirable to allow for the 
distributive effects of all of these factors, the present state of economic theory and 
empirical research simply does not permit this to be done. It should also be kept 
in mind that our results have been obtained only with the aid of a formidable 
array of assumptions which are listed as an Appendix to this chapter. While we 
hope that we have in each circumstance chosen the most reasonable assumptions, 
errors of judgment can by no means be ruled out. Our results must therefore be 
used with caution. 

41. In interpreting the rates of net fiscal incidence on Ontario residents, the 
reader should keep in mind that the total expenditure benefits imputed to the 
residents of the province exceed the tax burdens imputed to them. In consequence, 
the general level of rates of net fiscal incidence is higher than it would have been 
if benefits had been precisely matched by taxes, and more income classes appear to 
be the beneficiaries of fiscal redistribution than would have if benefits and burdens 
had been equal. The discrepancy between total benefits and total burdens is thus 
significant in interpreting net fiscal incidence and it warrants some explanatory 
comment. 

42. In large part, the excess of benefits over burdens is attributable to the 
deficit financing practised by the three levels of government in 1961. The deficits 
incurred by these governments permitted them to provide expenditure benefits which 
exceeded their revenues and Ontario residents were among the beneficiaries of 
these excesses. It has been estimated that the net benefits gained by the residents 
of Ontario from the federal, Ontario provincial, and Ontario municipal governments 
were $183.6 million, $151.3 million, and $325.6 milHon respectively. These 
amounts reflected, in addition to the effects of the budgetary deficits, the particular 
nature of the tax and expenditure programs provided by the governments. 

43. The combined effect of these factors caused the benefits enjoyed by 
Ontario residents to exceed their tax and other burdens by $660.5 million 
($183.6 million + $151.3 million + $325.6 million). On the other hand, the 
burdens exported by other provincial and municipal jurisdictions to Ontario resi- 
dents exceeded by $160.6 million the benefits those governments exported to 
Ontario residents. In consequence, the net excess of benefits over burdens, for 
Ontario residents, was $499.9 million ($660.5 million — $160.6 million). This is 
the measure of the net excess implicit in the pattern of net fiscal incidence among 
our family income classes, which causes the rates of this incidence to be somewhat 
higher than they would have been had total benefits and total burdens been equal. 

44. Although we have derived the net tax burdens exported from other 
provincial and municipal jurisdictions to Ontario residents, we have made no 

162 



Chapter 5: Paragraphs 41-46 

TABLE 5:8 

"NET FISCAL INCIDENCE" OF THE REVENUE AND 

EXPENDITURE PROGRAMS OF SELECTED GOVERNMENTS IN CANADA, 1961 

(percentage of adjusted broad income) 

Family Money Income Class 

Under $2,000- $3,000- $4,000- $5,000- $7,000- $10,000 
$2,000 2,999 3,999 4,999 6,999 9,999 and over 

Provincial (Ontario) 8.8 5.5 3.7 3.3 1.5 -.2 -3.7 

Municipal (Ontario) 2.5 3.5 4.0 4.6 3.5 2.4 .3 

Provincial and Municipal 

(Ontario) 11.3 9.0 7.7 7.9 5.0 2.2 -3.4 

Federal 45.0 18.6 6.6 1.9 -1.8 -4.1 -8.0 

Provincial and Municipal (Other 

than in Ontario) -1.5 -1.2 -1.3 -1.2 -1.2 -1.2 -2.2 



Total 54.8 26.4 13.0 8.6 2.0 -3.1 -13.6 

Source : J. A. Johnson, Incidence of Government Revenues and Expenditures. 

estimate of either the burdens or the benefits exported from Ontario to the 
residents of these jurisdictions. In consequence, it cannot be concluded that 
Ontario is necessarily a net contributor in its fiscal relations with the other 
provinces and their municipalities. Since this study is concerned with the net fiscal 
incidence for Ontario residents, these burdens and benefits exported from Ontario 
have not entered into our calculations. 

THE PATTERN OF NET FISCAL INCIDENCE AMONG ONTARIO RESIDENTS 

45. Looking first at the pattern of net fiscal incidence for all levels of 
government combined, it is immediately apparent that the effective rate structure is 
strongly progressive, the actual rates falling from a level of 54.8 per cent in the 
lowest income class to —13.6 per cent in the highest income class. Because a 
positive rate of net fiscal incidence indicates a net gain from budgetary redistribu- 
tion, and a negative rate indicates a loss, it is evident that government as a whole 
occasions a substantial redistribution of income within Ontario. Although Table 
5:8 does not indicate the precise income level at which the rate of net fiscal 
incidence becomes zero, it appears that typical families or unattached individuals 
with money incomes not exceeding $7,000 per annum are net beneficiaries of 
budgetary redistribution. Those with annual money incomes in excess of this 
watershed level are net contributors. The lack of a more detailed classification of 
data compelled us to make use of an open-ended "$10,000 and over" class at the 
upper end of the money-income scale. Had it been possible to subdivide this class, 
the progressiveness of the net fiscal incidence would have been even more forcefully 
demonstrated. 

46. An examination of the rates of net fiscal incidence for the several levels 
of government in Canada reveals that the federal government is the primary source 
of progression in the composite picture. It will be recalled from our examination 
of effective tax and benefit rates that this government relies heavily on income 
taxation and that social welfare programs figure prominently among its expenditures. 

163 



Incidence of Government Revenue and Expenditure 



Chart 5:3 
Net fiscal incidence rates, 1961 



Effective 
net benefit 

rate 

(%) 
15 



(A negative "effective net benefit" rale measures the "effective net burden" borne by the 
relevant family income class.) 







PROVINCIAL government 






















1 














1 1 

































Effective 

net benefit 

rate 

(%) 



under 
$2000 



$2000- 
2999 



Effective 

net benefit 

rate 

(%) 

15 1- 



$3000- $4000- $5000- $7000- 

3999 4999 6999 9999 

Family income class 



MUNICIPAL government 



$10,000 
and over 



Effective 

net benefit 

rate 

(%) 

15 



10 



Effective 
net benefit 

rate 

(%) 
20 



under $2000- $3000- $4000- $5000- $7000- 

$2000 2999 3999 4999 6999 9999 

Family income class 



COMBINED PROVINCIAL AND MUNICIPAL GOVERNMENTS 



$10,000 
and over 



Effective 

net benefit 

rate 

(%) 

-1 20 



- 15 
10 
5 



under 



$2000- $3000- $4000- $5000- $7000- $10,000 

2999 3999 4999 6999 9999 and over 

Family income class 



Source: Table 5:8 



164 



Chapter 5 : Paragraphs 47-48 

The substantial progression of the federal net incidence rates (which fall from 45.0 
per cent to —8.0 per cent in moving from the lowest to the highest money-income 
class ) is thus hardly surprising. A further, more modest contribution to progression 
is made by the Ontario provincial revenue and expenditure programs, their net 
incidence ranging from 8.8 per cent at the lowest end of the income scale to —3.7 
per cent at the upper end. It is only the municipal net rates that display regression, 
and these rise regressively over the income range spanned by the four lowest 
income classes. Thereafter, municipal net incidence rates fall but they maintain 
positive values for all income classes.'^ Apart from a slight, regressive inversion 
between the third and fourth money income classes, the combined Ontario 
provincial-municipal pattern of net rates is progressive, the actual rates ranging 
from 11.3 per cent in the lowest money-income class to — 3.4 per cent in the 
highest. These patterns of provincial and municipal net fiscal incidence in Ontario 
are pictured in Chart 5:3. A similar pattern is maintained at a lower absolute level 
when the combined Ontario provincial-municipal net rates are adjusted to reflect 
the importation of benefits and burdens from other provincial and municipal 
jurisdictions. 

GENERAL CONCLUSIONS 

47. Although our study has indicated a regressive structure of effective tax 
rates in the lower income classes of Ontario, with rates that will be regarded by 
many as surprisingly high, the picture changes markedly for these groups when the 
distribution of the benefits from government expenditures is considered. Here we 
have found that the expenditure structure heavily favours low income recipients 
and the pattern of net expenditure rates more than offsets the regressiveness of the 
net tax rates. As a consequence, substantial net benefits are conveyed, on balance, 
to those Ontario families and unattached individuals who are in receipt of relatively 
low annual incomes. 

48. It is interesting to speculate on the implications of changes in the relative 
size of the financial operations of the different levels of government in the light of 
our net fiscal incidence findings. Because the tax and expenditure programs of the 
federal government are at present the primary source of progressiveness in the total 
Canadian fiscal system, any reduction in the relative importance of the federal 
government's fiscal operations will, if a diminution of progression is to be avoided, 
need to be accompanied by an increased reliance upon progressive tax sources and 
expenditure programs by the other levels of government. In this connection, the 
continuing use of the personal income tax abatement technique, as a means of 
transferring tax capacity from the federal to the provincial governments in Canada, 
has in fact lessened the progressiveness of the federal tax system and increased that 
of the provinces. Given the present narrow and regressive municipal tax base, it is 

'In order to avoid double counting, unconditional intergovernmental grants are shown 
as expenditures only of the recipient governments. Since there is no offsetting tax 
burden at the recipient level (the funds having been raised by the grantor), the receipt 
of these grants is similar in effect to a budgetary deficit, both tending to raise the rates 
of net fiscal incidence. For municipalities, grants and deficits are sufficiently large to 
cause the net incidence rates to be positive in all income classes. 

165 



Incidence of Government Revenue and Expenditure 

very difficult for the municipalities to promote or achieve progression. It is there- 
fore highly probable that as provincial revenue and expenditure requirements con- 
tinue to grow more rapidly than those of the federal government, the primary 
burden of maintaining the progressiveness of the Canadian fiscal system will fall 
upon the government of Ontario and those of the other provinces. 

49. We begin this chapter by expressing the view that a reliable knowledge 
of the net incidence of the revenue and expenditure patterns of the several levels 
of government in Canada is an indispensable prerequisite to the attainment of 
greater fiscal equity, as among various income groups. The rapidly changing 
patterns of government revenue and expenditure within this country therefore 
necessitate a program of continuous research if relevant and timely information 
relating to fiscal incidence is to be available in the formulation of the most appro- 
priate tax and expenditure policies. We, therefore, strongly urge the Ontario 
government to institute such a program. 



166 



Chapter 5 : Paragraph 49-Appendix 

Appendix to Chapter 5 

ASSUMPTIONS REGARDING THE SHIFTING AND 
INCIDENCE OF MAJOR REVENUE SOURCES^ 

The shifting and incidence assumptions that have been used in allocating tax 
burdens to the various economic groups are as follows: 

(1) Personal income tax: This tax is assumed to be borne by those upon 
whom it is levied; i.e., it is assumed that there is no shifting. 

(2) Corporate income tax: It is assumed that one-half of the burden falls 
upon capital, and so on stockholders, and that the remaining half is 
shifted forward to consumers in the form of higher prices for the output 
of the corporate sector. 

(3) Commodity taxes: This category includes federal and provincial sales 
taxes and the various specific excise taxes. For each, the assumption is 
that the taxes are fully shifted forward, falling upon the various users of 
the taxed items in proportion to their expenditures upon them. 

(4) Selective excise taxes: This group includes, at the provincial level, the 
hospitals tax, race tracks tax, revenues from the sale of liquor Ucences 
and profits from the governmental sale of liquor. While these last two 
sources of revenue are not taxes, they may be treated analogously to 
excise taxes because they strike specific types of products and are used in 
lieu of excises on these products. The federal revenue sources included 
in this class are the excise taxes on liquor, tobacco, automobiles, ^ and 
other miscellaneous commodities. It is assumed that all these levies 
are fully shifted forward, to be borne by consumers in proportion to 
their expenditures upon the taxed items. 

(5) Import duties: As with other commodity taxes, these are assumed to 
be shifted forward to consumers, in the form of higher prices. 

(6) Highway-user revenues: Included in this category are the provincial 
gasoline and other motor vehicle fuel taxes, and motor vehicle registra- 
tion fees. It is assumed that taxes and fees paid by commercial vehicle 
operators should be treated as costs of production and therefore passed 
on to consumers in proportion to their expenditures. Private passenger 
vehicle owners are assumed to bear the fuel taxes and fees incurred in 
respect of these vehicles. The burden of the fuel taxes is allocated in 
proportion to the costs of operating automobiles, and that of the fees in 
proportion to purchases of automobiles. 

(7) Succession duties: It is recognized that a very small part of the burden 
of succession duties will be borne by non-residents. Our studies suggest 
that this proportion is of the order of 3 to 4 per cent of the duties, and 



^The reasons underlying the selection of these particular assumptions are set forth in 
Johnson, Incidence of Government Revenues and Expenditures, passim. 
^This levy was repealed, effective June 21, 1961. 

167 



Incidence of Government Revenue and Expenditure 

we have made such an assumption in allocating their burden. We have 
further assumed that the burden borne domestically falls on families in 
the $10,000 and over income bracket. While not strictly precise, this 
assumption is unlikely to introduce any serious error into our results. 

(8) Property taxes: Here the basic assumption is that the portion of the 
property tax levied on the value of land is not shifted while, with the 
exception of owner-occupied housing, the portion on improvements is 
assumed to be shifted forward in the form of higher rentals or prices 
(these being occasioned by the higher costs of production, the tax being 
viewed as a cost). The burden on owner-occupied housing is assumed to 
remain on the owner. 

(9) Municipal business tax: This tax is treated in the same manner as the 
property tax on business. It is divided between land and improvements, 
with the portion on land being borne by the owners, and the portion on 
improvements borne by consumers. 

(10) Natural-resources revenue: The revenue sources included in this category 
are mining and logging taxes, stumpage fees, and hunting and fishing 
licences. Some of these levies are treated in a manner similar to taxes on 
profits, others are held to enter costs of production, while the remainder 
are assumed to be borne by sportsmen. 

(11) Social insurance contributions: It is assumed that the portion of these 
mandatory contributions paid by employees is borne by them. Regarding 
the portion paid by employers, a distinction is made between government 
and other employers. Government pays its contributions from general 
revenue and thus they are already included in the burdens of other taxes. 
Of the contributions paid by non-government employers, half are 
assumed to be shifted forward to consumers in the form of higher prices, 
the other half being shifted backward to employees in the form of lower 
wages than would otherwise prevail, 

(12) Other taxes and revenues: This miscellaneous category includes all of 
the remaining revenues collected by the various levels of government; 
excluded, however, are some of the income of Crown corporations and 
post office receipts. Since the element of compulsion is typically absent 
from these items and payments tend to be for benefits directly rendered, 
only deficits or surpluses are included in the analysis. Deficits are 
treated as equivalent to expenditures, and surpluses to taxes. For the 
other items, the allocating assumptions are as follows: 

(a) Provincial hospital premiums are assumed to be borne by the 
families paying them. 

(b) Provincial taxes on insurance premiums are allocated to families 
in proportion to their expenditures on insurance. 

(c) The fire marshal's tax and land transfer taxes are assumed to be 
borne in proportion to the property tax burden. 

168 



I 



Chapter 5: Appendix 

(d) Security transfer taxes are allocated in proportion to dividend 
income. 

(e) The miscellaneous federal revenue items are dealt with in a manner 
comparable to similar provincial items. 

ASSUMPTIONS REGARDING THE ALLOCATION OF 
BENEFITS FROM MAJOR EXPENDITURE PROGRAMS^ 

The costs of the expenditure programs included in the study were allocated to 
the various economic groups and income classes with the aid of the following 
assumptions : 

- (1) Highway, road, street, and bridge expenditures: It was assumed that 
these expenditures benefit both the direct users who own passenger or 
commercial vehicles, and non-users who gain by the provision of access 
to their property. The division of the benefits between these two classes 
of beneficiaries was accomplished by the "earnings credit method", while 
an "incremental cost" approach was used to make the allocation between 
passenger and commercial vehicle owners.^ Of the benefits assigned 
property owners and owners of commercial vehicles, 25 per cent of the 
former and all of the latter were assumed to be passed on to consumers, 
in the form of lower prices. 

(2) Other transportation expenditures: Unfortunately, there is no empirical 
evidence to indicate how federal expenditures on air, water, and rail 
transportation should be allocated among income classes. It has therefore 
been necessary to assume arbitrarily that one-half of these expenditures 
should be assigned to firms, and one-half to families. Again, it is assumed 
that the half attributed to firms is shifted forward to consumers; it is 
thus allocated, along with the half assigned directly to families, in pro- 
portion to expenditures. 

(3) Educational expenditures: While it is recognized that the benefits of 
education accrue widely to the entire community, it has been necessary 
in the study to allocate all educational expenditures to those persons 
being formally educated in 1961. Indirect benefits to others are thus 
ignored. The actual allocation was based on the number of children in 
each income class who were attending educational institutions. 

(4) Health and sanitation: The major expenditure items of this type were 
allocated to the different income classes either on a per-capita basis or in 
proportion to the number of families in each class. Where business was 
considered to be a direct beneficiary, it was assumed that the benefits 
to business were passed on to consumers, by means of lower prices. 

(5) Interest payments: Where possible, these were assigned to debt holders 
in proportion to their debt holdings. Interest paid to business firms was 



^The reasons underlying the selection of these particular assumptions are set forth in 
Johnson, Incidence of Government Revenues and Expenditures, passim. 
*For details of these allocative devices, see Johnson, op. cit. 

169 



Incidence of Government Revenue and Expenditure 

assumed to benefit the owners of the firms, while interest paid to insur- 
ance companies was assumed to be shifted forward to purchasers of 
insurance. Interest paid to government was excluded from the analysis, 

(6) Agricultural expenditures: Where these expenditures were for purposes 
of general administration and research, it was assumed they were of equal 
benefit to all farm families. On the other hand, those expenditures associ- 
ated with marketing and production services, price support programs, 
etc., were assumed to benefit farm families in proportion to their income, 

(7) Social welfare and expenditures on veterans: It was assumed that these 
and other transfer payments were not shifted from their initial recipients, 

(8) General government expenditures: The treatment of these was outlined 
in the body of the chapter, in paragraph 24. The effect of the methods 
we have employed in allocating the benefits of general government 
expenditures is that one-quarter of this total benefit is distributed equally 
among individuals, a second quarter is distributed equally among families, 
a third quarter is distributed among families in proportion to their 
incomes, and the remaining quarter is distributed among families in pro- 
portion to family investment income. 



170 



Chapter 
6 



A Projection of the 
Expenditure, Revenue and Debt 
of Ontario Governments, 1966-75 



INTRODUCTION 

1. By our terms of reference, we were instructed to examine the revenue 
systems of the Province of Ontario and of its municipalities, with regard to both 
present and prospective financial requirements. In response to this latter charge, 
we have developed projections of the budgetary and debt position of the munici- 
palities and school boards of Ontario to the end of 1974 and of the Province to 
March 31, 1975. The results are presented and explained in this chapter. We 
shall first project the revenues and expenditures of the municipalities and school 
boards for each year of the period, on the basis of appropriate assumptions which 
are discussed below. The projected excess of expenditure over revenue indicates 
the annual local deficit which, when added to the debt at the beginning of any 
period, yields the total projected debt at the end of that year. We shall subsequently 
adopt a similar approach with respect to the projection of the revenue, expenditure 
and accumulated debt of the Province. Finally, we shall present a total of the 
two projections, in order to show a comprehensive picture for the Province and 
its subordinate governments. 

171 



Projection of Expenditure, Revenue and Debt 
BASIC ASSUMPTIONS OF THE PROJECTION 

2. Because the computation of these projections has involved a large and 
complex exercise, it is necessary at the outset to make explicit the assumptions on 
which they are based and the limitations that apply to them.^ With respect to 
revenues, we assume that, with two exceptions, taxes will continue to be collected 
at rates prescribed in existing legislation. The first exception is the municipal real 
property and business taxes where, for reasons explained in a later section of this 
chapter, we have allowed for variations in the rate of tax as well as for growth 
of the tax base. The second exception, inasmuch as it may be classified as a 
tax, involves the premiums paid by individuals to the Ontario Hospital Services 
Commission. We have assumed that these premiums will be increased from time 
to time in order that the part of the cost met by the Province will not be out of 
line with the one-third proportion which the Provincial Treasurer indicated as 
being appropriate, in his 1964 Budget Speech. 

3. We have endeavoured to apply the same general principle in our projection 
of expenditures, where we have assumed that no major changes in existing govern- 
ment policies will be introduced. The difficulties involved in projecting government 
spending are nevertheless substantial, partly because there are a great many expen- 
diture programs whereas a large proportion of total revenue is derived from a 
very few sources. In an attempt to establish an orderly classification of the multiple 
categories of government spending we have distinguished between current account 
and capital account spending for each level of government. We have further 
divided each capital and current expenditure by function, namely education, roads 
or public works, health and all other, 

4. In each individual area of expenditure, our method of making the projection 
has been adapted to the particular circumstances, but our usual procedure has 
been (1) to consider the level of spending on a per-capita basis at base period 
(1963) prices and (2) to assume that the trend of the past few years would con- 
tinue except where there was definite reason to expect a change. Having thus 
projected the particular series in per-capita terms and at constant prices, we have 
then modified our figures to take into account three additional factors: changes in 
total population or in its relevant component, changes in the price level, and an 
"improvement factor". If, for example, the general level of prices rises, govern- 
ment expenditure will increase on that account. Likewise, if the size or composi- 
tion of population to be served changes, the total cost of providing a given govern- 
ment program will usually be directly affected. Finally, we provide for an 
"improvement factor" in the quality of government services, because we expect 
that the average standard of living of Ontario citizens will continue to rise, reflect- 
ing rising standards of private consumption. As private consumption rises, the 
level of government services will be expected to show an accompanying increase. 



'The reader who is interested in examining in greater detail the projections set forth in 
this chapter is referred to the Appendix following this chapter. 



172 



Chapter 6: Paragraphs 2-8 

We have therefore assumed, where relevant, that the appropriate improvement 
factor to apply to government spending is equal to the projected rate of increase 
in productivity within the provincial economy. 

5. In projecting the recent trend of any given category of expenditure (after 
having removed the statistical effect of any recent major change in such a spending 
program), we have in fact implicitly assumed that the rate of change in recent 
expenditure, which will necessarily reflect any minor modifications and extensions 
of government spending programs introduced during the past few years, will 
continue in the future. Our projection, in short, provides for the past measure of 
flexibility, in adapting existing programs to changing conditions. We expHcitly 
exclude from our projection any provision for the introduction of major new 
expenditures. We confidently expect that there will in fact be major new expen- 
diture programs introduced in the coming decade, but we are in no position to 
predict what these will be or what they will cost. Our purpose here is simply to 
project from the existing situation, rather than to forecast possible new develop- 
ments in the range and scope of government activity. 

6. To distinguish between a projection and a forecast is also relevant in a 
somewhat different sense. Our projection makes no attempt to take into account 
any short-term deviations from trend, which inevitably occur in individual years. 
Thus, while we shall offer the projected values of the various expenditure and 
revenue series in 1969 and in 1974 (in the Appendix these values are given 
annually to 1974), the value shown for any one year should be regarded more as 
indicating the value of the trend for that year than as a definite figure for that 
specific year. The values shown for 1969, for example, can more properly be 
treated as the projected average value for the years 1967-71. 

7. It is clear from the nature of our assumptions that the projections that 
follow are not intended to indicate what will in fact be the future fiscal position 
of the provincial and municipal governments in Ontario. Before our projections 
could become forecasts of actual developments, they would need to be supple- 
mented by precise information concerning the details of future economic events, 
both in the economy at large and in the revenue and spending policies of govern- 
ments. The present projection goes as far as one can safely attempt to go in any 
ten-year projection; to attempt to do more, or to give the impression that we have 
done more, would be both dangerous and misleading. But interpreted in the light 
of the assumptions on which they are based, these projections take an important 
first step in the assessment of the fiscal prospects of the governments with which 
they are concerned. 

PROJECTION OF POPULATION, LABOUR FORCE, EMPLOYMENT, 
AND PROVINCIAL DOMESTIC PRODUCT 

8. Our projections of population, labour force, employment, and provincial 
domestic product provide essential background for the projections of the various 
fiscal magnitudes in which we are primarily interested. They are also of interest 
in their own right. In Table 6:1 we offer projections of some important economic 

173 



Projection of Expenditure, Revenue and Debt 

variables for 1969 and 1974, together with actual figures for 1963. The comments 
following the Table explain the bases of each of the principal projections and offer 
some brief interpretive observations. 

Table 6:1 

PROJECTED GROWTH OF POPULATION, LABOUR FORCE, EMPLOYMENT, 
AND PROVINCIAL DOMESTIC PRODUCT FOR ONTARIO 



1963 



1969 



1974 
as a 
percentage 
1974 of 1963 



(thousands) 

Population 6,448 7,246 8,054 

Labour force 2,476 2,805 3,116 

Number employed (96% of labour force in 

1969 and 1974) 2,382 2,693 2,991 

(billions of dollars) 

P.D.P. in 1963 dollars 15.6 19.7 24.2 

P.D.P. in current dollars 15.6 22.2 30.0 



125% 
126 

126 



155 
192 



POPULATION 

9. The projection of provincial population that we have used was prepared by 
the Ontario Department of Economics and Development. We have examined the 
assumptions on which it is based and we consider them to be reasonable. The 
projection assumes that there will be a continuing decline in death rates, especially 
for infants and for persons over 65 years of age. It is further assumed that fertihty 
rates will increase within the 20-29 age group and remain unchanged for other 
ages. Net migration into Ontario, i.e., immigration from other provinces or from 
other countries, less emigration to other provinces or to other countries, is expected 
to average 20,000 persons per annum. 

1 0. The result of these assumptions is a projection that shows an average rate 
of provincial population increase of 2.04 per cent per annum during the period 
1963-74. This rate is below that of any of the three quinquennia of the 1946-61 
period but slightly above the rate for the years 1961-65. For the longer period, 
1921-65, the average annual rate of increase was 2.1 per cent. Considering a still 
longer period extending from the census of 1861 to 1941, the rate of population 
increase exceeded Wa per cent per annum. In the light of this past experience 
and of current trends, the projected rate of population growth of slightly more 
than 2 per cent a year appears to be reasonable. 



LABOUR FORCE 

1 1 . From the population projection, we derive the figures for the expected 
future labour force of the province. In projecting the labour force, our procedure is 
to apply to each age and sex group a factor (the "participation rate") for the 
proportion of the group that is expected to be a part of the labour force. This 

174 



Chapter 6: Paragraphs 9-16 

yields the number of persons from each group, and the aggregate for all groups 
gives the projected numbers in the total provincial labour force in each future 
year. 

12. We have assumed, following usual practice, that the labour force excludes 
all persons less than 14 years of age. This means that all members of the 1974 
labour force were at least two years of age at the beginning of 1963. The major 
element of uncertainty therefore rests with the labour force participation rates of 
the different age and sex groups. 

13. For males, we have assumed a fairly sharp decline in the proportion of 
the 14-19 year age group who will be in the future labour force, a more gradual 
decline for those in the 20-24 year group and no change for older age groups. For 
females, our assumptions involve no net change for those in the 14-19 or 20-24 
year age groups. We expect that an increasing proportion of these groups will 
remain in full-time attendance at educational institutions but that of those not so 
engaged, a higher proportion than at present will be in the labour force. The 
combined effects of these two influences will, we anticipate, produce no perceptible 
net change in the labour force participation rate for these two female age groups. 
For females aged 25 and over we have assumed, for all age groups, a continuous 
increase in the participation rate, for the duration of our forecast period. 

PROVINCIAL DOMESTIC PRODUCT 

14. "Provincial gross domestic product at factor cost" (hereafter designated 
P.D.P.) is a measure of the total value of goods and services produced, and hence of 
the total income generated, within the geographical boundaries of the Province of 
Ontario during a given interval of time, usually one year. The figure is arrived at 
before any deduction for depreciation and before the addition of that part of value 
represented by indirect taxes. The P.D.P. is projected as the product of two 
factors — the average number of employed persons and the average P.D.P. per 
person employed. 

15. We have already described the labour force projection which, after allow- 
ance for unemployment, indicates the average number employed in each year of 
the period. In the years since the inflation that accompanied the Korean War, the 
unemployment figure for Ontario has averaged about 4 per cent of the provincial 
labour force. After carefully examining the historical record and evaluating recent 
trends, we are projecting average annual unemployment at this 4 per cent level of 
the labour force. The employed labour force is thus expected to average 96 per 
cent of the total labour force and, since we have already projected the total labour 
force, it is a simple matter to calculate the projected number of persons employed, 
in each of the years with which we are concerned, 

16. The other element in this projection is the average contribution to P.D.P. 
per person employed. This figure was just under $6,500 in 1963 and we have 
projected its increase at 2 per cent per annum in real terms, i.e., at constant 

175 



Projection of Expenditure, Revenue and Debt 

prices. This rate of increase approximates the average of the past twelve years 
and in so far as one can judge from the evidence available, it is also very close to 
the long-term average rate of increase in productivity within the provincial 
economy. 

17. At this point we have now developed all the constituents required to 
project the P.D.P. in constant dollars. We are concerned, however, with the actual 
amount of government revenue and government expenditure in the current dollars 
of the respective future years. This means that we must also consider future 
changes in the level of prices. In making our assessment of the future trend of 
the general price level, we have examined the record since 1952 and considered the 
forces that seem likely to operate in the future. Our conclusion is that our pro- 
jection should allow for a general price increase of 2 per cent per annum and our 
current-dollar projection of P.D.P. has been calculated accordingly. 

18. Our projected P.D.P. in current dollars rises from $15.6 billion in 1963 
to $30.0 billion in 1974. This increase of 92 per cent in eleven years represents an 
average increase of 6.1 per cent per annum. For each individual year, the increase 
over the preceding year is in no instance far from this average. Of this total of 
6.1 per cent, price increase accounts for 2 per cent, so that the increase in pro- 
duction in real terms averages some 4.1 per cent a year. This annual 4.1 per cent 
increase in physical volume is, in turn, made up of a 2 per cent increase in per- 
capita productivity and an average increase of just under 2.1 per cent in the 
number of persons employed. 

19. Beginning with 1963 as the base year, the average projected rate of 
increase in P.D.P. is in every year close to 6 per cent. We note that the actual 
P.D.P. in 1964 and 1965 was somewhat above our figures projected for these 
years and it likewise seems certain that in 1966 the realized P.D.P. will again exceed 
our projected figure. The years since 1963 have, however, shown a higher average 
level of prosperity, and so a more rapid rate of increase in income, than we would 
expect on the average over a decade. Just as P.D.P. has grown more rapidly than 
we have projected in the years since 1963, so it is probable that in some future 
years it will grow less rapidly. Consequently, we have not revised the figures in 
our projection for 1969 or later years. Our procedure has been to replace our 
projected P.D.P. for 1964, 1965 and 1966 with either the actual figure or the best 
estimate for each of these years. We assume that in the years immediately after 
1966 the rate of growth will be such that by 1969 the actual P.D.P. will coincide 
with our projected figure. We therefore assume that beginning with 1969, the 
P.D.P. figures in our projection are the appropriate ones to use. 

20. These projections of provincial population, labour force, and product 
represent the indispensable background for the projection of the required fiscal 
magnitudes of the provincial and local governments in Ontario. It is to a considera- 
tion of these magnitudes that we must now direct our attention. 

176 



Chapter 6: Paragraphs 17-24 

PROJECTION OF MUNICIPAL AND SCHOOL BOARD REVENUE, 
EXPENDITURE AND DEBT 

2 1 . In our projections of the budgetary position of each level of government, we 
shall begin with revenues, follow with expenditures and then consider inter- 
governmental transfers. Finally, in bringing together all of these series, we shall be 
able to show the projected cumulative total of government debt. We shall first 
consider the fiscal position of the municipalities and school boards, and then turn 
our attention to that of the provincial government. 

MUNICIPAL REVENUES 

22. The real property and business taxes are by far the most important source 
of rnunicipal net revenue, accounting for some 90 per cent of the total. The other 
sources are federal and provincial grants in lieu of such property taxes, and 
miscellaneous revenues from permits, fees, licences, fines, etc. 

Table 6:2 

MUNICIPAL REVENUES 

(Excluding grants from Province) 



Property and business taxes 

Federal subsidies, and grants in lieu of taxes 
Other current revenues 

Total Revenue 

P.D.P 

Total Revenue as percentage of P.D.P 









1974 








as a 








percentage 


1963 


7969 


1974 


of 1963 


(millions of dollars) 




lAA 


1,186 


1,748 


235% 


18 


26 


34 


189 


68 


91 


125 
1,907 


184 


830 


1,303 


230 


15,600 


22,200 


30,000 


192 


5.3% 


5.9% 


6.4% 





23. The figures in Table 6:2 show the major items of municipal revenue, the 
relative increase in each over the period 1963 to 1974, and the relationship of 
total municipal revenue to P.D.P. in each indicated year. Detailed comment is 
required only in explaining our basis of projecting the revenue from the property 
and business taxes. 

24, For all taxes except the property and business taxes, we have assumed a 
constant tax rate and we have projected the yield of each tax at the appropriate rate. 
For the property and business taxes, there are both economic and legal grounds 
for projecting the yield on the basis of variable tax rates. The economic reason 
derives from the fact that for all or nearly all of the other taxes — e.g. the personal 
income tax, the sales tax and the corporation income tax — a rise in the price level 
will bring, directly or indirectly, an increase in the tax base. An increase in 
revenue is thereby realized without any increase in the tax rate. Here the elasticity 
of the tax yield is provided through the tax base and there is consequently less 
need for variation in the tax rate. For the municipal real property tax, adjustments 

177 



Projection of Expenditure, Revenue and Debt 

in the tax base (the assessed value of a given piece of property) tend to lag far 
behind rising property values and the continuously increasing costs of municipal 
government. Elsewhere in our Report we recommend a transition to the assess- 
ment of real property at current market value, a procedure that would greatly 
lessen the present rigidities in the municipal tax base. Given prevalent assessment 
procedures, the chief element of elasticity in the real property tax base tends to 
come from new capital construction which, of course, provides an increase in 
total assessment. In the past, such new construction has not provided a sufficient 
degree of elasticity to overcome the relative inflexibility in the tax base, and this 
has necessitated year-to-year increases in the tax rate. 

25. The legislative procedure for striking real property tax rates further 
strengthens the case for projecting a variable rate of tax. If we consider other 
taxes, we find that once the rate has been set, it tends to remain for some time at 
the level specified, until changed by new legislation. By contrast, the municipal 
property tax rate is set for one year only and it is struck anew each year. We think 
that our projection procedure should reflect this fact, and we have accordingly 
projected a change in the rate of tax. In 1963, the average rate of the tax was 
65 mills per dollar of assessment, and for some time prior to 1963 the rate has 
been increasing by an average IVi per cent per year. We therefore projected at 
this same rate a continued upward movement in the average yield of the tax per 
dollar of taxable assessment. The result is that by 1974 the rate will reach 76 
mills. This increase is, of course, reflected in the figures shown in Table 6:2. 

26. It may be thought that the projected increase in the real property tax rate 
is unduly great and that the upward trend of the past few years cannot continue 
as rapidly in the coming decade. An examination of the historical record shows, 
however, that the yield of this tax in relation to P.D.P. was unusuafly low just 
after the war and that even after the increases of the past fifteen years, its yield 
was still a smaller proportion of P.D.P. than it was in the late 1920's. In 1926, for 
example, the yield was 5.4 per cent of P.D.P., in 1929 5.0 per cent and in 1939 
it was again 5.4 per cent. In 1963, the comparable figure was 4.8 per cent, and 
by 1974, according to our projection, it will have risen to only 5.8 per cent, which 
is no higher than it was in 1937. Most taxes today take a higher proportion of 
income than they did in the inter-war period. In view of this fact, and the fact that 
municipalities are now expected to provide a much higher standard of services, 
especially in the costly areas of education, roads, and social welfare, the projected 
yield of the municipal property tax appears to be consistent with historical 
experience. 

27. Federal contributions, grants and subsidies to municipalities in Ontario 
totalled $18 million in 1963, of which the major item, was grants in lieu of taxes 
on federal property, which is legally exempt from taxation by the local governments 
in the various municipalities. All other municipal current revenues in 1963 
amounted to $68 million. These two groups of revenues were projected separately, 
but each projection assumes the continuation of past trends. 

178 



Chapter 6: Paragraphs 25-30 

SCHOOL BOARD EXPENDITURE 

28. In our projection of school board expenditures we have considered 
separately expenditures for elementary and for secondary education, and at each 
level we have distinguished between current and capital expenditures. The cost of 
servicing debt incurred for educational purposes has been included in the total 
for local government debt service shown in Table 6:6. 

29. Our consideration of education costs begins with a projection of the 
number of pupils expected to occupy places in the schools. We assume that the 
average number of pupils per teacher will decline gradually, at both the elementary 
and, somewhat more rapidly, the secondary level, and that teachers' average 
salaries will increase at the rate of 3Vi per cent per annum for public school 
teachers and 4 per cent per annum for high school teachers. Continuing the trend 
of recent years, our projection provides for an increasing proportion of elementary 
school pupils to be enrolled in separate schools and for a further narrowing of the 
spread between the average cost per pupil in public and in separate elementary 
schools. The combined effect of all these factors leads to a projected increase in 
average cost of 5V2 per cent per annum per pupil enrolled (considering public and 
separate elementary school pupils in total). For secondary school students, the 
comparable figure is just under 6 per cent. 

30. Our projection of capital expenditure provides for the addition of new 
school-places to accommodate anticipated increased enrolments and for the 
replacement by 1975 of almost all school accommodation built before 1945. We 

Table 6:3 
EXPENDITURE BY ELEMENTARY AND SECONDARY SCHOOL BOARDS 

7974 
as a 
percentage 
1963 1969 1974 of 1963 



Elementary School Boards 

Number of pupils (thousands) 1,233 1,406 1.537 125% 

Current operating cost (millions) $295 $464 $ 662 224 

Capital outlays for new places and replacement 

of existing places (millions) 41 57 77 188 

Total Elementary Expenditure $336 $521 $ 739 220 

Secondary School Boards 

Number of pupils (thousands) 364 507 577 159 

Current operating cost (millions) $180 $365 $ 535 297 

Capital outlays for new places and replacement 

of existing places (millions) 17* 38 51 300 

Total Secondary Expenditure $197 $403 $ 586 297 

Total School Board Expenditure $533 $924 $1.325 249 

Total School Board Expenditure as a percentage of 

P.D.P 3.4% 4.2% 4.4% 

*This figure does not include grants received for the construction of vocational schools. 

179 



Projection of Expenditure, Revenue and Debt 

have also provided, in our projection of capital costs, for an annual increase of 2 
per cent in the general price level and for an additional annual increase of 2 per 
cent for improvements in the quality of school facilities. 

MUNICIPAL EXPENDITURE 

31. In projecting this category of expenditures we have, as with education, 
considered current and capital spending separately. As components of current 
expenditure, we have made separate projections for public works and for health. 
Interest payments are not included here, inasmuch as they cannot be calculated 
until we have projected a figure for the amount of debt outstanding at the beginning 
of each year, as shown in Table 6:6. "All other" current expenditures have been 
projected as a single aggregate. 

32. Municipal expenditures on capital account have been projected under the 
major categories of public works, sanitation, health and other. The capital expen- 
diture figures in Table 6:4 include only those incurred in acquiring durable real 
assets and exclude outlays for debt retirement. Such debt retirement outlays have 
in recent years amounted to some 18 per cent of total municipal capital expendi- 
ture.- 

Table6:4 
MUNICIPAL CURRENT AND CAPITAL EXPENDITURE* 

1974 
as a 
percentage 
1963 1969 1974 of 1963 

(millions of dollars) 
Current Expenditure 

Public works 133 200 264 198% 

Health 17 30 47 276 

Other 341 515 733 215 

Total Current Expenditure 491 745 1,044 213 

Capital Expenditure 

Public works 134 226 322 240 

Sanitation 57 98 153 268 

Health 5 16 25 500 

Other 28 53 73 261 

Total Capital Expenditure 224 393 573 256 

Total Municipal Expenditure 715 1,138 1,617 226 

Total Municipal Expenditure as percentage of P. D.P. 4.6% 5.1% 5.4% 

'Expenditures for education and for interest on debt are not included in this Table. For 
information on these items, see Table 6:3 and Table 6:6. 

33. The projected expenditures on public works, both on current and on 
capital account, have been derived from the provincial grants made to municipalities 
for roads, streets, etc. The method of projecting these provincial grants is described 



"Dominion Bureau of Statistics, Financial Statistics of Municipal Governments. 

180 



Chapter 6: Paragraphs 31-38 

in a later section of this chapter. We have assumed that the proportion of the 
total municipal expenditure covered by these grants will remain at approximately 
the average level of the past few years and we have derived total expenditure on 
current and capital accounts respectively from the projected provincial grants for 
these categories of expenditure. 

34. Capital outlays on sanitation have been a major item of municipal expendi- 
ture throughout the past decade. After examining these outlays between 1953 and 
1964, we concluded that we should allow for an increase in sanitation expenditures 
at the rate of 5 per cent per annum per capita, in constant dollars. When the 
constant dollar figures are converted to a current basis and then multiplied by the 
pop'ulation, we arrive at the projected expenditure figure. 

35. Municipal expenditures on health, whether on current or capital account, 
are small in relation to total municipal expenditures. Changes now taking place 
in this field make it very difficult to establish a firm basis on which to make a 
projection, but we expect that there will be a continuing increase in the scope and 
cost of various kinds of public health measures. We have allowed in our projection 
for an average increase in current health expenditure of $3 million per annum and 
for an average increase of $2 million per annum in capital outlays. In percentage 
terms, this involves a rapid rate of increase, but the projected total municipal ex- 
penditure on health, current and capital combined, will be less than 5 per cent of 
total municipal expenditure in every year of the period. 

36. For "all other" expenditure, both current and capital, the general technique 
used is similar to that used for sanitation. In these areas, however, the projected 
rate of increase is between 3V^ and 4 per cent per annum per capita in constant 
dollars, and this expenditure therefore increases at 7 to 8 per cent per annum in 
current dollars. 

GRANTS TO LOCAL GOVERNMENTS FROM THE PROVINCE 

37. Local governments receive grants from the Province for many different 
purposes, but in recent years some 70 to 75 per cent of the total dollar amount 
of such grants has been directed to education and to public works, mainly streets 
and roads. Other substantial but smaller amounts have been paid to the municipali- 
ties for general welfare assistance and as unconditional grants. 

38. The introduction of the Ontario Foundation Tax Plan in 1964 raised the 
level of provincial government support for elementary and secondary school boards. 
In 1966 it is estimated that provincial grants will cover 48 per cent of school board 
expenditures for current operations, capital expenditure financed from current 
revenues, and debt service costs. We have assumed that with the continuing growth 
of these school board expenditures, the relative size of provincial grants will 
decline by 1 percentage point a year, although the absolute amount will increase 
very substantially, until it reaches 45 per cent in 1969; thereafter, this percentage 
is assumed to be maintained until the end of our forecast period. 

181 



Projection of Expenditure, Revenue and Debt 

39. The Province also makes large grants to the municipalities for roads and 
streets. These grants now amount to about one-third of total municipal expenditure 
on highways, roads and streets, and we have assumed that there will be no significant 
change in this proportion. Total expenditure on these items by the Province has 
been projected in the provincial section of this chapter, and we have used the data 
from that section in projecting these grants to the municipalities. Of the total of 
such grants, we have assumed that approximately two-thirds would be for capitzil 
projects and one-third for expenditures on current account. However, if the pro- 
jection is examined in more detail, it will be seen that we have allowed for a some- 
what more rapid growth of grants related to capital expenditure than for those 
related to expenditure on current account, i.e., repair and maintenance of roads 
and streets. 

40. For our present purposes, we have grouped in a single category all other 
provincial grants to the municipalities. In 1965 and 1966, these grants averaged 
18 per cent of estimated municipal expenditure, apart from outlays for education 
and roads. This percentage has shown a persistent upward trend over the past 
decade, but this reflects mainly changes in the bases on which such grants have 
been made. For purposes of this projection, we are assuming that the present 
bases of making the grants will not change and we have therefore projected the 
amount of the grants throughout the period at the 18 per cent figure that represents 
the 1965 and 1966 average. We have assumed, from the experience of recent 
years, that 80 per cent of these grants will apply to current expenditure and 20 
per cent to capital expenditure. 

Table 6:5 
LOCAL GOVERNMENT GRANTS RECEIVED FROM THE PROVINCE 



Current Account Grants 

Education 

Public works 

Other current 

Total Current Grants 

Capital and Debt Service Grants 

Education 

Public works 

Other capital 

Total Capital Grants 

Total Grants 

Total Grants as percentage of Total Local 

Expenditure 29% 33% 33% 

182 







1974 






as a 






percentage 


1963 


1969 1974 


of 1963 


(millions of dollars) 




193 


388 560 


290% 


32 


46 61 


191 


58 


102 149 


257 


283 


536 770 


272 


36 


61 84 


233 


53 


89 124 


234 


14 


26 37 


264 


103 


176 245 


238 


386 


712 1,015 


263 



Chapter 6: Paragraphs 39-42 

budgetary and debt position 

41. We now bring together in Table 6:6 the projected totals for the various 
items of local revenue, grants and expenditure, in order to provide a general 
picture of the over-all financial position of the municipalities and school boards. 

Table 6:6 
BUDGETARY AND DEBT POSITION OF LOCAL GOVERNMENTS 

1974 
as a 
percentage 
1963 1969 1974 of 1963 



(millions of dollars) 
Revenue 

\. Local government current revenues 830 1,303 1,907 230% 

2. Grants from Province for current purposes 283 536 770 272 

3. Total Revenue on Current Account 1,113 1,839 2,677 241 

Current Expenditure 

4. Expenditures on current account (exclud- 

ing interest) 966 1,574 2,241 232 

5. Interest 65 110 154 237 

6. Total Expenditure on Current Account .. 1,031 1,684 2,395 232 

7. Surplus on Current Account 82 155 282 344 

Capital Expenditure 

8. Expenditures on capital account 282 488 701 249 

9. Less provincial grants for capital purposes 103 176 245 238 

10. Capital Expenditure Net of Grants 179 312 456 255 

11. Deficit (= increase in debt) 97 157 174 179 

12. Net debt outstanding (December 31) 1,499 2,380 3,244 216 

13. Estimated separate school net debt 133 190 247 186 

14. Net debt outstanding (excluding separate 

school net debt) 1,366 2,190 2^97 219 

15. Provincial Domestic Product 15,600 22,200 30,000 192 

16. Debt (line 14) as Percentage of P.D.P 8.8% 9.9% 10.0% 



42. The figures in Table 6:6 are so arranged as to show total revenue, includ- 
ing grants, on current account, total current account expenditure and, in line 7 of 
the Table, the surplus on current account, after providing for interest on debt but 
before providing for any capital repayments or for the financing of any capital 
expenditure from current revenue. Total capital expenditure less grants on capital 
account is shown in line 10 and the figure for the increase in debt — i.e., the excess 
of total expenditure over total revenue — appears in line 1 1 . This annual increase 
in debt, when added to the figure at the beginning of the year, gives in line 12 
the total net debt outstanding at the end of the year. This total comprises general 
municipal and school board debt but excludes the debt of municipal utilities, which 
is deemed to be self-liquidating. Separate school debt is included in the figures 
shown in line 12, but because this is not a municipal liability, this debt (net of 

183 



Projection of Expenditure, Revenue and Debt 

sinking funds) has been deducted, to give the relevant measure of the net debt of 
local governments, Hne 14. The bottom section of the Table shows the net debt 
in each of three years as a percentage of P.D.P. in that year. 

43. It will be noted that in each of these years (and it is true for all the other 
years of the period as well) a surplus on current account transactions is projected. 
However, after taking expenditure for capital purposes into account, there is a 
continuous increase in the net debt. This increase, if we include the debt of 
separate-school boards, was $97 million in 1963 and is projected to rise to $157 
million in 1969 and to $174 million in 1974. If the increase in separate school 
debt is excluded, the comparable figures are $87, $147 and $161 million. 

44. The cumulative effect of these annual increases is to raise local net debt, 
excluding that of separate school boards, by about 60 per cent between 1963 and 
1969, and in the remaining five years of our projection period a further increase of 
some 35 per cent occurs. By the end of 1974 the debt total is therefore about two 
and one-quarter times that of 1963. In relation to P.D.P., the debt rises fairly 
rapidly from 8.8 per cent in 1963 to 9.9 per cent in 1969 but after 1969 there is 
virtually no change in the ratio of debt to P.D.P. in any of the remaining years. 

45. Let us now review this projected debt of Ontario's local governments in 
the light of historical experience. Data are not available for the 1920's, but in 
1939 local government debt in the province was an estimated 11 per cent of 
P.D.P. By 1955 it had declined to 5 per cent, but since that time it has been 
rising. Our projection indicates that this increase will continue until 1970, after 
which time the ratio of debt to P.D.P. will remain constant, at a figure slightly 
below that for 1939. We should nevertheless remind ourselves once again of the 
assumptions on which this conclusion is based. We have assumed a continuation 
of the past rate of increase in the mill rate of the real property and business tax, 
but apart from this we have projected other revenues and grants on their present 
basis. On the expenditure side, the projected costs of municipal and school board 
services take account of constantly improving quality, a growing population and a 
rising trend in the general price level. In addition, by projecting past trends, we 
have built in some provision for continuing modifications and extensions of exist- 
ing programs and for the addition of minor new programs, at the same rate as in 
recent years. 

46. In summary, we conclude that with a rise in net municipal and school 
board debt to a level slightly above its present proportion of P.D.P., but to less 
than that of the late 1930's, the present local revenue system will generate sufficient 
financial resources to permit Ontario municipalities and school boards to discharge 
their responsibilities satisfactorily, in the absence of any large new programs. This 
is not to suggest, however, that the local revenue system may be regarded as either 
adequate or equitable, and many of the subsequent recommendations in our Report 
are designed to improve the system in these respects. 

184 



Chapter 6: Paragraphs 43-51 
PROJECTIONS OF PROVINCIAL REVENUE 

47. In projecting the fiscal position of the Province, we shall proceed along 
lines similar to those adopted in dealing with the municipalities and school boards. 
We shall begin with a projection of revenues and then go on to consider expendi- 
tures, classified as to current account and capital account. Transfers from the 
Province to the municipahties and school boards are considered next, and finally 
we bring together the total revenue and total expenditure figures. We thereby 
arrive at the projected surplus or deficit position of the Province for each year, as 
well as the accumulated provincial debt at the end of each year of the projection 
period. 

48. The aggregate which we first project is the total revenue on current account 
or, to use the ofl&cial terminology, the total "net ordinary revenue" of the Province. 
In recent years, approximately 90 per cent of this revenue has come from eight 
revenue sources, the remaining 10 per cent being derived from a multitude of 
miscellaneous forms of income. Our procedure will be to project separately the 
revenue yield of each of the eight major sources and to deal with all other sources 
as a single item. All projections assume that the provincial tax rates and the 
general revenue structure remain, throughout the period, as they were after the 
1966 provincial budget changes were effected. 

49. In each of four major sources of revenue, it was found that revenue in 
recent years has shown little variation when expressed as a percentage of P.D.P. 
We therefore projected the yield from each of these sources, at 1966 tax levels, 
as a simple percentage of P.D.P. The revenue items involved, and the percentages 
used for each, are shown below. 

Percentage 
Revenue Source of P.D.P. 

Corporations Tax 1.35% 

Retail Sales Tax 1.95 

Succession Duty 0.285 

Liquor Control Board 0.67 

SHARE OF FEDERAL ESTATE TAX 

50. In addition, the Province's share of revenue from the federal estate tax was 
projected as one-third of the revenue from succession duty, so that the projected 
revenue from this fifth source depends ultimately on the size of the P.D.P. 

GASOLINE TAX 

51. The Ontario gasoline tax was raised to 16 cents per gallon in the 1966 
Budget. Because it is based on the physical quantity of gasoline subject to tax, 
the yield might be expected to be related to P.D.P. at constant prices, which is to 
say, to the physical volume of production of goods and services. In fact, the yield 
of the gasoline tax in recent years, after adjustment for changes in the rate, has 
been a very nearly constant proportion of P.D.P. when this latter magnitude is 

185 



Projection of Expenditure, Revenue and Debt 

valued at constant prices. The future yield of the tax has therefore been projected 
at 1.40 per cent of P.D.P., valued at 1963 prices, 

MOTOR VEHICLE LICENCES AND PERMITS 

52. There are several items in this group, of which licences for passenger and 
commercial vehicles provide the bulk of the revenue. For passenger licences, our 
procedure has been to calculate the average licence fee per vehicle, to project the 
number of vehicles, using an equation involving the historical relationship between 
the number of licensed passenger vehicles and the population, and thereby to de- 
rive the total projected revenue. A similar procedure has been used in projecting 
commercial vehicle Ucence revenues. Other revenues in this group, which are 
small and have been growing slowly, were projected by a simple extrapolation of 
their past trend. 

PERSONAL INCOME TAX 

53. Here we have projected the total personal income tax to be collected from 
residents of Ontario by the federal government on its own behalf and on behalf of 
the Province. The description of this projection is complex but a brief outline 
will be found in the Appendix. For 1966 and subsequent years, it was assumed 
that 24 per cent of the relevant amount of tax collected would be paid to Ontario, 
in accordance with the terms of the Province's then current taxation agree- 
ment with the federal government. 

Table 6:7 

REVENUES OF THE GOVERNMENT OF ONTARIO— FISCAL YEARS ENDING 

MARCH 31" 

7975 
as a 
percentage 
1964 1970 1975 of 1964 



(millions of dollars) 

Personal income tax 164 428 635 387% 

Corporations tax 210 300 405 193 

Gasoline tax 184 276 337 183 

Retail sales tax 187 433 585 313 

Succession duty 44 63 86 195 

Motor vehicle permits, etc 76 94 113 149 

Liquor Control Board of Ontario 97 149 201 207 

Share of federal estate tax — 21 29 — 

Other ordinary revenue 117 197 259 221 

Total Net Ordinary Revenue 1,079 1,961 2,650 246 

P.D.P. (nearest calendar year) 15,600 22,200 30,000 192% 

Total Net Ordinary Revenue as percentage of 

P.D.P 6.9% 8.8% 8.8% 

'In this chapter, all data relating to provincial revenue, expenditure or debt are ex- 
pressed on a fiscal year basis. Thus, in Table 6:7 above, the year "1964" includes 
the period from April 1, 1963 to March 31, 1964. 

186 



Chapter 6: Paragraphs 52-57 

OTHER CURRENT REVENUE 

54. These revenues account collectively for only 10 per cent of the "net 
ordinary revenue" of the Province, being smaller in total than the revenue derived 
from any one of the four largest revenue sources. For this category, projections 
on three separate bases were made: first, as a proportion of P.D.P.; second, as a 
proportion of the net ordinary revenue from the eight sources less the yield of 
the personal income tax and less the Province's share of the federal estate tax; third, 
as a simple projection of their past trend. These three projections did not differ 
to any appreciable extent. The projection actually used is that based on the pro- 
portion of net ordinary revenue, and the total of "other current" revenue has been 
projected at 15 per cent of the total yield of the relevant six revenue sources 
indicated in this approach. 

55. The figures shown in Table 6:7 require little explanation and we offer 
only one comment by way of interpretation. It will be noted that total net ordinary 
revenue, expressed as a percentage of P.D.P., rises between 1964 and 1970 but 
that no further change has appeared by 1975. The reason for the early increase is 
that some rates of tax, notably the sales and gasoline tax rates, were increased 
during the first period and also that the percentage rebate from the federal govern- 
ment, with respect to the personal income tax, rose between 1963 and 1966. For 
the second period, 1970 to 1975, the tax rates have been assumed to remain un- 
changed. When this assumption is made, it appears from the figures in the last 
line of Table 6:7 that total net ordinary revenue increases at the same percentage 
rate as does P.D.P., measured in current dollars. 

PROJECTIONS OF PROVINCIAL EXPENDITURE 

56. In projecting provincial expenditure, we shall consider the categories of 
education, roads, health and "all other", in each of which we shall project 
separately the Province's expenditures on current and on capital account. In addi- 
tion, we note the grants that the Province makes to municipalities and school 
boards. These were dealt with from the recipient's viewpoint in our projections of 
the revenues of Ontario municipalities and school boards, and the same figures, 
now adjusted to a provincial fiscal year basis, indicate the projected outlays of 
the Province on these grants. The remaining item of expenditure, interest on the 
provincial debt, will be projected by means of the same technique employed for 
the municipalities, but the annual rate of interest that we relate to provincial 
debt is 5 per cent. This rate of interest is below that which applies currently (mid- 
1966) on new borrowing by the Province but it is in line with the average rate 
over a longer period of time. It should be noted that the terms "current" and 
"capital" have been used. These categories do not correspond identically to the 
"ordinary" and "capital" classifications used by the Government of Ontario in its 
accounts. 

EDUCATION 

57. We are concerned here with provincial expenditure for post-secondary 
education and v/ith provincial contributions to teachers' superannuation funds. 

187 



Projection of Expenditure, Revenue and Debt 

Other expenditures on education are included in the provincial grants to school 
boards and a relatively small amount is found in the residual item of provincial 
expenditure. 

Superannuation 

58. In recent years, the provincial contribution to teachers' superannuation 
funds has been related partly to the unfunded portion of the superannuation 
account and partly to contributions in respect of teachers' current service. The 
past service contribution in the 1966 fiscal year, and the figure in the provincial 
estimates for 1967, are each just under $15 million. It is assumed that this item 
will remain at the same level for the duration of our forecast period. 

59. The Province's contribution with respect to teachers' current service has 
been running at approximately 6 per cent of total teaching salaries paid by the 
elementary and secondary school boards. Having projected the future salary bill, 
we assume that provincial contributions with respect to teachers' current service 
will remain at 6 per cent of total teachers' salaries. Our projection of total provin- 
cial contributions reaches $65 million in the 1975 fiscal year. 

Post-Secondary Education 

60. Our procedure in projecting the cost to the Province of post-secondary 
education* has been first to consider the question of enrolment, from which we 
have then projected total costs. We then consider the amounts of revenue that seem 
likely to be forthcoming from sources other than the provincial treasury. The 
remainder of the projected total cost of post-secondary education is then assumed 
to be borne by the Province. 

61. The central and most difficult problem is to project the total enroknent 
in institutions of post-secondary education during the coming decade. For purposes 
of making this projection, we assume that institutional arrangements as they exist 
at present, or as they will be modified by plans already publicly announced by the 
government, will be in effect throughout the period. More specifically, our pro- 
jections assume that Grade 1 3 will remain in existence as the university preparatory 
year and that teachers for elementary schools will be trained in Teachers' Colleges 
as they are now. There is a very high probability that these assumptions will in 
fact not be realized, but a projection must begin from existing circumstances. We 
shall consider in a later section of this chapter the possible cost implications of 
discontinuing Grade 13 and of requiring a university degree as a qualification for 
all newly-qualifying teachers in elementary schools. We also assume that the 
federal government will continue to finance about the same proportion of the cost 
of post-secondary education as it has in the past. There are sound reasons for 
expecting that this proportion will in fact increase in future, and to the extent that 
this happens, the cost to the provincial treasury will be reduced. There are many 
possibilities in this area but it would be fruitless to pursue them here. We shall 

*This term is used for convenience rather than with precise accuracy. It includes 
students in full-time attendance at universities, at Teachers' Colleges and those 
enrolled in full-time vocational and technological training courses. In all cases, we 
are concerned only with institutions which receive support from provincial funds. 

188 



Chapter 6: Paragraphs 58-65 

assume, as the only practicable course, that the trend of past experience will be 
continued in the period of our projection. 

62. The Ontario government has recently announced that it intends to intro- 
duce a province-wide system of Colleges of Applied Arts and Technology and that 
it intends to proceed vigorously with the development of these colleges. We 
assume, accordingly, that there will be a very rapid rate of increase in the numbers 
of students who will be undertaking this type of training. 

Enrolment Projection 

63. In dealing with the difficult question of future enrolments in the various 
types of post-secondary education, the most generally satisfactory procedure seems 
to be to begin by projecting a total figure for numbers in the whole range of post- 
secondary education, as we have defined that term, and then to consider how this 
total seems likely to be divided among the various types of programs within this 
broad category. In the paragraphs immediately following, we shall pass over the 
problem of post-graduate enrolment, returning to consider it separately at a later 
stage. 

64. In the 1965-66 academic year, total enrolment in Ontario post-secondary 
education, excluding graduate students, was some 60,000, or 16 per cent of the 
18-21 year age group of the province. We have projected enrolment in 1974-75 at 
30 per cent of the same age group, which implies a total enrolment in that year of 
165,000. In arriving at this figure, we have examined past trends in the percentage 
of the age group involved in some form of post-secondary education, as well as 
the number of students who are likely to be completing either four or five years of 
high school. Although comparisons are difficult, we have also given some attention 
to comparable proportions in the United States. It would be more tedious than 
illuminating to offer a detailed account of the methods that we adopted in arriving 
at the projected total enrolment. As an alternative to such detail, we simply note 
that our projection provides for about two-thirds of all those who are expected to 
enter Grade 12 to have some form of post-secondary education and for more than 
80 per cent of those who complete Grade 13 to proceed either to university or to 
Teachers' Colleges. 

65. In evaluating these proportions, it should be kept in mind that substantial 
numbers of students going on to such forms of post-secondary education as nursing 
or business college will not be included in our figures. On the other hand, some 
who will be enrolled in an institution of post-secondary education will never have 
reached Grade 12 or will have returned to some type of post-secondary education 
after a period away from school. We must also remember that at present there are 
about twice as many men as women in post-secondary education and that while 
we expect this imbalance to be reduced in the coming decade, it is likely to remain 
substantial throughout the period of our projection. To the extent that this ten- 
dency persists, the proportion of all students who proceed to further education will 
be lower than it would be if we were considering only men. In view of these con- 
siderations, we think that our projection provides adequately for the numbers who 

189 





(thousands) 




44 


80 


110 


6 


8 


10 


10 


22 


45 


60 


110 


165 


7 


13 


20 



Projection of Expenditure, Revenue and Debt 

will wish to undertake any of the various types of post-secondary education that 
we have indicated, and who will be qualified to do so. 

66. Having projected a total post-secondary enrolment of 165,000 students 
by 1974-75, we must next consider how this total will be distributed among the 
various types of institution. Our conclusions concerning this matter are summarized 
in Table 6:8. 

Table 6:8 
DISTRIBUTION OF POST-SECONDARY STUDENTS IN ONTARIO 

1965* 1969 1974 

University (undergraduate) 

leachers' Colleges 

Technical and vocational 

Total 

Graduate 

Total Post-Secondary Students 67 123 185 

'■'Academic years beginning September. 

67. The smallest relative increase is seen to occur in Teachers' Colleges enrol- 
ment. This projection is related to the number of elementary school teachers 
required to staff the schools of the province. It provides for an increase in the 
total number of elementary teachers in Ontario schools and also for replacing 
those who withdraw from the teaching profession. 

68. Our projection of university undergraduate enrolment is related to the 
number of students who will be completing the senior grades in high school and to 
the proportion of these who will proceed to university. We have assumed a higher 
than present retention rate in high school and we have also assumed that a higher 
proportion of those who are qualified to do so will enter university. 

69. Present enrolment in technical and vocational institutions is not large but 
it is expected to increase rapidly in the coming decade. From such a small be- 
ginning, the projection of rapid growth is unusually difficult and in a sense it is 
correct to say that we have dealt with this difficulty by assuming that that part of 
the projected total enrolment which is not in university or Teachers' Colleges will 
be in technical and vocational institutions. In other words, this technical and voca- 
tional enrolment has been treated as the residual item. But it should nevertheless 
be noted that in 1974-75 it is 450 per cent of 1965-66 enrolment, while the 
corresponding figure for Teachers' Colleges is 167 per cent and for undergraduate 
university enrolment, 250 per cent. 

70. It is assumed that by 1974, technical and vocational training in Ontario 
will be concentrated in some fifteen to twenty Colleges of Applied Arts and 
Technology and that enrolment in the individual colleges will average somewhere 
between 2,000 and 3,000 students. If we assume that there are between fifteen 

190 



Chapter 6: Paragraphs 66-75 

and twenty of these colleges in 1974-75, with an average enrolment of 2,500 each, 
we arrive at a total enrolment of between 37,000 and 50,000 students. Our pro- 
jected figure of 45,000 therefore seems acceptable. 

71. As a final note, it is worth pointing out that the average annual increase 
in post-secondary education, whether measured in absolute or relative terms, is 
somewhat more rapid in the years before 1969-70 than in the second part of the 
period. This provides additional confirmation for the widely-recognized expecta- 
tion that the strain on the post-secondary educational system is Hkely to be at a 
peak during the remainder of this present decade. While this is important in rela- 
tion to the growth of operating costs, it bears with particular force on the financial 
requirements for expanding the capital facilities of post-secondary institutions 
within the next very few years. 

72. Our central concern relates to future financial requirements in provincial 
education and it is in this context that we have projected the future trend of enrol- 
ments. Having done so, we now proceed to estimate the operating cost per student, 
after which we calculate the total operating cost for each type of institution in each 
year. Enrolment figures also provide a means of estimating the number of addi- 
tional places that must be forthcoming, and after deriving an estimate of the capital 
cost per place, we can then project the total capital cost in each year. We shall 
deal first with the operating and capital costs of universities, both for undergraduate 
and graduate students, then proceed to the Teachers' Colleges and finally consider 
the Colleges of Applied Arts and Technology. 

University Costs — Operating 

73. In dealing with the operating costs of universities, we must consider 
graduate and undergraduate costs together, since it is not possible to separate 
them. We shall assume that operating costs per graduate student are, on the 
average, three times those for an undergraduate and we shall, for purposes of 
projecting operating costs, deal in terms of the equivalent number of undergraduate 
students. We assign to each graduate student a weight of three, compared with a 
weight of one for each undergraduate. Our cost figures will therefore be expressed 
as the operating cost per year per equivalent undergraduate student. 

74. Proceeding on this basis, we find that the operating cost per equivalent 
undergraduate student, in the university year 1963-64, was just under $1,900. We 
assume that this cost will rise at 6 per cent per annum, being therefore slightly 
above $3,500 per student by 1974-75. This annual rate of increase is almost 
exactly equal to that of the past few years, and in view of the rapid expansion that 
will be experienced in this area in the coming decade, we do not expect it to 
moderate. On this basis, we arrive at a figure of $602 million in 1974-75, as the 
total of operating costs of provincially assisted universities in Ontario. 

75. These costs will, of course, not be met entirely by the provincial govern- 
ment. Universities also receive income from students' fees, from the federal 
government and from other sources such as endowments, municipal governments 
and gifts. We assume that fees per student will increase over the period at the same 

191 



Projection of Expenditure, Revenue and Debt 

rate as per-capita income, i.e., 4 per cent per annum. Having assumed that opera- 
ting costs per student will increase at 6 per cent per annum, we conclude that fees 
will cover a declining proportion of university operating costs. The proportion in 
1963-64 was 24 per cent, and given our assumptions, it will have fallen to 15 per 
cent by 1974-75. 

76. The federal government supports universities chiefly through its per-capita 
grant and through support for university research. In the past, total federal con- 
tributions have approximated 25 per cent of university current operating costs. 
The increase in per-capita grant to $5 in 1966-67 will, at least temporarily, bring 
federal support to a somewhat higher proportion than formerly. However, if no 
further changes are made, this proportion will decline again as university operating 
costs increase at a more rapid rate than population. We think it highly probable 
that further increases, in one form or another, will be necessary, but since it is not 
our purpose to forecast changes in either federal or provincial government policy, 
we assume that the federal contribution, while increasing in dollar amount after 
1966-67, will remain at 25 per cent of the universities' total current operating costs. 

77. Revenues from other sources now provide about one-eighth of university 
operating costs. We expect that contributions from these sources will increase at 
the same rate as P.D.P. Since university operating costs will be increasing at a 
considerably more rapid rate, the relative importance of such funds will decline. 
Thus, according to our projection, revenue from these sources will by 1974-75 
account for only 5 per cent of total current operating costs, although in absolute 
amount they will have become almost twice as large as they were in 1963-64. 

78. We assume that the remainder of the universities' operating expenditures 
will be met by provincial grants. From a level of $36 million in 1963-64, our 
figures show such grants increasing to $153 million in 1969-70 and to $328 million 
for 1974-75. 

University Costs — Capital 

79. The cost of each new undergraduate place to the provincial government 
averaged an estimated $7,150 in 1964-65. We have assumed that this figure will 
increase at 5 per cent per annum (2 per cent because of price increases and 3 per 
cent reflecting the eff^ects of the greater complexity and the rising standards of 
modern university facilities). We have projected annually the cost of providing 
the additional places for the increased enrolment expected in the following year, 
in accordance with our projected enrolment figures. We have projected capital 
costs for graduate places in a similar manner, but we have assumed that one 
graduate place will cost twice as much, on the average, as an undergraduate place. 

80. In many instances, a building program will involve capital expenditure 
some time in advance of the increase in enrolment. We have therefore increased 
the figures in our projection in the early years of the period, both to allow for this 
factor and to bring our figures more closely into line with the level of recent capital 
expenditure and that anticipated in the near future. This procedure implies that we 
might have reduced the figures for later years. We have chosen not to do so, in 

192 



Chapter 6: Paragraphs 76-86 

order to provide a margin for unexpected and possible costly future developments 
and also to recognize the fact that the distribution of university enrolments and 
university places may not always be perfectly correlated. 

8 1 . Our figures also encompass provincial grants with respect to the provision 
of additional university residence accommodation. The amounts involved are 
relatively small because Central Mortgage and Housing Corporation loans are 
available to cover a large part of the costs and no detailed account of their deriva- 
tion therefore seems necessary. We think the maximum level attained by these 
grants will be $5 million in 1974-75. 

82. The total projected cost to the Province for capital grants to universities 
for graduate, undergraduate and residence places over the period 1966-67 to 
1974-75 is $982 million. As we would have expected, these outlays in the late 
1960's are at a somewhat higher level than those in the first half of the 1970's, a 
circumstance reflecting the pattern of enrolment increases over the period. 

Teachers' Colleges — Operating and Capital Costs 

83. Teachers' College enrolment in 1965-66 was approximately 6,000, and we 
have projected an increase to 10,000 by 1974-75, if present arrangements for the 
training of teachers for elementary schools are continued until that time. The 
operating cost per student in 1965-66 was very close to $1,000, and this is expected 
to increase at 6 per cent per annum. On these assumptions, the total annual 
operating costs of Teachers' Colleges would be $18 million by 1974-75. 

84. Capital costs will be incurred to provide the increased number of places, 
but the disappearance of the two-year program for training teachers should mean 
that little capital expenditure will be required in the immediate future. Our projec- 
tion provides for a total of $40 million to the end of the 1974-75 fiscal year, with 
annual expenditure running at $5 to $7 million in the last five years of the period. 

Colleges of Applied Arts and Technology — Operating Costs 

85. The introduction of these colleges is an innovation of major importance 
to education in Ontario, and it seems evident that they will develop at a rapid rate 
over the next decade. However, the federal government can be expected to pay 
close to half of the costs involved, and the impact on Ontario's provincial finances 
will thereby be correspondingly reduced. Parenthetically, we note that there will 
be a similar fortunate reduction in the effect of any error in our projections con- 
cerning these colleges. We do wish to make very clear, however, that because we 
are dealing with a potentially very large undertaking which is still in its initial 
stages, these cost projections have an unavoidable large margin of error. 

86. In 1965-66, the full-time enrolment in provincial institutions such as 
Institutes of Technology and Institutes of Trades was 10,000 students. It is 
assumed that in the future such training will be provided by the new Colleges of 
Applied Arts and Technology and that, as mentioned above, enrolment in these 
colleges will reach 45,000 students by 1974-75. The operating cost per full-time 
student now somewhat exceeds $1,000, but fees payable by the student reduce 

193 



Projection of Expenditure, Revenue and Debt 

the cost to government to this approximate level. We assume that this per-student 
cost will increase by 6 per cent per annum, to $1,700 in 1974-75. 

87. This calculation represents a total annual operating cost of $76 million a 
year by the end of our forecast period. The federal government can be expected 
to pay 50 per cent of the cost of vocational training, but we assume that some 
parts of the program of these colleges may not qualify for federal support on this 
basis and we have accordingly assumed that Ontario's share will be 60 per cent 
of the total cost. In 1974-75, this share will approximate $44 million. 

Colleges of Applied Arts and Technology — Capital Costs 

88. The method of projecting these costs is similar to that employed in uni- 
versity capital costs. We estimate the cost per place at $4,500 in 1965-66 and we 
assume that this figure will increase by 5 per cent per annum. As with operating 
costs, we have allocated 40 per cent to the federal government, leaving the 
provincial government to provide the remaining 60 per cent of the cost. The total 
capital cost to the end of the 1975 fiscal year has been projected at $275 million, 
of which Ontario would pay $165 million. The maximum cost in any one year, 
according to our calculations, is $30 million. 

Debt Service Charges 

89. Provincial capital grants to Ontario universities are now made by the 
Ontario Universities Capital Aid Corporation, which receives funds from the 
Province and makes loans to the universities. The universities pay interest on their 
accumulated debt at 5Vi per cent per annum and repay annually one-thirtieth of 

Table 6:9 
COSTS TO THE GOVERNMENT OF ONTARIO OF POST-SECONDARY EDUCATION 



1964* 1970 1975 



Current 

Universities 

Teachers' Col leges 

Technical, vocational and other post-secondary 
education 

Total Current Cost 

Capital 

Universities (including residences) 

Teachers' Col leges 

Technical, vocational and other post-secondary 
education 

Total Capital Cost 

Total Cost 

Teachers' Superannuation (not included above) . . 
Debt Service Grants (not included above) 



(millions of dollars) 




36 


153 


328 


4 


9 


18 


4 


17 


44 


44 


179 


390 


36 


103 


130 


— 


5 


7 


1 


20 


30 


37 


128 


167 


81 


307 


557 


= 


=:= 




21 


50 


65 





42 


74 



^Fiscal years. 

194 



Chapter 6: Paragraphs 87-93 

the capital amount of any grant, for thirty years. The Province, in determining 
operating grants for the universities, includes an amount to provide for the debt 
service charges, i.e., interest plus principal repayments. While this arrangement 
makes it possible for the Province to treat capital grants to universities as capital 
loans rather than current expenditure, it affects the form rather than the substance 
of provincial capital aid to universities. 

90. Our projections show that by the end of 1974-75, the accumulated debt 
owed by the universities to the Province will be $952 million. In that fiscal year, 
total debt service payments will be $74 million, comprising $46 million interest 
and $28 million debt repayment. 

Cost Implications of Some Possible Changes in the System of Education 

9 1 . Our projections have been made on the assumption that arrangements now 
in existence, or policies already announced by the government, will remain in effect 
throughout the period. This assumption, while necessary, is probably not entirely 
realistic, and we therefore wish to consider briefly the implications for our projec- 
tions of two mooted changes which may quite possibly occur before 1975. The 
first is that the present Grade 13 may not be in existence in ten years' time, and 
the second is that a university degree may be required for newly-qualifying ele- 
mentary school teachers before 1975. The effects of such changes on our 
projections of cost seem unlikely to be very great. 

92. The reduction of the high school program from five years to four will 
reduce the costs to the secondary school system below what they would have been 
if this reduction had not occurred. On the other hand, the costs of post-secondary 
education will tend to be increased, to the extent that more students than would 
otherwise have done so undertake such education, or to the extent that students 
require longer to complete a given post-secondary educational program if the high 
school course is reduced to four years. If students go to Colleges of Applied Arts 
and Technology for an added year, the net cost to the provincial and municipal 
governments would probably be less than if they remained in high school for 
another year. The total cost of a year at a College of Applied Arts and Technology 
would probably be greater than that of a year in the present Grade 13, but after 
allowance for the fees paid by the student and for the federal grant, the net cost to 
the provincial government and the school boards would almost certainly be less. 

93. It is probable, however, that most students who would be completing the 
present Grade 13 would plan to enter university. Here several possible cost 
implications require consideration. First, more students may enter university if the 
high school program is only four years. However, we have allowed in our projec- 
tion both for a higher retention rate in high school and for a larger proportion of 
students continuing on to university. We think that our projections of the number 
of students who will enter university would not have been much higher had we 
assumed a four-year high school preparation for university. Second, the shorter 
high school course might entail a longer university course. If the reduction of one 
year in the high school course required the addition of one year to each university 

195 



Projection of Expenditure, Revenue and Debt 

course, university costs would clearly be increased. The increase would neverthe- 
less be not as great as might first appear. The difference between the cost of a year 
in Grade 13 and of an additional year at the beginning of a university course is 
much less than the difference between the average cost of a university year and 
the average cost of a high school year. Moreover, because we are concerned here 
with the cost to public authorities, we must consider the effect of students' fees in 
reducing this cost. If the reduction in the length of the high school course does not 
lead to an equivalent increase in the length of university courses, any net increase 
in the cost of education would appear not to be great. 

94. In summary, we believe that if the high school program were reduced to 
four years, the net increase to the various public authorities in the cost of providing 
education would not be very great. It is even possible that the cost would be lower 
than if the present five-year program is retained. 

95. The second possible change in educational policy is that elementary school 
teachers' qualifications will include a university degree. Should this occur, 
economies would arise from the fact that the present Teachers' Colleges would 
probably be incorporated into the university system. In the new system students 
might be required to have a four-year high school course plus a three-year uni- 
versity course, in order to qualify as elementary school teachers. At present, the 
requirement involves a five-year high school course plus one year at Teachers' 
College. The new system would require one additional year and total costs would 
therefore rise. We must, however, take into account the fees paid by university 
students (fees are not charged at Teachers' Colleges or at high schools), a circum- 
stance that substantially changes the cost picture. Moreover, if a university degree 
were required for an elementary school teacher's certificate, it is probable that some 
students would take the course for teachers who would not otherwise have done so. 
On balance, we would expect that this change would at most occasion only a slight 
increase in teacher training costs. It would, however, be necessary to increase the 
total amount of scholarship and bursary aid, and, possibly more important from the 
standpoint of cost, the average salary for elementary school teachers would be 
increased if a university degree were required. 

96. The effect on capital costs of a shortened secondary school course and of 
university training for elementary teachers also requires consideration. Economies 
would be realized in that high school and Teachers' College facilities, both present 
and projected, would in many localities be used by universities. There would 
nevertheless still be some need for additional capital expenditures by the educa- 
tional system as a whole. We have already noted that in our projection of university 
capital expenditure, allowance has been made for a limited increase of university 
places beyond the projected student enrolment. Possibly this modest excess could 
be somewhat reduced if the changes we have mentioned were to be introduced. 

97. Our conclusion, then, is that the introduction of the foregoing changes 
would on balance probably increase slightly both the operating costs and the capital 
costs of education to the public authorities. But if we had made our projections on 
the assumption that both of these changes were to be made, we think that they 

196 



Chapter 6: Paragraphs 94-99 

would not have been increased by any large proportion. We are of the opinion 
that the increase would not have exceeded 10 per cent, and we regard 5 per cent 
as a much better estimate of its magnitude. Thus, while our projections have been 
made in the light of the present form of the educational system, we think that their 
general validity would not be very greatly affected by the two major changes that 
now seem most likely to be introduced in the period with which we are concerned. 

HIGHWAYS AND ROADS 

98. In the past, provincial expenditure on highways, including grants to 
municipalities for roads, streets and related items, has corresponded closely to the 
revenue from the gasoline tax and from motor vehicle licences and permits. For 
the 1967 fiscal year, this expenditure, as forecast in the 1966 Budget papers, 
amounted to 109 per cent of such revenue. By coincidence, this ratio represents 
the average for the fiscal years 1958-59 to 1965-66. Consequently, on the basis 
of our projections of annual gasoline tax and motor vehicle revenues, we project 
109 per cent of these amounts in each year as representing total provincial expen- 
diture, in constant dollars, on highways and roads. 

Table 6: 10 
GOVERNMENT OF ONTARIO EXPENDITURES ON HIGHWAYS AND ROADS 

1975 
as a 
percentage 
1964 1970 1975 of 1964 



(millions of dollars) 



Provincial Expenditure on Current Account 

Expenditure on own account 49 67 81 165% 

Grants to municipalities re current 

expenditure on roads, streets, etc 33 47 61 185 

Total Current Account Expenditure 82 114 142 173 

Provincial Expenditure on Capital Account 

Expenditure on own account 143 224 306 214 

Grants to municipalities re capital expenditure 

on roads, streets, etc 55 90 126 229 

Total Capital Account Expenditure 198 314 432 218 



Total Expenditure 280 428 574 205% 



99. This projection of expenditure is in effect in constant dollars, because the 
revenue to which it relates is based on the physical quantity of gasoline on which 
tax is collected and on the number of all licensed motor vehicles. But whereas 
the bases of the gasoline tax and motor vehicle licences do not increase with the 
price level, the cost of building and repairing highways and roads is directly 
affected by price level changes. In the past, the Province has met this situation by 
increasing its rates of tax from time to time. Because we have assumed throughout 
our projections that tax rates remain unchanged, it is apparent that, in conjunction 
with continuing increases in highway construction costs, the projected gasoline and 

197 



Projection of Expenditure, Revenue and Debt 

motor vehicle revenue is unlikely to be sufficient to come within 9 per cent of the 
expenditures involved. To meet this problem, we have assumed that general road 
costs will rise by the 2 per cent per annum that we have projected for other costs 
and we have combined this factor with our 109 per cent of projected revenue to 
arrive at the figure for total spending by the Province on highways and related 
services, 

100. We have broken down the resulting aggregate into its current and capital 
components, and we have in turn subdivided these components into direct provin- 
cial expenditure and provincial grants to municipaUties. These allocations are 
based on the proportions in which aggregate highways expenditure has been divided 
among these four categories in the recent past, modified in the light of advice 
provided by the Ontario Department of Highways. In general, while we have 
introduced no sharp changes in the proportions, our projection displays a tendency 
toward a somewhat larger proportion of expenditure on capital account, both for 
the Province's own purposes and in its grants to municipalities. 

HEALTH 

101. Three categories of provincial health expenditure require individual 
attention: the government contribution to the Ontario Hospital Care Insurance 
Plan, the operating and maintenance costs of Ontario Hospitals, and subsidies for 
the premiums of low-income participants in the Ontario Medical Services Insurance 
Plan. 

Provincial Contributions to the Ontario Hospital Services Commission 

102. In the three fiscal years 1965 to 1967, Ontario government contributions 
plus individual premiums have averaged 59 per cent of the total expenditures of the 
Ontario Hospital Services Commission. We have examined an Ontario Hospital 
Services Commission projection of total expenditure to the end of 1971 and, after 
extrapolating it to the end of our forecast period, have adopted it for our purposes. 
We have assumed that, in line with recent experience, the sum of provincial con- 
tributions plus individual premiums will cover 60 per cent of the total expenditure 
of the Ontario Hospital Services Commission. In 1964, the individual premium 
rate was increased so that premiums would cover about 40 per cent of total cost, 
rather than the slightly less than 30 per cent covered at the former premium level. 

103. We further assume that premiums will again be increased to maintain 
this 40 per cent share whenever Ontario Hospital Services Commission premium 
income falls below a 35 per cent ratio. This policy implies further increases in 
1970 and again in 1974. The remaining share of the 60 per cent of Ontario 
Hospital Services Commission total expenditure will continue to be covered by 
contributions from the provincial government which, according to our projection, 
will amount to $100 million in 1970 and $141 million in 1975. Included in these 
provincial contributions are capital grants for hospital construction, which were 
$12 million in 1964 and averaged $16 million per annum in the four years ending 
1967. We have projected these capital grants at $22 million in 1970 and at $27 
million in 1975. 

198 



Chapter 6: Paragraphs 100-106 

Table 6: 11 

GOVERNMENT OF ONTARIO EXPENDITURES ON HOSPITALS AND HEALTH- 
MAJOR ITEMS 



1975 
as a 
percentage 
1964 1970 1975 of 1964 



(millions of dollars) 



Provincial contributions to Ontario Hospital Services 

Commission* 45 100 141 313% 

Ontario Hospitals — operation and maintenance 61 102 146 239 

Premium subsidies — Ontario Medical Services In- 
surance Plan — 99 145 — 

Total 106 301 432 408% 



^Includes grants for hospital construction of $12 million in 1964, $22 million in 1970 and 
$27 million in 1975. 

Operation and Maintenance of Ontario Hospitals 

104. In the past five years, the rate of increase in provincial operating and 
maintenance grants to Ontario Hospitals has been very slightly less than the rate 
of increase in expenditures by the Ontario Hospital Services Commission. We 
would have projected the same rate of increase for Ontario Hospitals as for the 
Ontario Hospital Services Commission except for the fact that the Province now 
proposes to provide more mental health care in local general hospitals. This will 
involve some increase in the cost of such care and we have consequently provided 
for a somewhat more rapid rate of increase in provincial expenditure on mental 
health than for the Ontario Hospital Services Commission. Operating and main- 
tenance expenditure of Ontario Hospitals was $61 milUon in 1964; our projected 
figure for the comparable expenditure, whether in Ontario Hospitals or elsewhere, 
is $146 million in 1975. 

105. Considering the actual and projected provincial contributions to the 
Ontario Hospital Services Commission, plus the operation and maintenance of 
Ontario Hospitals, we find that these expenditures will average 35 per cent of the 
total cost of these two services from 1964 to 1975. This proportion is very close 
to the one-third which the Provincial Treasurer, in his 1964 Budget Speech, 
indicated to be the approximate proportion which the provincial government 
believed that it should contribute. Our projection is therefore in line both with 
past trends and with present government policy. 

106. The Ontario Medical Services Insurance Plan came into effect on July 1, 
1966. Under this plan, provision has been made to cover from public funds part 
or all of the premiums payable by those members with low incomes and for those 
receiving welfare assistance. The government has estimated the cost of premium 
assistance from July 1, 1966, to March 31, 1967, as $58.9 million, a figure that 
corresponds to some $78 million for a full fiscal year. We have provided, in our 
projection, for an increase in the number of those persons who will receive premium 
assistance as provincial population increases, and we have also provided for an 

199 



Projection of Expenditure, Revenue and Debt 

increase in premium levels, at the rate of 6 per cent per annum. The projected 
cost to the Province for this premium assistance is $145 million in 1975. 

CONSTRUCTION OF PUBLIC BUILDINGS 

107. This item has varied greatly from year to year. The provincial estimates 
indicate a figure of $41 million for 1967 and we assume a subsequent increase of 
5 per cent per year, a rate in line with past experience. Our projected expenditure 
is $60 million in 1975. 

OTHER CAPITAL EXPENDITURE 

108. The major components of this relatively small outlay are capital expen- 
ditures for provincial parks and for conservation. Total outlays have averaged 
some $10 million in recent years and have been increasing relatively rapidly. We 
are projecting a continuing rapid increase to $39 million in 1975. 

OTHER CURRENT EXPENDITURE 

109. This is a residual category that includes all items of current expenditure 
not projected individually, except interest on the provincial debt. Apart from most 
of the costs of general provincial administration, this category embraces many 
smaller individual items of expenditure which it is neither feasible nor necessary 
to project individually. 

110. Our procedure in projecting the total of residual expenditures was to 
examine the historical record back to 1960 for several of the larger individual 
items not affected by major policy changes during the period analysed. The total 
for these selected items was found to have increased at an average annual rate of 
just under 8 per cent between 1960 and 1967. 

111. This rate of increase seems reasonable in the light of more general con- 
siderations. A large share of residual expenditures represents salaries, and here we 
expect an average increase of from 4 to 5 per cent per annum. We have assumed 
that other costs will increase by 2 per cent annually, so that the weighted average 
annual increase in the relevant price level (since wages and salaries represent the 
major share of the total) would appear to be from 3Vi to 4 per cent. In addition, 
the Ontario population is expected to grow at about 2 per cent per annum. 
Provision must also be made for minor but, given our underlying assumptions, not 
for major extensions and modifications in existing programs. Finally, we must 
allow for the "improvement factor" in public services, which we view as the counter- 
part of a rising average standard of consumption in the private sector of the 
economy. When all of these factors are taken into account, and some allowance 
made for overlapping, it appears that an average rate of increase of from 7 to 8 
per cent would be expected. We have therefore made our projection on the assump- 
tion that residual items of expenditure on current account will increase at a rate 
of 8 per cent a year, from a 1967 total of $432 million to $800 million in 1975. 

GRANTS TO MUNICIPALITIES AND SCHOOL BOARDS 

112. We have already projected the amount of these grants, from the income 
side, in our analysis of municipal and school board revenues. The same projections 

200 



Chapter 6: Paragraphs 107-1 14 

have been adjusted to a provincial fiscal year basis to provide us with the trend of 
annual provincial expenditures on these grants. 

PROJECTION OF PROVINCIAL BUDGETARY AND 
DEBT POSITION 

113. In Table 6:12 we have brought together, for selected fiscal years, our 
projections of revenue, expenditure and debt. The structure of this Table parallels 
that of Table 6:6, which provides comparable information for local governments. 

Table 6:12 
BUDGETARY AND DEBT POSITION OF THE GOVERNMENT OF ONTARIO 

1975 
as a 
percentage 
1964 1970 1975 of 1964 

(millions of dollars) 
Revenue 

1. Provincial net ordinary revenue 1,079 1,961 2,650 246% 

2. Debt service payments from universities .. — 42 74 — 

3. Total 1,079 2,003 2,724 252 

Current Expenditure 

4. Ordinary expenditure (excluding interest 

payments and transfers to local govern- 
ments) 450 1,161 1,815 403 

5. Transfers to local governments re: ex- 

penditure on current account 296 547 784 265 

6. Interest 61 119 275 451 

7. Total Current Account Expenditure 807 1,827 2,874 356 

8. Surplus on Current Account 272 176 —150 

Capital Expenditure 

9. Capital expenditure (excluding transfers to 

local governments) 227 442 599 264 

10. Transfers to local governments re: ex- 

penditure on capital account 106 177 249 235 

11. Total Capital Account Expenditure 333 619 848 255 

12. Deficit (= increase in debt) 61 443 998 

13. Net Capital Debt at end of period* 1,345 2,898 6,575 489 

14. Provincial Domestic Product (nearest calendar 

year) 15,600 22,200 30,000 192 

15. Net Capital Debt as percentage of P. D. P 8.6% 13.1% 21.9% 

'•'Includes $559 million in 1970 and $952 million in 1975 owing by universities to Ontario 
Universities Capital Aid Corporation. 

114. The most striking feature of Table 6:12 is the very large projected 
increase in the net capital debt of the Province. More detailed figures provided in 
the Appendix to this chapter reveal that within less than a decade, from 1967 to 
1975, a four-fold increase will have occurred. In recent years this debt has ranged 
from 8 to 9 per cent of provincial domestic product, but our figures show this ratio 

201 



Projection of Expenditure, Revenue and Debt 

increasing to almost 22 per cent by the end of the forecast period. Moreover, the 
trend of this debt ratio shows no tendency to flatten out in the later years with 
which we deal; on the contrary, an extrapolation of the trend projected for the early 
1970's indicates that the ratio will reach 30 per cent as early as 1979. 

115. Three factors may be mentioned as responsible for the projected increase 
in provincial debt. The first is the general circumstance that the provincial 
government sector is expected to grow faster than the Ontario economy as a whole. 
Hence even if, contrary to our expectation, projected provincial revenues were to 
grow at the same rate as expenditures, an increasing burden of debt would be 
indicated. 

116. The second consideration is that we have in fact projected a relatively 
more rapid rate of growth in total expenditure than in total revenue. Every major 
category of expenditure shown, with the exception of grants to municipalities for 
capital purposes, increases relatively more rapidly than total provincial revenue. 
While in most categories this discrepancy in growth rates is slight, the major excep- 
tion is to be found in the current expenditure item (exclusive of interest and of 
transfers to local governments) shown in line 4 of Table 6:12. This is the largest 
single category of provincial expenditure and it increases more than four-fold 
during the period of our projection. The major components which account for this 
rapid rate of increase are outlays for post-secondary education, expected to increase 
seven-fold, and those for health, for which a four-fold increase is expected. 

117. Finally, increased debt leads to an increase in interest charges. Projected 
total interest charges during the period are approximately $1,600 million, about 
$850 million greater than would have resulted had the annual interest charge 
remained at the 1964 level throughout the period. The additional $850 million in 
interest payments in effect increases the total accumulated debt at the end of the 
period by the same amount. 

118. In summary, if present trends continue, the net capital debt of the 
Province can be expected to increase very rapidly in the coming decade, both 
absolutely and as a proportion of provincial domestic product. In this context, it is 
relevant to consider the present and projected position of Ontario's debt in relation 
to earlier experience. At the end of the 1920's, the burden of the Province's debt 
was an estimated 9 per cent of P.D.P. The debt increased rapidly during the 
depressed 1930's, and by the end of that decade the burden had grown to 24 per 
cent of P.D.P. It may therefore be observed that while the present debt ratio is at 
about the level of the late 1920's, the projected ratio in 1975 will have risen to 
the approximate level of the late 1930's. It may be said of such a debt ratio 
that not only would it be historically very high in terms of Ontario experience, 
but that it would continue to rise rapidly beyond 1975, if present trends continue. 

1 19. We wish to offer a concluding word to explain why we have chosen to 
use the "net capital debt" rather than the "gross debt" of the Province in our 
analysis. The major difference between these concepts is that the gross debt 
includes "revenue-producing and realizable assets" while net debt excludes these 

202 



Chapter 6: Paragraphs 115-120 

items. In measuring burden, net capital debt seems to us to be preferable, but 
it may be argued that because the Province must pay interest on its gross debt, 
our procedure may underestimate future interest charges if the gross debt increases 
faster than the net debt. The interest figures we have used to the end of 1967 
represent either the actual net interest cost to the Province or a very close estimate. 
Thereafter, our procedure involves the assumption that increases in "revenue- 
producing and reahzable assets" will generate enough income to pay the interest 
charges to which such increases give rise. This seems a reasonable assumption 
which, even if not strictly borne out in fact, is nevertheless most unlikely to 
introduce any significant error into our projection. 

COMBINED PROVINCIAL AND LOCAL BUDGETARY AND DEBT POSITION 

120. In Table 6:13 we show, for selected years, combined revenue, expendi- 
ture and debt figures for the provincial and local governments. There are some 
technical difficulties about combining the figures when the fiscal years are different 
for the two levels of government, but to discuss this matter fully would be both 
tedious and unnecessary. Any apparent discrepancies are small and have no 
effect on the general trends revealed in the Table. 

Table 6:13 

COMBINED PROVINCIAL AND LOCAL GOVERNMENT BUDGETARY 
AND DEBT POSITION 

Calendar year or 1974 

nearest fiscal year as a 

percentage 



1963 1969 1974 of 1963 



(millions of dollars) 
Revenue 

1. Current revenue (including debt service 

payments from universities) 1,909 3,306 4,631 243% 

Expenditure 

2. Expenditure on current account (exclud- 

ing interest) 1,416 

3. Interest 126 

4. Total Current Account Expenditure 1,542 

5. Surplus on Current Account 367 

6. Expenditure on Capital Account 525 

7. Deficit (= increase in net debt) 158 

8. Total Accumulated Net Debt 2,844 

9. Estimated separate school net debt 133 

10. Total Net Debt less separate school net debt* .... 2,71 1 

11. Provincial Domestic Product 15,600 

12. Debt (line 10) as percentage of P.D.P 17.4% 



2,735 
229 


4,056 
429 


286 
340 


2,964 

342 
942 


4,485 

146 
1,318 

1,172 


291 

40 
251 


600 


742 


5,278 
190 


9,819 

247 


345 
186 


5,088 


9,572 


353 


22,200 

22.9% 


30,000 

31.9% 


192 



"Includes $559 million in 1969 and $952 million in 1974 owing by universities to Ontario 
Universities Capital Aid Corporation. 



203 



Projection of Expenditure, Revenue and Debt 

121. The fact that the figures in Table 6:13 do not include transfers between 
the two levels of government enables us to see the total projected actual cost of 
carrying out various expenditure programs and the total revenue available to finance 
these programs. Eliminating the complications arising from intergovernmental 
transfers enables the reader to come more closely to grips with the fundamentals 
of the fiscal position. 

122. The combined provincial-local Table does not add a great deal to the 
information already provided in Tables 6:6 and 6:12. We note that in the 
combined Table, 6:13, total revenue rises more rapidly than P.D.P., but 
expenditure in turn rises more rapidly than revenue. The rise in expenditure on 
current account is particularly striking, just as it was for the provincial govern- 
ment. The net result is a series of continuously rising annual deficits, augmented 
by the compounding effect of related interest payments and reflected in the very 
rapid growth of accumulated debt, both absolutely and in relation to P.D.P. 
By 1974, our figures show debt increasing by almost $1,200 million a year; total 
debt is about 3!/2 times the 1963 level and the ratio of debt to P.D.P. will have 
almost doubled over the period. 

123. While the projected ratio of debt to P.D.P. in 1974 is approximately 
that of 1939, the fact that the trend continues strongly upward in subsequent 
years indicates, as we have already pointed out, that the projected fiscal position 
is not viable for the longer term. To illustrate this point, we have developed in 
Chapter 40 the dimensions of the annual revenue gaps that would need to be 
filled, if the growth in the combined provincial-local debt were to be confined to 
the projected rate of growth in the P.D.P. Given such a policy of stabilizing the 
burden of debt at its present ratio, our projection indicates that the annual com- 
bined revenue gap for the two levels of government would in 1969 amount to 
almost $400 million and in 1975 to some $800 million. Had we extended our 
projection further into the future, there is every indication that this gap would 
have continued to increase. 

CONCLUSION 

124. In explaining the various projections developed in the Appendix and 
presented in this chapter, we have become unavoidably involved in much detail. 
We think it appropriate to conclude this presentation with some rather general 
observations about the basic assumptions and techniques that we have employed 
in determining and analysing the evolving fiscal positions of the provisional and 
municipal governments in Ontario during the forthcoming decade. 

125. Central to our whole analysis are our projections of the population, 
labour force and domestic product of the Province of Ontario. We believe that 
these are the best projections that can be made, but inevitably they will be 
proved wrong and we think that they are as likely to be too high as too low. 
If our projections are found, in the event, to be too low, then actual revenues 
at given rates of tax will be higher than those projected. But this upward influence 
will also be felt in expenditure. On balance, we would expect that if actual popula- 

204 



Chapter 6: Paragraphs 121-128 

tion, labour force and production are higher than we have projected, the net effect 
on the government's budgets would tend to be favourable but not pronounced. The 
opposite conclusion would apply if our projection is found to be too high. 

126. In our projections of revenue we have generally assumed the continuation 
of present taxes and rates, except for the municipal real property and business 
tax and the Ontario Hospital Services Commission premiums. Assuming that 
our P.D.P. projection is correct (and we have already considered the effects of 
possible error), we think that our revenue projections are subject to no very large 
margin of error. 

127. The determination of future trends in government expenditures is con- 
siderably more difficult, but here again we have tried to anchor our projections as 
firmly as possible to present conditions, past experience, and the expected course 
of future developments. In general, we have tended to project the costs of existing 
government services in such a manner as to make some provision for the introduc- 
tion of minor new expenditures during the period. We have explicitly excluded 
any provision for the costs of major new programs that are not now a part of 
publicly announced government policy. 

128. To sum up, our projections lead us to the clear and inescapable conclu- 
sion that in the absence of remedial measures, the present unsatisfactory revenue 
and spending positions of the provincial and local governments of Ontario will 
deteriorate sharply and continuously within the coming decade. While we recognize 
the inevitability of errors in our projections, we think that their effect cannot be to 
alter substantially the fiscal trends that we foresee. Moreover, any errors that we 
have made are as likely to aggravate the fiscal situation as to improve it. The 
concrete problem that emerges is that of determining the most appropriate means 
of financing a combined provincial-local expenditure-revenue gap which will 
have grown to some $600 million annually by 1969 and to more than $1,300 
million by 1975, just to finance existing programs. To the extent that major new 
programs are introduced, the projected gap will be correspondingly increased. 
Faced with such a prospect, the government of Ontario may be expected to seek a 
greater share of revenue from what are now federal sources of income. In coping 
with the remaining revenue gap, the Province will need to consider to what extent 
it may wish to modify the projected level of its public expenditures and to what 
degree it will rely on taxation and on borrowing to meet its financial requirements. 
Given the terms of reference of this Committee, we confine our analyses and 
recommendations to the areas of taxation and borrowing. 



205 



Projection of Expenditure, Revenue and Debt 



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Chapter 6: Appendix 



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208 



Chapter 6: Appendix 



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209 



Projection of Expenditure, Revenue and Debt 



ii 



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Chapter 6: Appendix 



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211 



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212 



Chapter 6: Appendix 



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214 



Chapter 6: Appendix 



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215 



Projection of Expenditure, Revenue and Debt 

NOTE CONCERNING THE METHOD USED IN PROJECTING 
PERSONAL INCOME TAX REVENUE 

The steps involved in the complex projection of the yield from the personal 
income tax were the following: 

1. Taxpayers who are taxed as single persons and those having married status 
for income tax purposes are considered separately. We began with the income 
distribution for single taxpayers as compiled in Taxation Statistics for the 1962 
taxation year, the most recent year for which data were available when these 
calculations were made. 

2. The average income and the average tax for each income group in 1962 
were calculated. 

3. We assumed that the average income in each income class would rise at the 
same percentage rate as does our projected P.D.P per worker and on this basis 
we derived projected income distributions for selected future years (1965, 1968, 
1971 and 1974). We did not at this stage provide for any increase in the number 
of taxpayers in future years. 

4. We calculated the average tax per person and the total tax in each year for 
each income group, on the assumption that the 1962 figures relating tax to income 
would continue to apply. In this way we derived the total tax, on the same number 
of taxpayers as in 1962, for each of the selected future years. 

5. A parallel series of calculations were made for married taxpayers. 

6. The projected taxes for the single and married taxpayers were added to 
arrive at the total tax on the 1962 number of taxpayers for each of the selected 
future years. 

7. It was assumed that the number of taxpayers would increase at the same 
rate as the projected number of persons employed in Ontario. The tax yield as 
calculated in (6) was then adjusted by the appropriate factor, to give the total 
projected tax revenue in each of the selected future years. The revenue for inter- 
vening years was interpolated from the projections for the selected years. 

8. The yield of the Old Age Security Tax was estimated for each year and 
deducted from the total tax revenue, since the revenue to Ontario from this source 
is calculated on a base from which the Old Age Security revenue is excluded. 

9. Our projections to this stage apply to all Canada, since the necessary data 
on the distribution of taxable income for Ontario were not available, but it will 
be noted that we have assumed that this total for Canada grows at the rate we 
have projected for Ontario. Consequently, we can determine the projected tax 
revenue for Ontario by taking the appropriate percentage of the national total. In 
1962 this figure was 46.6 per cent. We have assumed a slow decrease in this 
proportion because, since average income in Ontario is above the average for 
Canada, the proportion of income in excess of exemptions is higher for Ontario 

216 



Chapter 6: Appendix 

but this factor will become less significant as incomes generally rise while exemp- 
tions remain unchanged. 

10. We have assumed that in 1967 and subsequent years Ontario would receive 
24 per cent of the figure calculated in (9) above and we have made our projection 
accordingly. 

Some further general comments concerning this projection seem appropriate. 
First, we have assumed that the relative distribution of income remains unchanged 
throughout the period. We have examined the effect of the changes in income 
distribution which occurred during the period 1953 to 1962 and have found that 
the effect on tax revenues of such changes in income distribution as have occurred 
is negligible. Second, we have projected an increase in incomes, implying that a 
higher proportion of income earners would be subject to tax. We have made no 
allowance for this entry to taxpayihg status at the bottom of the distribution, but 
the revenue accruing from this source would be small. Moreover, the introduction 
of the Canada Pension Plan will increase the exemptions of many taxpayers and 
so reduce the tax payable below what it would otherwise have been. Neither of 
these factors will affect revenue by more than a small amount and their net effect 
on total revenue would be negligible. 

NOTE ON PROJECTION AS OF SPRING 1967 

Our projection was completed during the summer of 1966 and we used the 
most recent figures that were available at that time. For the Province these were 
provided in the 1966 Budget and in the 1966-67 Estimates. These sources provided 
final figures up to the end of the 1964-65 fiscal year, preliminary figures for 
1965-66, and Budget forecasts or Estimates for 1966-67. The 1967 Budget data 
are now available and it is the purpose of this note to consider our projection in 
the light of these additional data. 

Our primary concern in this projection was with the size of the provincial 
and municipal debt. In this note we are concerned with the provincial aspects 
of the projection and so we shall focus our comments on it. In the 1966 Budget 
data the net capital debt of the Province at March 31, 1966, was estimated at 
$1,464 million; the final figure, which appears in the 1967 Budget papers, was 
$1,381 million or some $83 million less than the preliminary figure of a year 
earlier. This more favourable result was caused in about equal parts by actual 
revenue exceeding the preliminary figure and by expenditures (both on current 
and on capital accounts) falling short of the 1966 Budget's preliminary figure. 
And these figures in turn were a reflection, especially on the revenue side, of the 
prosperous economic conditions that prevailed in Ontario in 1965 and early 1966. 

The general position is similar for the comparison with respect to the 1966-67 
figures. The forecast of the net capital debt of the Province implied in the 1966 
Budget papers was $1,546 million. The 1967 preliminary figure for the amount 
of this debt is $1,429 million or $117 million less than was indicated a year 
earlier. Thus the most recent estimate of the debt gives a figure that is $117 

217 



Projection of Expenditure, Revenue and Debt 

million less than the one that was included in our projection. (It should be 
mentioned that the debt figure used in our projection includes advances to Ontario 
universities by the Ontario Universities Capital Aid Corporation. For purposes 
of this comparison we have excluded these advances from our debt figures in 
order to make our figures comparable with those shown in the Budget papers.) 

For the 1967-68 fiscal year our projection was for an increase of $161 million 
in the net capital debt of the Province; the 1967 budget forecast is for an increase 
of $162.6 million. In this period both revenue and expenditure were higher than 
our projection, very largely because the federal per-capita grants to universities 
were channelled through the provincial government for the first time, and the 
federal grants to the Province were increased by an approximately equal amount. 

The outcome of this comparison is that, while our projection of the increase 
in the net capital debt of the Province for 1967-68 is very close to the figure in 
the 1967 budget, the accumulated net capital debt at March 31, 1968, now seems 
likely to be some $115 million below our projected figure for that date. This 
should not, however, cause undue concern. It is important in assessing the increase 
in the debt over the past two or three years to realize that this has been a period 
of high prosperity. And this prosperity has been reflected, as we noted above, 
in the improved budgetary position of the Province. It is virtually certain that 
some time before 1975 we will experience periods of lesser prosperity than are 
assumed to prevail on the average in our projection. And in such periods the net 
debt will rise more rapidly than has been allowed for in our projection. To put 
the matter somewhat differently, we may say that we have just experienced a 
period of greater than normal prosperity and our projection would be suspect 
if it did not show a position that was less favourable than the actual position at 
such a time. 



218 



Chapter 

7 



Recommendations 



INTRODUCTION 

1 . The purpose of this chapter is to list all the recommendations made through- 
out this Report. They are shown in sequence under the titles of the chapters 
where they may be found. As their full import will not necessarily be apparent 
when read out of context, reference should be made to the discussion and reasoning 
in the text. This will be facilitated by the applicable chapter and paragraph 
numbers that app>ear in brackets at the end of each recommendation in the list. 

FISCAL EFFECTS OF THE RECOMMENDATIONS: 
PRESCRIPTION FOR FUTURE NEEDS 

1. The Province raise the average level of education grants to 60 per cent of 
school board expenditure over a three-year period. (8:42) 

2. To the extent that higher provincial taxation will be needed to meet future 
revenue requirements, the Province employ a carefully balanced combination of 
increases in income, consumption and wealth taxes designed to take account of the 
considerations made explicit in this Report. (8:48) 

219 



Recommendations 

.3. Ontario negotiate with the federal government for substantial tax room over 
and above any abatements that might be granted in lieu of existing shared-cost 
programs. (8:54) 

INTRODUCTION TO VOLUME II 

1. All local responsibilities for the administration of justice related to the 
functioning of the county courts, the county jails, the regional detention centres, the 
registry offices and the land titles offices be transferred to the Province, and the local 
responsibility for all other courts be transferred to the Province under arrangements 
providing for 

(a) appropriate apportionment of the revenue from fines between the munici- 
palities and the Province, and 

(b) recognition of the interest of local public welfare officials in the proceed- 
ings. (9:95) 

2. The Province take steps to improve the reliability and comprehensiveness of 
the reporting of municipal financial statistics. (9:104) 

TAXES ON PROPERTY: BASIC ISSUES AND POLICY PROPOSALS 

1. The Assessment Act be amended to define real property liable to assessment 
as being land and any building or other structure on, over or under the land, and 
that for this purpose a building or structure include only such machinery and equip- 
ment as is a part thereof and is used or required primarily for the purposes of the 
building or structure or to make it more habitable. ( 1 1 : 25 ) 

2. All legislative instruction as to the circumstances affecting value required to 
be taken into account in determining actual value for assessment purposes be 
removed from the legislation, including the right to adopt assessment manuals by 
reference. (11:33) 

3. The Assessment Act be amended to provide that real property is to be 
assessed at actual value without reference to the value at which similar real prop- 
erty in the vicinity is assessed. ( 1 1 :34) 

4. The assessed value of each parcel of real property be divided into land 
and structures, and for this purpose 

(a) the amount attributable to structures that have value be the amount by 
which the assessed value of the real property exceeds the value of the 
land, and 

(b) where the assessed value of the real property is decreased because of the 
presence of the structures, the structures be determined to have no value, 
and the value of the land be the assessed value of the real property. 
(11:48) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

220 



Chapter 7: Taxes On Property: Basic Issues 

5. The Assessment Act require that properties be assessed as at March 31 of 
the year in which the assessment roll is returned. (11:51) 

6. Legislation be enacted to enable any municipality or local board to appeal 
any provincial assessment equalization to be used directly or indirectly in determin- 
ing any part of its expenditures or revenues. ( 1 1 :59) 

7. The Department of Municipal Affairs be granted the right to appeal any 
municipal assessment singly or any number of assessments collectively within any 
local assessment jurisdiction. (11:61) 

8. Where, as the consequence of one or more appeals, a reassessment is deemed 
desirable in the interests of equity, the Lieutenant Governor in Council be author- 
ized to order the reassessment on recommendation of the Minister of Municipal 
Affairs. (11:63) 

9. The Department of Municipal Affairs be authorized, after due notice, to 
reassess a municipality at the municipality's expense where the local assessment as 
equalized by the provincial index has for a specified number of years remamed 
below a specified percentage of actual value. (11:66) 

10. The necessary changes be made in municipal and school legislation to 
require mill rates for commercial and industrial taxpayers to be uniform with those 
for residential and farm taxpayers. ( 1 1 : 82) 

11. From the taxable assessment of residential property, there be allowed a 
basic shelter exemption in respect of each self-contained dwelling unit of 

(a) $2,000 multiplied by the provincial equalization factor for the municipal- 
ity, or 

(b) 50 per cent of the residential taxable assessment applicable to the self- 
contained dwelling unit, 

whichever is the lesser. (11:119) 

12. The Assessment Act define business properties and occupancy for business 
purposes. (11:140) 

13. (a) The provisions of The Assessment Act requiring the actual value of 

farm lands and buildings to be determined on a special basis be 
repealed; and 
(b) The provisions of The Assessment Act and The Police Act providing 
for exemption of farm lands and taxation for certain expenditures be 
repealed. (11:188) 

14. The assessment of the land and structures of a farm property be separated 
into working farm assessment, and residential assessment, and 

(a) the farm dwelling and the other parts of the farm holding not quaUfying 
as working farm be classified as residential property; 

(b) where part of a farm property does not qualify as working farm because 
it is not fully utilized, only that portion of the farm lands and structures 
that is reasonable in the circumstances be classified as working farm; and 

221 



Recommendations 

(c) the onus be upon the farm owner to establish the extent to which a farm 
property should be classified as working farm. ( 11 :201 ) 

15. Suitable definitions of "farm" and "working farm" be enacted in The 
Assessment Act. (11: 207 ) 

16. (a) All real property, whether taxable or not, be assessed each year at 

100 per cent of actual current value; 

(b) Residential properties, recreational properties and wasteland be 
subject to property tax on a taxable assessment of 70 per cent of 
assessed value; 

(c) Business properties other than transportation and communications 
properties, but including working farms and taxable mining properties, 
be subject to property tax on a taxable assessment of 50 per cent of 
the assessed value; 

(d) Occupants of business properties other than working farms and trans- 
portation and communications properties, but including taxable min- 
ing properties, be subject to business occupancy tax on a taxable 
assessment of 50 per cent of the assessed value of the occupied 
property at the same mill rate as the property tax; and 

(e) Roadways and rights-of-way over land used by transportation and 
communications businesses be exempt from property and business 
occupancy taxes, and other properties of such businesses be subject to 
property tax and the occupants thereof be subject to business 
occupancy tax on a basis to be determined when the assessment of 
the properties has been completed. (11:208) 

17. (a) The legislative provisions for single- or multi-purpose urban service 

areas be consolidated and made applicable on a uniform basis to all 
local municipalities; 

(b) A municipality be required 

(i) to give its taxpayers three weeks' notice of its intention to establish 
or alter the boundaries or the services provided by an urban 
service area, and 

(ii) to provide an opportunity for delegations to be heard by council 
before introducing or amending its local by-law; and 

(c) Each urban service by-law or amendment require the approval of the 
Ontario Municipal Board to be granted, and if in the opinion of the 
Board a sufficient objection to the by-law has been filed with the 
Board, only after a public hearing. (11:218) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

222 



Chapter 7: Taxes On Property: Exemptions 
TAXES ON PROPERTY: EXEMPTIONS 

1. The Province make payments in lieu of school taxes on its properties, in 
addition to those now made in lieu of municipal taxes, and to the extent that they 
apply to elementary schools, such payments, as well as those now made by the 
Hydro-Electric Power Commission of Ontario, be computed at the lower of the 
public or separate school mill rate applicable where each property is situated 
and be distributed to the school boards on the basis of pupil enrolment. (12:47) 

2. A municipality be given a right of appeal to the Ontario Municipal Board 
respecting the terms of any agreement made with the Minister of Lands and Forests 
in regard to the financing of an access road to a tax-exempt provincial park. 
(12:67) 

3. The Province and all its agencies, and the Hydro-Electric Power Commis- 
sion of Ontario undertake to make full payments in lieu of municipal, school, busi- 
ness occupancy and local improvement levies on their properties other than 

(a) public highways, 

(b) land betterment works, to the extent that they convey an unrestricted 
community benefit, 

(c) recognized historic sites that are not being exploited commercially, and 
monuments or memorials, except to the extent of their utilitarian value, 
and 

(d) remote or undeveloped Crown lands not under lease or subject to mining 
or timber rights and not benefiting from local government services, 

except to the extent that such payments are reduced in recognition of local services 
provided by the owner of the property upon agreement with the local authorities, 
who shall have a right of appeal to the Ontario Municipal Board as to the amount 
of any such reduction. ( 1 2 : 72 ) 

4. Privately and municipally owned recognized historic sites that are not being 
exploited commercially be subject to taxation or payments in lieu of taxes only to 
the extent of their utilitarian values. (12:73) 

5. Local authorities be permitted to enter into agreements with property 
owners for reductions in their taxes based upon their undertaking to provide all 
or some of their own local services, subject to review by the Ontario Municipal 
Board. (12:73) 

6. After introducing a system of full payments in lieu of taxes on provincial and 
Hydro properties, the Province petition the federal government to extend its system 
of grants in lieu of taxes on federal properties, including the properties of Crown 
corporations and agencies, to parallel the basis of payments in lieu of taxes on 
provincial properties, subject to: 

(a) retention of the exemption of Indian reserves; 

(b) federal decision respecting the precise basis of grants for school purposes; 

(c) continuation of the present method of assessing federal properties for 
grants in lieu of taxes; and 

223 



Recommendations 

(d) continuation of the referral of all matters relating to federal grants in lieu 
of taxes to the Minister of Finance for final determination. (12:88) 

7. (a) Local government property occupied for purposes of a business enter- 

prise be taxable on the same basis as private business property; and 

(b) Full taxes, excluding levies for county, metropolitan or other secon- 
tier requisitions, be payable to local municipalities and to school boards 
on all other properties of 
(i) an upper-tier municipality, 

(ii) a local authority whose territorial jurisdiction overlaps local muni- 
cipal boundaries, 
(iii) a local municipality situated outside its boundaries, or 
(iv) a local board situated outside the municipality where it exercises 
jurisdiction. (12:102) 

8. The same partial or full exemption from payments in lieu of taxes as those 
recommended for provincial properties be extended to local government proi>erties. 
(12:103) 

9. All present exemptions from property taxation to institutions of higher 
learning be terminated following provincial review of the merits of each institution 
for continuing financial assistance; and provincial grant support to institutions of 
higher learning in lieu of the tax exemptions be confined to those institutions recog- 
nized for the purpose either by the Department of University Affairs or the Depart- 
ment of Education . (12:112) 

10. All present exemptions from property taxation to private schools be 
terminated following provincial review of the merits of each school for continuing 
financial assistance; and provincial grant support to private schools in lieu of tax 
exemptions be confined to schools providing approved education at the elementary 
or secondary levels. (12:114) 

11. Public hospitals be made subject to full realty taxes and, where applicable, 
local business taxes; and 

(a) public hospitals be authorized to include pertinent realty and business taxes 
as part of their costs under the Hospital Care Insurance Plan; 

(b) the Province undertake to pay in full the realty and business taxes charge- 
able to the Hospital Care Insurance Plan and negotiate with the federal 
government to share the cost; and 

(c) the Province give consideration to granting further support to each public 
hospital in respect of local taxes that would not be chargeable to the 
Hospital Care Insurance Plan, and from which it is now exempt, before the 
exemption is terminated. (12:117) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

224 



Chapter 7: Taxes on Property: Exemptions 

12. The Assessment Branch of the Department of Municipal Affairs be author- 
ized to assess institutions of higher learning, private schools and public hospitals on 
which the Province makes grants in lieu of realty or business taxes, and such 
assessments be subject to appeal. (12:118) 

13. Places of worship and land used in connection therewith, and reHgious 
seminaries not classed as institutions of higher learning or as private schools, be 
reassessed at actual value and taxed on a taxable assessment of 5 per cent of actual 
value in the first year and 10 per cent in the second year, with increases of 5 per- 
centage points each succeeding year until a level of 35 per cent, or such other 
maximum percentage as a review of the tax position of places of worship made 
after five years may indicate to be appropriate, has been reached. (12: 127) 

14. Present cemetery lands remain exempt while they comply with the terms of 
their existing exemption except when classified as adaptable to an alternative use, 
in which event they become taxable on a change of use or at the end of three years, 
whichever is earlier; and newly designated cemetery lands be taxable. (12:132) 

15. All present exemptions from property taxation to charitable organizations, 
social and community service groups and similar bodies be terminated following 
review by the appropriate governmental authorities of the merits of each organiza- 
tion for continuing financial assistance; and 

(a) legislation be enacted to permit each municipality to make annual grants 
to charitable organizations, institutions, associations and others engaged in 
works that, in the opinion of the council, are for the general advantage of 
the inhabitants of the area; and 

(b) the taxes on a formerly exempt property be limited, after deduction of 
any governmental grants-in-lieu, to one-third of the property and business 
taxes or $100, whichever is the greater, in the first year and to double 
that amount in the second year. ( 12: 143) 

16. The exemption contained in The Assessment Act of up to twenty acres of 
a farm used for forestry purposes, and the authority given in The Trees Act for a 
township council to exempt from taxation lands under reforestation by agreement, 
both be revoked. (12:152) 

17. No further fixed assessments or fixed taxation agreements be authorized 
by either public or private legislation, and steps be taken to reconcile existing fixed 
assessments or taxes with the need for reassessment throughout Ontario at market 
value. (12:166) 

18. The proposed legislation respecting business assessment provide that all 
property used in common by business tenants and their customers be subject to 
business assessment against either the owner or the tenants. ( 12: 168) 

19. The exemption from business assessment of subordinate lodges of regis- 
tered friendly societies be revoked. (12:173) 

20. Municipalities be permitted to pass by-laws exempting from business 

225 



Recommendations 

assessment land set aside for free employee parking for a five-year period, and be 
permitted to renew such exemptions by by-law for further periods of five years. 
(12:174) 

21. The present formula for the computation of provincial payments to mining 
municipalities under The Assessment Act be replaced by a formula under which 

(a) the payment is computed by applying the municipality's mill rate for the 
immediately preceding year to a "municipal mines assessment"; 

(b) the "municipal mines assessment" of the municipality is computed as that 
proportion of its "fiscal impairment" that the number of its mining 
employees resident in the municipality bears to the number of all employed 
persons resident in the municipality; and 

(c) the "fiscal impairment" of a municipality is computed as the amount 
needed to make the ratio of its commercial and industrial assessment 
to total assessment equal to that same ratio for similarly situated non- 
mining municipalities. (12:209) 

22. Upon adoption of the proposed formula for computing provincial payments 
to mining municipalities, the present limitation in the payment to a municipaUty, to 
50 per cent of the total amount that would have been levied in the preceding year 
if no mining payment for that year had been received, be abolished. (12:210) 

23. The present provision permitting the Minister of Municipal Affairs to 
increase the payment to a mining municipality where it would otherwise be less than 
the amount of the tax on mining profits that it would have collected under The 
Assessment Act if it were not designated a mining municipality, be repealed. 
(12:211) 

24. If the payment to a mining municipality within five years from the imple- 
mentation of the proposed formula would otherwise be less than the amount paid in 
the last year for which the present formula was applicable, 

(a) the amount payable for the first year on the new formula be equal to the 
payment for the last year under the old formula as adjusted for any 
subsequent decrease in mill rate, and 

(b) the amount payable for the second, third, fourth or fifth year on the new 
formula be reduced by not more than the applicable one of the following 
percentages of the difference between the amount otherwise payable for 
the year and the amount paid in the last year under the old formula as 
adjusted for any subsequent decrease in mill rate: 

(i) for the second year, 20 per cent, 
(ii) for the third year, 40 per cent, 
(iii) for the fourth year, 60 per cent, and 
(iv) for the fifth year, 80 per cent. 

(12:220) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

226 



Chapter 7: Taxes On Property: Exemptions 

25. The present provision, under which the payment to a mining municipality 
may be increased to the amount paid in the preceding year, be changed to provide 
that: 

(a) a payment for a year that otherwise would be less than the payment for 
the preceding year be not less than the proportion of the preceding year's 
payment that the average number of resident mining employees for the 
three years ending with the year of payment bears to the average number 
of resident mining employees for the three years ending with the year 
preceding the year of payment; 

(b) for the purpose of the above, where the payment for the preceding year 
had been increased in accordance with the transitional provision previously 
recommended, the payment for that year be deemed to be the payment 
that would have been made if it had not been so increased; and where 
the mill rate used in computing the payment for the year is less than 
than that used in computing the payment for the preceding year, the pay- 
ment for the preceding year be deemed to be the amount that it would 
have been if the current mill rate had been applicable; and 

(c) where under the transitional provision previously reconmiended, the pay- 
ment to the municipality would be greater than that under the above pro- 
vision, the greater amount be paid to the municipality. (12:220) 

26. The provincial authorities assess the value of all mining structures exempt 
from property and business taxes imposed by municipalities and school boards. 
(12:232) 

27. The present provision in The Assessment Act exempting "buildings, plant 
and machinery in, on or under mineral land, and used mainly for obtaining minerals 
from the ground, or storing the same, and concentrators and sampling plant" be 
amended so as to indicate clearly the properties that are exempt and those that 
are taxable. (12:234) 

TAXES ON PROPERTY: ASSESSMENT 

1. Assessment legislation now contained in The Local Roads Boards Act and 
The Provincial Land Tax Act be transferred to The Assessment Act and made 
uniform insofar as p>ossible with the corresponding provisions of that Act; and 

(a) in a district where a district assessor has been appointed, responsibility 
for assessing in a local roads area be assigned to the district assessor, 

(b) responsibility for assessing for provincial land tax purposes be assigned 
to the Assessment Branch of the Department of Municipal Affairs, and 

(c) the required level of taxation within each provincial land tax region be 
calculated annually with due regard for the Province's cost of providing 
that region with services ordinarily provided by local government. (13:45) 

2. Real property used for transportation or communications enterprises be 
assessable on the same basis as other real property; and 

227 



Recommendations 

(a) the responsibility for assessing the properties of transportation and com- 
munications enterprises that overlap local assessment jurisdictions be 
assigned to the Assessment Branch of the Department of Municipal 
Affairs, and assessments of such properties be subject to appeal by the 
local taxing jurisdictions within which they are situated, and 

(b) the Assessment Branch be empowered 

(i) to assess other transportation and communications properties at the 
request of the responsible local jurisdictions, and 

(ii) to relinquish to local jurisdictions the responsibility for assessing 
transportation and communications properties where the extent of 
overlapping jurisdiction is nominal. (13:84) 

3. The Assessment Branch of the Department of Municipal Affairs develop and 
promote the adoption of a plan of annual reassessment in each municipal assess- 
ment jurisdiction. (13:135) 

4. The Province make arrangements to ensure that pertinent real property 
information obtained by other municipal departments and local boards, and through 
electrical inspections by the Hydro-Electric Power Commission of Ontario, is made 
available on a regular basis to municipal assessment departments. (13:135) 

5. County assessment equalization be replaced immediately by provincial 
assessment equalization. (13:143) 

6. Provincial equalization reports show separate index figures for each local 
municipality and for each major property classification within the municipality 
and denote the number of properties used in computing each index. (13:147) 

7. The Assessment Branch publicize the effect upon mill rates of each muni- 
cipal reassessment at present value. (13:163) 

8. The costs incurred by a municipality in completing an initial reassessment 
at market value be reimbursed by the Province to the extent of 

(a) all of the extraordinary costs, or 

(b) 50 per cent of the total costs, 
whichever is the greater. (13:168) 

TAXES ON PROPERTY: COLLECTIONS 

1. The fiscal year of municipalities, school boards and other local boards end 
on March 31 of each year. (14:21) 

2. Statutory provision be made : 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

228 



Chapter 7: Taxes on Property: Collections 

(a) requiring local municipalities and school boards to adopt their annual 
estimates and strike their tax rates by March 31 of each year; 

(b) setting appropriate earlier dates for completion of the county and metro- 
politan estimates and for submission of the estimates of other local boards 
and commissions; and 

(c) subjecting the local authorities concerned to appropriate penalties for 
non-compliance. (14:22) 

3. The Province encourage expanded use of instalment tax billing with a view 
to the eventual establishment of a mandatory province-wide instalment system. 
(14:47) 

4. Councils and school boards be authorized to fix interest on overdue taxes 
in respect of the current or previous years at a rate not less than 6 per cent per 
annum compounded semi-annually. (14:58) 

5. The owner of a business property be made responsible for the collection 
and remittance of municipal and school taxes levied in respect of business assess- 
ments on his tenants, and be made liable for such taxes that he fails to collect; and 
the business property be subject to lien for any such taxes that are not paid. 
(14:67) 

6. The present provisions for collection of overdue taxes by county treasurers 
be replaced by new arrangements under which local municipalities or school boards 
may contract with the county for the use of its office services in collection of their 
current and past due taxes. (14:72) 

7. The tax sale procedures of The Assessment Act be abolished and replaced 
for all municipalities by the tax arrears certificate registration system now provided 
in The Department of Municipal Affairs Act. (14:82) 

8. Transfer of title to a municipality under a tax arrears certificate take effect 
and be made final one year from the date of registration. (14:83) 

9. By-laws cancelling any taxes as uncollectible be given readings at two 
regular meetings at least 14 days apart. (14:86) 

10. Any large units of local government that may be formed in the future be 
given the responsibility for administration of billing and collection of its own 
taxes and those of the municipalities and school boards within their territories. 
(14:89) 

SPECIAL CAPITAL LEVIES AND DEVELOPER CHARGES 

1. The legislative authority for financing capital works through special levies 
be consolidated in a single statute, and the procedures be simplified and made as 
uniform as possible. (15:50) 

2. Both the municipal council and the taxpayers concerned be given the right 
of initiative for all kinds of capital levy projects. (15:52) 

229 



Recommendations 

3. Whenever a council initiates a special capital levy project, a sufficient 
opportunity be provided for the affected taxpayers to petition against the work and 
the council be required to reconsider the project if a petition meeting statutory 
requirements has been lodged against it. ( 15 :52) 

4. Of all classes of property, only transportation and communications prop- 
erties, such as pipe lines, railway lines, and telephone and telegraph lines, be 
exempt from a special capital levy, but such exemption not apply to those particular 
properties that will be benefited by the project for which the levy is to be made. 
(15:53) 

5. Provincial legislation classify the municipal capital works eligible for financ- 
ing by special capital levies and specify the form of levy for each category that will 
achieve the most equitable apportionment of the cost. (15:56) 

6. Provincial legislation require each municipality proposing to use special 
capital levies to pass a special assessment by-law which defines both the intended 
use to be made of the levies and the proportion of the total cost of each category 
of works that is to be financed by them. (15:57) 

7. Provincial legislation set precise limits within which the terms of sub- 
division agreements may be drawn, and require the filing of such agreements with 
each proposed plan of subdivision so that the Province may satisfy itself that the 
terms of each agreement are within the law. (15:90) 

8. Cash imposts on developers for unspecified purposes, or for purposes other 
than the recovery of the cost of allowable municipal service installations or exten- 
sions, be prohibited. (15:91) 

9. The imposition by a municipality of conditions for land development relating 
to the per-capita assessed value of subdivision property and proportions of resi- 
dential, commercial and industrial assessment, other than those provided in its 
planning, zoning and similar land-use by-laws, be prohibited. (15:92) 



THE POLL TAX 

1. The right of Ontario municipalities to levy poll tax be repealed. (16:18) 

LOCAL NON-TAX REVENUES 

1 . The Department of Municipal Aff^airs review the legislation enabling munici- 
palities to license or issue permits for a fee with the object of ensuring that the 
purpose of the licensing is regulatory rather than the raising of revenue. (17:16) 

2. The provisions relating to licence and permit fees in The Municipal Act and 
other Acts be amended to provide that the amount of the fee must not exceed 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

230 



Chapter 7: Local Non-Tax Revenues 

the estimated amount required for full cost recovery by more than approximately 
20 per cent or drop below the amount required to produce approximately 80 per 
cent of full cost recovery. (17:21) 

3. Differences in the fees charged residents and non-residents for business 
licences be no more than is warranted by actual differences in the costs of regulation 
and supervision. ( 1 7 : 22 ) 

4. Municipal licensing that is designed to limit the number of participants in 
particular businesses be prohibited except where the provincial government con- 
siders it to be justifiable, in which event 

(a) it be brought under close provincial supervision, and 

(b) the fees be set at levels that will return a significant portion of any 
monopolistic profits to the local public treasury. (17:24) 

5. The Department of Municipal Affairs assist municipalities in organizing 
their accounts so as to establish the cost of goods and services to which user charges 
apply, and in developing appropriate cost recovery policies. (17:30) 

6. The Department of Municipal Affairs amend the form of municipal audited 
financial statements and its Annual Report of Municipal Statistics so that revenues 
from user charges are reported as revenues rather than as undisclosed deductions 
from related expenditures. (17:30) 

7. The Department of Municipal Affairs collect and publish comprehensive 
financial data relating to all municipal revenue-earning enterprises. (17:43) 

8. The Department of Municipal Affairs define "municipal revenue-earning 
enterprises" and require separate fund accounting of their operations whether or not 
they come under the immediate control of some special-purpose body. (17:44) 

9. Necessary legislative action be taken to ensure that all municipal revenue- 
earning enterprises pay full taxes, including business taxes, and that they charge 
for all services provided by them including services supplied to parent municipaUties. 
(17:46) 

10. Any substantial subsidization of municipal revenue-earning enterprises 
from the municipal treasury, and retention by or transfer to the municipal treasuries 
of substantial surpluses earned by municipal revenue-earning enterprises, require 
annual authorization by by-law. (17:53) 

11. The Department of Municipal Affairs undertake comprehensive studies 
designed to evolve precise and constructive policies to guide the operation of local 
revenue-earning enterprises with particular reference to the form and extent of 
their revenues. (17:54) 

LOCAL REVENUE AND PROPERTY ASSESSMENT APPEALS 

1. (a) The present Courts of Revision be replaced by one or more Assess- 
ment Appeal Boards for each city, separated town and county or any 
combination thereof, or any larger taxing unit that may be formed, 

231 



Recommendations 

composed of three members to be appointed for a three-year term and 
remunerated by the municipality; 

(b) Similar Assessment Appeal Boards be appointed for each district by 
the Minister of Municipal Affairs upon the recommendation of the 
local municipalities within the district; and 

(c) The members of an Assessment Appeal Board be persons meeting 
prescribed qualifications who are, or in the year prior to their term 
of office were, neither employees nor members of the Council of the 
municipality or of the Council of any other local elective body with 
jurisdiction within that municipality. (18:12) 

2. A taxpayer who has filed a notice of appeal to an assessment have the 
statutory right to examine, personally or through an agent, all the material used 
to establish the assessment subject to objection. (18:13) 

3. Provision be made so that, if the work of the Assessment Appeal Board of 
a municipality cannot be processed within the statutory time, the municipality may 
appoint a temporary Board or enlist the services of a Board from another 
municipality. (18:14) 

4. Jurisdiction in all matters in dispute relating to municipal property and busi- 
ness tax arising from any assessment, levy or administrative act and from any 
decision of the Assessment Appeal Board be given to the County or District 
Court. (18:16) 

5. The federal government be requested to appoint additional County Judges at 
large to specialize in assessment appeals. (18:19) 

6. No costs be charged on any appeal before the proposed Assessment Appeal 
Board. (18:20) 

7. Statutory direction be given that costs as between a solicitor and his client 
are to be awarded to the appellant and against the municipality in all appeals before 
the County or District Court unless the Court considers that the appeal is frivolous 
and vexatious or that the appellant previously has withheld pertinent evidence. 
(18:20) 

8. Existing high school district and county equalization appeal procedures be 
repealed and the appeal procedures recommended for other property and business 
tax matters be made applicable. (18:22) 

9. The right to apply for tax relief on the grounds of sickness or extreme 
poverty be withdrawn. (18:23) 

SCHOOL FINANCE 

1. So long as school grants are on a calendar year basis, the existing practice 
of calculating them on the previous calendar year's pupil load be replaced by a 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

232 



Chapter 7: School Finance 

system of calculations that reflects school enrolment in the period beginning the first 
school day of September of the calendar year preceding that in which the grants 
are paid. (20:41) 

2. In the event that school finances are based on a fiscal year that coincides 
with that of the Province, the final school grant instalment be based on calculations 
of pupil load that reflect enrolment in September of the fiscal year in which the 
grants are paid. ( 20 : 42 ) 

3. Provincial treatment of the recognized extraordinary expenditure of school 
boards be amended so that the grant contribution to capital expenditure is applied 
at the time the expenditure is incurred. ( 20 : 47 ) 

4. In each municipality, the assessment of corporations that cannot under 
The Assessment Act direct their taxes for school support be segregated into a 
distinct allotment taxable by public and separate school boards in exact proportion 
to the relative pupil enrolment of the boards. (20:57) 

5. The elementary school mill rate levied in any given year against the cor- 
poration assessment allotment be the lower of the pubhc or separate school mill 
rate applicable where the property is situated. (20:58) 

6. The grants on behalf of municipal inspectors' salaries, evening courses, indus- 
trial arts and home economics instruction to non-resident pupils, library books, 
text-books, small secondary schools, and televised instruction be abolished in their 
present form and incorporated into the basic structure of the Ontario Foundation 
Tax Plan. (20:64) 

7. The existing grant for English, French and citizenship courses for new 
Canadians be abolished and that the Province relieve school boards of all costs 
arising from such courses. ( 20 : 65 ) 

8. The grants for free milk, trustees' council fees, and entering larger units 
of administration be terminated. (20:66) 

9. All future grants made by the Province for vocational school construction be 
integrated under the provisions of the Ontario Foundation Tax Plan. ( 20 : 69 ) 

10. The requisitioning powers of public school boards, separate school boards 
and boards of education be terminated, and that these boards levy their own taxes 
to be collected through bills issued for the purpose by municipalities and payable 
at times distinct from those at which municipal tax bills are payable. (20:79) 

PROVINCIAL GRANTS TO MUNICIPALITIES 

1. The Department of Highways prepare a scheme for classifying all roads in 
accordance with the user and local access benefits that flow from them, and assign 
each Ontario road and street to its appropriate class within five years of the 
publication of this Report. (21:24) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

233 



Recommendations 

2. Upon the completion of the road classification scheme, provincial road 
grants be based on total expenditure for each class of road within a municipality, 
the percentage of provincial aid to coincide with the percentage of user benefits 
assigned to each class of road. (21:24) 

3. Municipalities be given the right to appeal the classification of any road first 
to the Department of Highways, and then to the Ontario Municipal Board, which 
shall have the right to require further studies by the Department of Highways, and 
whose decision shall be final. (21 :25) 

4. Transitional measures accompany the introduction of the new road grants 
to help municipalities adjust to changes in provincial payments, such measures to 
be gradually phased out within five years of the introduction of the new grant 
system. (21:26) 

5. While the present county road equalization scheme remains in effect, no 
county be penalized for fiscal efforts that enable it to exceed the level of defined 
needs. (21:29) 

6. Development roads be designated by the Minister on the sole criterion of 
population sparsity, and a list of roads so designated be tabled annually in the 
Legislature. (21:33) 

7. Roads designated as development roads either be under provincial jurisdic- 
tion or, where population growth is likely, be provincially supported in such a 
manner that development status is phased out over a period of no more than ten 
years, at the end of which the road becomes an integral part of the municipal 
system. (21:34) 

8. A report on all special considerations giving rise to provincial road assis- 
tance to municipalities that cannot be geared to formulas be tabled in the Legis- 
lature, together with the dollar amounts of special provincial assistance involved. 
(21:35) 

9. Provincial grants in support of child welfare services be raised to a rate of 
80 per cent. (21:54) 

10. The level of provincial grants for the maintenance of inmates of munici- 
pal and approved private homes for the aged, and toward the maintenance of elderly 
persons in satisfactory alternative accommodation under municipal auspices, be 
increased to 80 per cent. (21 :57) 

1 1 . The Province provide all persons who become indigent with premium-free 
insurance under the Ontario Hospital Care Insurance Plan, without a waiting 
period. (21:59) 

12. The level of provincial grants towards homemakers' and nurses' services 
be increased to 80 per cent. (21 :60) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

234 



Chapter 7: Provincial Grants to Municipalities 

13. All dollar ceilings on existing provincial grants to conservation authorities 
be abolished. (21:66) 

14. Grants on behalf of weed, warble fly and plant disease control be abolished. 
(21:67) 

15. All health grants to municipalities for such specific purposes as school 
nursing inspection, school dental services and venereal disease clinics be terminated. 
(21:68) 

16. All municipalities providing full-time public heahh services satisfactory to 
the Department of Health, whether individually or through health units, be eligible 
for a provincial grant of 50 per cent of their public health expenditures. (21:72) 

17. The ceiling on the Department of Social and Family Services grant for the 
construction of low-rental housing for the aged be removed. (21:80) 

18. Upon the creation of any unit of regional government, the Province ter- 
minate all existing grants for recreation and community services to the municipalities 
within the region in favour of a Community Enrichment Grant payable to the 
regional government. (21:88) 

19. All recreation and community service grants now applicable to the Munici- 
pality of Metropolitan Toronto and its constituent municipalities be terminated 
forthwith in favour of a Community Enrichment Grant of $2 per capita payable to 
the Municipality of Metropolitan Toronto for apportionment between Metro and 
its constituent municipalities. (21:89) 

20. All provincial grants on behalf of the administration of justice be abolished. 
(21:91) 

2 1 . The grants payable to municipalities under provisions of The Fire Depart- 
ments Act and The Pohce Act be abolished. (21 :92) 

22. Provincial grants on behalf of municipal expenditure for wolf and fox 
bounties be abolished. (21 :93) 

23. The Municipal Unconditional Grants Act be repealed. (21:94) 

24. The Province pay to each tax-levying local authority a Basic Shelter 
Exemption Grant calculated annually by applying the authority's mill rate to the 
aggregate of the basic shelter exemptions applicable to residential and farm prop- 
erties within its boundaries. (21 :96) 

25. There be paid annually to all municipalities now receiving assistance under 
The Municipal Unconditional Grants Act a new unconditional grant providing, 
for the relief of all property taxpayers, an initial rate of $7.00 per capita for the first 
2,500 of population, an increase of 500 per capita for the next 2,500 of population, 
and an additional increase of 500 for each subsequent doubling of the population. 
(21:98) 

26. The unconditional grant be based on the population reported annually by 
the municipality for assessment purposes. (21 : 100) 

235 



Recommendations 

27. The Province, through Cabinet or an appropriate organ thereof, make a 
comprehensive annual review of provincial-local finance and give yearly approval 
to all grant programs . ( 2 1 : 1 04 ) 

28. In instituting a comprehensive annual review of provincial-local finance, 
the Province employ an expert staff to conduct continuing studies of the fiscal and 
economic condition of local governments. (21 : 105 ) 

29. The Province publish and table in the Legislature a report on its annual 
review of provincial-local finance, giving special emphasis to the fiscal and economic 
condition of local governments. (21 : 106) 

30. The Province, upon reviewing the five-year capital budgets of municipalities 
and prevailing economic conditions in Ontario, be authorized to meet all of the 
interest and other costs of temporary borrowing required to advance the initiation 
of municipal capital projects. (21 : 107) 

MUNICIPAL DEBT 

1 . Payment of provincial grants be scheduled throughout the year to help ensure 
an orderly flow of funds to meet the expenditure patterns of the recipient local 
authorities. (22:65) 

2. The present limit on municipal borrowing for current purposes be replaced 
by new provisions 

(a) setting new statutory limits based solely on the last adopted estimates of 
revenue for a full year; 

(b) permitting borrowing without prior approval within the limits of 15 
per cent of such revenues without notice, and of 25 per cent with a full 
explanation given to the Province within 30 days of the borrowing; 

(c) permitting borrowing in excess of 25 per cent of such revenues only with 
prior approval of the Province, and, if municipal councillors undertake 
such borrowing witliout provincial approval, applying the present penalty 
of disqualification from holding office for two years; and 

(d) empowering the Province to require municipalities that borrow in excess 
of 1 5 per cent of revenues to create and maintain a working-fund reserve 
through a contribution of up to 3 per cent of the current levy. (22:68) 

3. The maximum term of capital borrowing for each type of asset, based upon 
a realistic concept of its anticipated useful life, be set out in a schedule to a Regula- 
tion prescribed by The Municipal Act, in lieu of the present provisions of the Act 
fixing, or empowering the Ontario Municipal Board to fix, the term of capital debt. 
(22:91) 

4. Municipal corporations and each of their associated local boards be required 
to provide in their annual estimates amounts for capital purposes equal to the 
lesser of: 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

236 



Chapter 7: Municipal Debt 

(a) the amount of capital expenditures in their five-year capital budget that 
remains to be financed, and 

(b) a statutorily specified percentage of their estimated current expenditures. 
(22:107) 

5. A municipality or local board be permitted to make provision without limit 
for capital expenditures from revenue, provided that each such provision is clearly 
identified in the annual estimates of the body concerned at the time that they are 
adopted. (22:109) 

6. For the purposes of the Annual Report of Municipal Statistics and prepara- 
tion by council and assessment of municipal capital budget submissions prerequisite 
to provincial approval of borrowing, the capital debt of a municipality be deemed 

(a) to include the proportion of the debt for which it or its ratepayers are 
responsible that has been incurred by the Ontario Water Resources Com- 
mission, the Central Mortgage and Housing Corporation, a public or 
separate school board, or any similar local authority, commission or 
corporation, and 

(b) to exclude school debt to the extent that the debt charges on such debt 
are being met by provincial grant. (22:114) 

7. The provision for referendum on money by-laws be abolished and instead: 

(a) the provincial authority responsible for approving borrowings be required 
to give electors or persons qualified to vote on money by-laws an oppor- 
tunity to speak at a hearing prior to making a decision on an application; 

(b) municipal councils be required to give owners and other persons qualified 
to vote on money by-laws notice of, and an opportunity to speak at, any 
council meeting at which it is proposed to discuss expenditures that will 
be financed through borrowing beyond the year. (22: 126) 

8. (a) Every municipality be required each year to submit for provincial 

approval a capital budget for a period of at least five years; 

(b) upon approval of each capital budget or any amendment thereto, a 
municipality be permitted to effect without further approval the bor- 
rowing required for the proposals scheduled therein for commence- 
ment in the first year; and 

(c) upon effecting any borrowing so permitted, the municipality be 
required to notify the Province forthwith. (22: 128) 

9. The responsibility for giving all approvals of municipal borrowings required 
by statute be transferred from the Ontario Municipal Board to the Department of 
Municipal Affairs. (22:132) 

10. The effective interest rates on all forms of provincial lending to municipal- 
ities be reviewed regularly and maintained at a uniform level at a small margin 
above the ordinary market rate. ( 22 : 1 35 ) 

237 



Recommendations 

11. On changing the system of grants so as to pay school boards the pro- 
vincial share of capital costs instead of debt charges, the practice of lending through 
the Ontario Education Capital Aid Corporation be aboUshed. (22: 138) 

12. The Province periodically review federal borrowing arrangements open to 
Ontario municipalities with the object of either obtaining the elimination of the 
borrowing aspects from what are essentially conditional grant programs or opting 
out of the arrangements altogether. (12:141) 

13. Municipal corporations be required to carry out capital borrowing for 
separate school boards in the same manner as for other school boards. (22:144) 

14. The Department of Municipal Affairs give study to ways in which a broader 
and more active market might be developed for municipal debentures. (22:148) 

RECONCILING STRUCTURE WITH FINANCE 

1. The provincial government plan and schedule the detailed studies of 
boundaries, functions and forms of municipal organization needed to establish a 
comprehensive system of regional government within five years of the publication 
of this Report. (23:151) 

2. All regional governments be specifically charged with the functions of 
assessment, tax collection and capital borrowing on behalf of their constituent 
municipalities. (23:152) 

3. For as long as it proves impracticable to include a municipality or other 
reasonably settled community under tlie aegis of a governmental region, the 
Province undertake to make available appropriate regional services on a contractual 
basis. (23:153) 

4. In devising a scheme of regional government for Ontario, the Province take 
the necessary steps to integrate secondary education as a regular responsibility of 
the regional council. (23:165) 

INTRODUCTION TO VOLUME III 

1 . After due study, the form of the Public Accounts be revised so as to provide 
a comprehensive and more meaningful presentation of the revenues, expenditures 
and financial position of the provincial government and all its agencies. (24:13) 

2. In addition to the financial statements prepared by the Provincial Auditor, 
government revenues and expenditures be classified and presented on a national 
accounts basis. (24:14) 

PROVINCIAL REVENUE LEGISLATION: 
ADMINISTRATION AND APPEALS 

1 . The Government of Ontario establish a Department of Provincial Revenue 
responsible for the administration of all revenue statutes now administered by the 
Treasury Department under the Comptroller of Revenue. (25:7) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

238 



Chapter 7: Provincial Revenue Legislation 

2. A review be made of all revenues not at present collected by the Treasury 
Department with a view to consolidating revenue administration in the proposed 
Department of Provincial Revenue. (25:8) 

3. Statutory provision be made for the regular audit of agents who collect 
taxes, and that, except in cases of misrepresentation, fraud, or failure to remit tax 
collected, assessments for unpaid tax, together with interest, be limited to the two- 
year period before the audit, but that interest continue to nm thereafter until the 
taxes assessed are paid. (25: 11 ) 

4. All revenue statutes that provide for collection through a "billing" or 
"self-assessing" method include the requirement that any assessment by the Prov- 
ince be made "with all due dispatch" and that, in the absence of misrepresentation 
or fraud, interest imposed for the period prior to assessment or reassessment for 
any deficiency in tax be limited so that it does not extend beyond two years from 
the date that the return was filed, or required to be filed, whichever is later. (25:12) 

5. All revenue statutes prohibit, except for fraud or misrepresentation, any 
reassessment of a taxpayer after the expiry of six years from the date of the first 
or original assessment or after any shorter period of time specified in an applicable 
intergovernmental tax collection agreement. (25:13) 

6. Each revenue statute require that administrative officials, boards or com- 
missions state fully and clearly in writing to the person involved the authority or 
basis of their actions, together with the reasons by which they justify their actions, 
and that, where the privacy of the person is not affected, these reasons be published 
whenever this is deemed to be in the public interest. (25 : 1 4) 

7. The Government of Ontario publish from time to time Information 
Memoranda setting out administrative interpretation and procedures of its revenue 
statutes. (25:15) 

8. Fees for the issuance of collectors' and agents' licences be abolished and 
that no collector's or agent's licence be refused issuance or reissuance except upon 
failure to obtain a surety bond when required. (25:17) 

9. Provision be made in all revenue statutes for a right of refund where 
overpayment has been made, whether under mistake of fact or of law. (25:20) 

10. Appropriate statutory provision be made for interest to be paid in respect 
of aU overpayments. (25:21 ) 

1 1 . The penalty provisions in all revenue statutes provide that interest is to be 
payable in respect of overdue amounts at a uniform rate, in excess of the maximum 
rates ordinarily charged by banks, to be set periodically by the Lieutenant 
Governor in CouncU. (25:23) 

12. All revenue statutes provide a reasonable but effective penalty for delin- 
quent and late filing of returns, and grant to the minister responsible discretionary 
power to allow, where appropriate, extensions of time for the filing of tax, informa- 
tion and other returns. (25:24) 

239 



Recommendations 

1 3. All revenue statutes that provide for liens against the property of delinquent 
taxpayers give authority to the Minister responsible to issue certificates of no 
claim for lien, which shall be binding on the Crown in respect of a transaction in 
which the applicant is involved that is completed within a stated period. (25:26) 

14. A statutory Board of Review be constituted within the Treasury Department 
to hear objections to the assessment of taxes, the levying of other charges, and any 
other administrative acts performed under authority of the revenue statutes. 
(25:30) 

15. On the recommendation of the Chairman of the Board of Review, the 
government publish from time to time those decisions of the Board that are matters 
of general public interest. (25:32) 

16. Each revenue statute provide a right of appeal to the High Court of Justice 
for Ontario from any assessment, levy, administrative act or review upon obtain- 
ing leave of the Court, and from any decision of the Board of Review as a matter 
of right. (25:33) 

17. The Chief Justice of the High Court be requested to designate one or more 
of the members of his Court as a judge or judges in revenue appeals. (25:35) 

18. No costs be charged on any hearing before the proposed Board of Review. 
(25:36) 

19. Statutory direction be given to the Supreme Court of Ontario to award 
costs as between a solicitor and his client to the appellant and against the Crown 
unless the Court considers that the appeal is frivolous and vexatious or that the 
appellant had previously withheld pertinent evidence. (25 :37) 

20. All revenue statutes provide that security for costs, if any, be at the dis- 
cretion of the Court. (25 :38) 

21. Wherever a revenue statute imposes a time limit within which to take a 
step in the appeal procedure, such limit be extended on application to the Supreme 
Court of Ontario upon such terms as the Court thinks equitable under the circum- 
stances. (25:39) 

22. A Select Committee of the Legislature on Civil Rights in Revenue Legisla- 
tion be appointed to make a periodic review of all revenue statutes of Ontario for 
the purpose of ascertaining whether or not a constant and uniform policy respecting 
the rights and duties of citizens is being maintained. (25 :41 ) 

THE PERSONAL INCOME TAX 

1. Ontario press the federal government to consult the provinces on proposals 
for changes in the structure of the personal income tax, to ensure the fullest possible 
measure of agreement. (26:126) 

2. Ontario press the federal government for consultation with the provinces in 
respect of all questions relating to the sufficiency of uniformity between the federal 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

240 



Chapter 7: The Personal Income Tax 

and provincial legislation, and to the adequacy of the authority provided to enable 
federal collection of provincial tax and administration of provincial legislation. 
(26:128) 

3. In the negotiation of any future fiscal arrangements with the federal govern- 
ment, Ontario press for a provincial sharing in the yield from the non-resident 
withholding tax computed at the same rate as the rate of federal abatement for 
corporation income tax. (26:130) 

4. In the negotiation of any future fiscal arrangements with the federal govern- 
ment, Ontario press for provincial sharing in the yield from the taxes imposed upon 
corporations in lieu of taxes on corporate distributions to shareholders, such 
provincial sharing to be in the same proportion as the personal income tax abate- 
ment and to be allocated among the provinces in the same proportion as the 
income of each corporation liable for such a tax is allocated for purposes of the 
corporation income tax abatement. (26:133) 

5. Ontario press for amendments in the provisions of the tax collection agree- 
ment that would permit it to notify the federal government of its intention to 
change its rate of taxation for a year at a date later than October 1 of the preceding 
year, the date now required. (26:136) 

6. Section 3(4)(a) of The Income Tax Act of Ontario be amended 

(a) to provide that the "tax payable under the Federal Act" for purposes of 
calculating the Ontario income tax be the amount as defined at present 
plus the amount of any credit for provincial logging tax deducted under 
Section 41 A of the federal Act, and 

(b) to permit an individual to deduct from his Ontario income tax an amount 
equal to one-third of the tax payable by him under The Logging Tax Act. 
(26:162) 

7. The tax credit for foreign tax under The Income Tax Act of Ontario be 
determined by reference to income "from sources in" a country other than Canada, 
rather than income "earned in" such a country. (26:164) 

8. The amount to which the tax credit for foreign tax is limited under para- 
graph (b) of Section 3(6) of the Act be a proportion of the tax payable under the 
Act, rather than a proportion of the abatement for provincial tax under the federal 
Act. (26:165) 

9. A taxpayer who has elected to average his income under the federal Income 
Tax Act be similarly treated under The Income Tax Act of Ontario even if he 
resided in another province or earned business income outside Ontario during the 
averaging period; but the saving in Ontario tax resulting from the election to 
average, be limited to the proportion of the amount otherwise applicable that his 
income attributable to Ontario is of his total income for the five-year period. 
(26:168) 

10. Provision be made in The Income Tax Act of Ontario requiring that a 
reassessment be made if the amount of federal tax for any year is changed by a 

241 



Recommendations 

decision of the Minister following the filing of a notice of objection, or by a decision 
of the Tax Appeal Board or a Court. (26: 170) 

THE CORPORATIONS TAX 

1 . Ontario seek an agreement with the federal government for the collection of 
corporate income taxes under which: 

(a) a copy of each federal corporate tax return of a corporation incorporated 
in Ontario, having a permanent establishment in Ontario or carrying on 
business in Ontario, and all notices of assessment thereof, would be made 
available to the Treasurer of Ontario, either by the federal government 
or by the taxpayer's filing, and 

(b) the federal authorities would undertake 

(i) upon written request of the Treasurer of Ontario to conduct an audit 

of an Ontario taxpayer's return and advise the Treasurer of the results, 

and 

(ii) to consult regularly with the Treasurer of Ontario on the desirability 

of any proposed changes in the structure of the tax or its yield to the 

province. (27:97) 

2. In the event that Ontario does not enter into a corporate tax collection 
agreement with the federal government. The Corporations Tax Act be amended to 
provide that: 

(a) every corporation shall pay a tax at the rate specified, computed on its 
taxable income earned in the year in Ontario as determined under the 
provisions of the Income Tax Act (Canada) and the Regulations there- 
under, except as otherwise specifically provided in The Corporations Tax 
Act; 

(b) all discretions exercised by the Minister of National Revenue under the 
Income Tax Act (Canada) shall be deemed to have been exercised by the 
Treasurer of Ontario unless the Treasurer exercises a discretion, when the 
determination made by the Treasurer shall prevail; 

(c) all elections made by a taxpayer under the Income Tax Act (Canada) 
shall be deemed to have been made for purposes of The Corporations Tax 
Act unless otherwise specifically provided in that Act; and 

(d) every corporation required to file a return under The Corporations Act 

(Ontario) shall file with the Treasurer each year a copy of its return 
filed under the Income Tax Act (Canada), and a copy of every election, 
pension plan or other document filed with the Department of National 
Revenue under any provision of the Income Tax Act (Canada). (27: 111) 

3. The present capital and place-of-business taxes under The Corporations 
Tax Act be replaced by an annual corporate business tax of fixed amount payable, 
without any reduction for corporate income taxes, by every corporation now liable 
for the present taxes; and that the amount of the tax be fixed at the rate or rates 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

242 



Chapter 7: The Corporations Tax 

needed initially to yield approximately the same revenue as derived from the present 
taxes. (27:125) 

4. Upon entering into any agreement with the federal government for the 
federal collection 6f Ontario's corporate income taxes, the proposed annual 
corporate business tax be collected, together with the annual filing fee under The 
Corporations Information Act, by the Department of the Provincial Secretary. 
(27:125) 

5. The special taxes under The Corporations Tax Act applicable to banks, rail- 
ways, telegraph companies, express companies, sleeping car, parlour car and dining 
car companies be repealed, and such corporations be subject to the recommended 
annual corporate business tax. (27:133) 

6. The provisions of the Ontario Corporations Tax Act relating to searches 
and seizures be amended to provide safeguards to protect the rights of a person 
whose property has been seized by giving him the right 

(a) to apply to a court for a review of the action taken, 

(b) to inspect and list the seized documents, and 

(c) to obtain the return of seized documents upon the substitution, where 
practical, of properly identified, clear photo copies of such documents. 
(27:141) 

7. Provisions be made in The Corporations Tax Act for a procedure to be 
followed when solicitor-client privilege is claimed in respect of documents that are 
demanded or seized. (27: 142) 

8. The Corporations Tax Act provide that a prosecution for an offence under 
the Act must be commenced within five years from the day on which the matter 
of the information or complaint arose or within one year from the day on which 
an oflicer of the Branch first had sufficient knowledge to justify a prosecution for 
the offence. (27:144) 

THE TAXATION OF WEALTH: DEATH AND GIFT TAXES 

1. Except where a deceased was domiciled in another province of Canada at 
death, a beneficiary of the deceased who was ordinarily resident in Ontario through- 
out the twelve months preceding his death be made subject to Ontario succession 
duty in the same circumstances that he would be subject to duty if the deceased 
were domiciled in Ontario at death. (28:64) 

2. The Government of Ontario make representations to the federal government 
to change its situs rules to conform with those in force in the provinces, failing 
which the Government of Ontario request a constitutional amendment allowing the 
Province to adopt situs rules identical with those contained from time to time in 
the Estate Tax Act. ( 28 : 69 ) 

3. Tax credits be allowed from Ontario succession duty for taxes paid to 
another province of Canada or a jurisdiction outside Canada in respect of property 

243 



Recommendations 

that under Ontario's situs rules was situated therein, and for 75 % of federal estate 
tax in respect of property that under Ontario's situs rules was situated in a province 
that does not impose succession duty, (28:70) 

4. Ontario take appropriate steps to eliminate double taxation resulting from 
differing interpretations of the common law situs rules that are made in other 
jurisdictions. (28:71) 

5. The Succession Duty Act be amended so as to make it clear that any 
property in which the deceased had a life interest but which he did not own is not 
property passing on death. (28:72) 

6. Upon the implementation of our recommendation for the imposition of a 
gift tax, Ontario adopt the test of "beneficial interest accruing by survivorship" 
as the method of valuing joint property regardless of source of contribution. 
(28:79) 

7. Articles of ordinary household furnishings which pass to the surviving 
spouse or, where there is no spouse, to a qualified dependant with whom the 
deceased was living at the time of his death, be exempt from duty. (28:80) 

8. For the purposes of The Succession Duty Act, property held in community 
that was contributed by the deceased be deemed to be property passing on death, 
and a debt created by a marriage contract be disallowed as a deduction in deter- 
mining the aggregate value of an estate. (28:82) 

9. Life interests be valued according to a modern standard mortality table, 
and at a compound interest rate that more closely reflects current rates of 
interest. (28:84) 

10. The provisions of The Succession Duty Act permitting the life tenant 
of an estate to pay duties on an instalment basis be continued but 

(a) the amount of each instalment of duty be computed, having regard to his 
expectancy of life according to the standard of mortality prescribed for 
the purpose and not to any fixed maximum number of years, and 

(b) the amount be payable in equal annual instalments of duty and compound 
interest computed at the same rate as is used for determining the value 
of the life interest. (28:88) 

1 1 . Where a life tenant elects to pay his duties on an instalment basis, the 
instalment payments be payable for the duration of his Ufe tenancy whether this be 
longer or shorter than the Ufe expectancy upon which the instalments were com- 
puted. (28:89) 

12. Where the life tenant has chosen to pay his duties by instalments and the 
duties payable by a remainderman have been computed and settled as at the date of 
death of the deceased, the remainderman's duties be recomputed when he falls into 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

244 



Chapter 7: The Taxation of Wealth: Death and Gift Taxes 

possession, having regard to the actual duration of the life tenancy, and a refund 
be made or additional duties collected accordingly. (28:90) 

13. The provisions of The Succession Duty Act permitting the life tenant of an 
estate to pay his duties within six months of the death of the deceased be con- 
tinued, but 

(a) no interest be allowed for paying at that time rather than by instalments, 
and 

(b) the duties of the life tenant and those of any remainderman that were 
settled as of the death of the deceased not be recomputed upon the 
termination of the life interest. (28:91) 

14. The Succession Duty Act provide the following rules for the computation 
and payment of duties where one or more beneficiaries have an interest in expec- 
tancy in the income of an estate that would fall into possession upon the decease 
of a preceding life tenant: 

(a) If the primary life tenant elects to pay his duties by instalments, the 
duties be computed on the basis of the life expectancy of himself and those 
beneficiaries that have an interest in expectancy in the income that would 
be enjoyed after the death of a predecessor life tenant; and such instal- 
ments be paid by him for his lifetime and after his death by each succeed- 
ing life tenant for the period of his enjoyment; 

(b) If the primary life tenant chooses not to pay his duties by instalments, 
the duties on an interest in expectancy be payable, 

(i) within six months of the death of the deceased, 

(ii) within six months of the date he commenced to enjoy his interest 
in expectancy, or 

(iii) by equal annual monthly instalments of principal and interest pay- 
able for his lifetime and computed according to his life expectancy 
at the date he commences to enjoy his interest in expectancy. 
as the beneficiary may elect; 

(c) If the primary life tenant elects to pay his duties by instahnents, the 
remainderman's duties be recomputed when he falls into possession, having 
regard to the actual duration of the life tenancies, and a refund be made 
or additional duties collected accordingly; and 

(d) If a succeeding life tenant elects to pay his duties by instalments, the 
remainderman's duties be recomputed when he falls into possession, 
having regard to a duration of the life tenancies deemed to be the life 
expectancy of the primary life tenant plus the number of years that the 
tenancy was enjoyed by the succeeding life tenant. (28:93) 

15. An annuity, pension or similar income contract be valued according to a 
modern standard mortality table and at a compound interest rate that more 
closely reflects current rates of interest. (28:96) 

245 



Recommendations 

16. The provisions of The Succession Duty Act perniitting the beneficiary of 
an annuity, pension or similar income contract to pay duties on an instalment 
basis be continued, but that 

(a) the computation of the equal annual instalments of duty include com- 
pound interest at the same rate per annum as is used for determining the 
value of the contract, 

(b) the amount of each instalment of duty in respect of a contract providing 
payments for life be computed having regard to the beneficiary's expect- 
ancy of life and not to any fixed maximum number of years, 

(c) the amount of each instalment of duty in respect of a contract providing 
payments for a term certain be computed having regard to that term and 
not to any fixed maximum number of years, and 

(d) such instalments be payable for each year during which payments are 
received under the contract and, where the contract provides payments 
for life, no further amounts of duty be payable upon termination of the 
contract before the beneficiary reaches the expectancy of life upon which 
the duty was computed. (28:97) 

17. All payments made voluntarily on or after the death of a deceased 
employee in recognition of services rendered by him be dutiable, with provision 
for payment by instalments under those circumstances where instalments would be 
permitted according to our recommendation 28: 16 concerning annuities. (28:99) 

18. Upon the implementation of our recommendation for the imposition of a 
gift tax, the proceeds from policies of life insurance payable as a result of the 
death of the deceased be deemed to be property passing on death only to the 
extent that the policies were owned by the deceased. (28:102) 

19. For purposes of succession duty, statutory recognition be given to the 
present practice of making allowance for partial consideration in valuing property 
passing or deemed to pass on the death of the deceased. (28: 103) 

20. The Succession Duty Act be changed to exempt absolute dispositions 
made more than three years before the death of the deceased rather than five years, 
as at present. (28:107) 

21. The affidavits of executors and beneficiaries be required to include only 
those absolute dispositions made within three years of death of the deceased and 
dispositions not to the exclusion of the donor, whenever made. (28 : 108) 

22. The amount of any gift tax payable by the deceased in his lifetime be 
dutiable to the extent that it is recoverable as a deduction from federal estate tax 
or provincial succession duties or by way of refund of gift tax. (28:109) 

23. A disposition be valued as at the date of the disposition. (28 : 1 10) 

24. The Act require that as a general principle all dutiable property be valued 
at its fair market value. (28 : 1 1 1 ) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

246 



Chapter 7: The Tax.\tion of Wealth: Death and Gift Taxes 

25. The executor or administrator of an estate be given statutory authority to 
elect, on behalf of the beneficiaries collectively, that dutiable property and transmis- 
sions be valued as at 150 days after the date of death, except that assets sold before 
that date to persons with whom the executor was dealing at arm's length be valued 
at the amounts realized on their sale. (28:115) 

26. Appropriate provision be made for adjusting or refunding duties when a 
liability, including a liability that was contingent at the death of the deceased, 
becomes payable after the duties have been settled, provided the liability or liabili- 
ties so payable exceed $1,000. (28: 121 ) 

27. All expenses in connection with the death and funeral of the deceased that 
are paid from the estate be treated as deductions in computing aggregate net value. 
(28:122) 

28. Amounts paid, not exceeding the standard tariff of the applicable county 
law association, for legal services in preparing application for and obtaining pro- 
bate or letters of administration, preparing succession duty and estate tax returns, 
and preparing notarial copies of letters probate or letters of administration, be 
allowed as deductions. (28 : 123) 

29. (a) Dispositions to bona fide religious, charitable and educational organi- 

zations made within three years of the death of the deceased be 
included in the aggregate net value of an estate; 

(b) bequests to bona fide religious, charitable and educational organiza- 
tions not be deductible in computing the aggregate net value of an 
estate; and 

(c) such dispositions and bequests be exempt from duties to the extent 
of the amounts actually paid or payable to such organizations outside 
Canada as may be prescribed by the Lieutenant Governor in Council 
and to all such organizations in Canada. (28:127) 

30. All the present provisions in The Succession Duty Act for giving prefer- 
ential treatment to relatives and dependants of the deceased be repealed. (28: 133) 

31. For succession duty purposes, the widow or widower of the deceased be 
allowed an exemption of $75,000. (28: 137) 

32. For succession duty purposes, in the absence of an exemption to a spouse, 
the same exemption as for a spouse be given to a person who, during the five years 
prior to the death of the deceased, resided with him, was dependent upon him and 
managed his household without remuneration. (28:138) 

33. For purposes of succession duty, a child of the deceased under twenty-one 
years of age at the death of the deceased be allowed an exemption of $25,000, and 
that an older child of the deceased be allowed an exemption of 

$22,000 if 21 years of age, 
19,000if 22yearsof age, 
16,000if 23yearsof age, 
13,000 if 24 years of age, and 
10,000 if 25 years of age or more. (28: 141 ) 

247 



Recommendations 

34. For purposes of succession duty, a person be allowed an exemption of 
$25,000, if he was at the death of the deceased wholly dependent upon the 
deceased for support by reason of mental or physical infirmity, and in respect of 
whom the deceased was entitled to a dependant's exemption under the Income Tax 
Act (Canada) for the taxation year ending with his death and the taxation year 
preceding that year. (28:142) 

35. For purposes of succession duty, a child of the deceased who has no 
surviving parent and who had been wholly dependent upon the deceased for sup- 
port, and in resf>ect of whom the deceased was entitled to a deduction for an 
exemption under the Income Tax Act (Canada) for the taxation year ending with 
his death and the taxation year preceding that year, or would have been so entitled 
if the dependant had then been born, be allowed an additional exemption equal in 
amount to his normal exemption, provided that if the aggregate of all such addi- 
tional exemptions to all such children of the deceased would otherwise exceed 
$75,000, the additional exemption for each such child be reduced proportionately 
so that the additional exemptions aggregate $75,000. (28: 143) 

36. For purposes of succession duty, a grandchild whose deceased parent was 
a child of the deceased be allowed the greater of any other exemption to which he 
may be entitled and the exemption that would have been allowed to his parent had 
the parent been living and sharing in the estate of the deceased, provided that if 
there are more than one such grandchildren the exemption that would have been 
allowed to the parent be divided among all such grandchildren. (28:144) 

37. For purposes of succession duty, the spouse of the deceased be allowed an 
additional exemption equal to the aggregate of the unused portions of the exemp- 
tions to which the spouse's dependent children were entitled. (28:145) 

38. For purposes of succession duty, the aggregate of the exemptions allowed 
to a beneficiary be deductible in computing the net taxable value of the benefits 
received by him but not in computing the aggregate net value of the estate. 
(28:147) 

39. For purposes of succession duty, all of the present exemptions in respect 
of small amounts of property passing and small transmissions and dispositions be 
abolished and there be enacted an exemption for dispositions made in any one 
year to any one person that do not exceed $1,000. (28: 148) 

40. For purposes of succession duty, 

(a) a deduction of $6,000, be allowed in computing the aggregate net value 
of each estate, being an amount equal to the aggregate deduction allow- 
able for gift tax in the three years prior to the death of the deceased; 

(b) a deduction be allowed in computing the net taxable value on which a 
beneficiary is liable for duties of that portion of $6,000 that is reasonably 
apportionable to him; and 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

248 



Chapter 7: The Taxation of Wealth: Death and Gift Taxes 

(c) each beneficiary be given a tax credit equal to the amount of gift tax paid 
or payable by the deceased with respect to gifts made to him by the 
deceased that are included in the aggregate value of the estate of the 
deceased. (28:151) 

41. The duties payable by a beneficiary be computed as follows: 

(a) determine a basic duty by applying a schedule of rates to the aggregate 
net value of the estate; 

(b) determine the beneficiary's rate computed as the average rate of basic 
duty as a percentage of the aggregate net value of the estate, or 50 per 
cent, whichever is the lesser; 

(c) apply the beneficiary's rate to the net taxable value of the property passing 
to the beneficiary; and 

(d) in the event that the federal estate tax is continued, reduce the resultant 
amount of Ontario duties by a percentage equivalent to the unabated 
portion of the federal estate tax. (28 : 166) 

42. A schedule of rates of basic duty be adopted with rates that are pro- 
gressively higher for each successive additional portion of aggregate net value 
ranging from 15 per cent to 55 per cent. (28 : 166) 

43. The present provisions of The Succession Duty Act relating to the filing 
of affidavits be amended 

(a) to require a beneficiary to include in his affidavit only particulars of all 
dispositions made to him and property passing to him or to his benefit 
other than under the will of the deceased or under The Devolution of 
Estates Act; 

(b) to designate the affidavit of the executor or administrator the "Succession 
Duty Return"; and 

(c) to require the affidavits of the executor or administrator and the bene- 
ficiaries to be filed within six months of the death of the deceased. 
(28:170) 

44. The executor or administrator of an estate be given specific statutory 
power to sell all or part of the property included in any bequest to a beneficiary if 
the beneficiary is unable or unwilling to pay the duties on his bequest. (28:176) 

45. The right of the beneficiary of an interest in expectancy to defer payment 
of duties until he falls into possession be continued. (28: 178) 

46. The prohibition against opening or permitting the opening of a safety 
deposit box or other repository be restricted to one that belongs to or stands in the 
name of the deceased or his spouse, either alone or jointly with another person, 
or to which either one of them had access; and a person who permits the opening 
of such box or repository without knowledge of the death of the deceased be not 
liable for prosecution. (28:183) 

249 



Recommendations 

47. An officer of each branch of a financial institution that leases safety deposit 
boxes be appointed an agent of the Treasurer for the purpose of examining and 
listing the contents of any box where the Treasurer's consent to its release is 
required. (28:184) 

48. The Treasurer be required to issue within a specified reasonable time 
consents to transfer assets when either the duties have been paid or adequate 
security for payment has been lodged. (28 : 185 ) 

49. Penalties not apply to persons who, with reasonable care, have dealt with 
assets of the deceased under circumstances in which they were unaware of the 
death or of the beneficial interest of the deceased in such assets. (28 : 1 86) 

50. The statutory authority to allow postponement of duty given to the Lieu- 
tenant Governor in Council under Section 23 of The Succession Duty Act be 
transferred to the Treasurer of Ontario. (28 : 196) 

51. If the government finds that special succession duty treatment is desirable 
in the interests of woodland conservation, executors and administrators of estates 
be given the right to elect under specified conditions to pay the duty on timber, 
based on its value at the time of death, as it is cut or sold. (28: 198) 

52. The statute provide that the Treasurer be required to issue with due dis- 
patch a notice of assessment of duty to each person who benefits from an estate 
or from dispositions by the deceased, whether duty is payable by him or not, and 
that a duplicate of each such notice be issued to the executor or administrator of 
the estate. (28:203) 

53. A beneficiary subject to duties on Ontario property and dispositions from 
a deceased who was neither domiciled nor resident in Ontario be assessed duties 
on the aggregate net value thereof without reduction for exemptions, unless all 
such beneficiaries and the executor or administrator of the estate elect that duties be 
computed in the ordinary manner, in which event the exemptions for each bene- 
ficiary be the proportion of the normal exemptions that the aggregate net value of 
property and dispositions dutiable to him in Ontario is of the aggregate net value 
of all property and dispositions by which he benefited. (28:208) 

54. All dividends having an Ontario situs declared but not paid prior to the 
death of a deceased who was neither domiciled nor resident in Ontario be exempt 
from succession duties. ( 28 : 209 ) 

55. Ontario introduce a gift tax applicable to individuals and personal corpora- 
tions with the same rate structure as recommended for succession duties, and that: 

(a) a gift to any government in Canada be exempt; 

(b) gifts to recognized charitable, educational or religious organizations be 
exempt; 

(c) gifts made by an individual in the year to any one person not exceeding 
$1,000 in the aggregate be exempt; 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

250 



Chapter 7: The Taxation of Wealth: Death and Gift Taxes 

(d) a general exemption of $2,000 be allowed each year to an individual with 
respect to otherwise taxable gifts; 

(e) gifts used directly or indirectly to pay a premium on any contract of 
insurance on the life of the donor be excepted from the exemptions in (c) 
or (d) above; and 

(f) gifts that would be exempt under (d) and gifts exceeding $1,000 in the 
year to any one organization that would be exempt under (b) be included 
in the aggregate value for purposes of determining the rate of taxation, 
but be excluded from the net taxable value subject to the tax. (28:222) 

56. Ontario make representations to the Government of Canada to withdraw 
from the death tax field on the understanding that Ontario succession duty returns 
and files would be made available to federal officials for income tax purposes. 

(28:225) 

THE RETAIL SALES TAX 

1. All food products for human consumption, excluding prepared meals and 
alcoholic beverages, be exempt from retail sales tax. (29:53) 

2. Each commercially prepared meal sold for more than $1.50 be taxed 
regardless of the place where it is consumed. (29:60) 

3. The present exemptions from sales tax be reviewed and revised so that: 

(a) all purchases of machinery, equipment and other goods that enter into the 
direct costs of manufacturing and producing will be exempt; and 

(b) purchases of all goods entering into indirect costs of manufacturing and 
producing will be taxable. (29:67) 

4. The present provision exempting all sales of less than 210 be amended to 
exempt sales of less than 110. (29:73) 

5. The present exemption from sales tax for draft beer sold by the glass on 
licensed premises be repealed. (29:74) 

6. All exemptions of tangible personal property purchased by or for schools, 
school boards, universities, hospitals, nurses' residences, religious institutions, 
Ontario municipalities and publicly supported galleries and museums, and the 
exemption for buses purchased for public transportation within a municipality be 
repealed. (29:78) 

7. The exemption of books, magazines, periodicals and religious and educa- 
tional publications be repealed. (29:79) 

8. The exemption of students' supplies be repealed. (29:80) 

9. The Retail Sales Tax Act be amended so as to impose tax on an appropriate 
list of services other than 

(a) educational, medical, dental, health, funeral and transportation services, 

(b) services the dominant use of which is made by business firms, 

251 



Recommendations 

(c) repair and maintenance of real property, and 

(d) services that cannot be conveniently taxed. (29:93) 

10. The Ontario retail sales tax audit staff be enlarged sufficiently to ensure 
an adequate enforcement program. (29:105) 

1 1 . Ontario discontinue the payment of remuneration to vendors for the collec- 
tion of the retail sales tax. (29:108) 

12. The Province be made a preferred creditor rather than a secured creditor 
with respect to sales taxes not collected by a bankrupt vendor but for which he 
has been assessed. (29:109) 

13. The provision in The Retail Sales Tax Act giving the Comptroller authority 
to determine the fair value of taxable property be repealed. (29:1 10) 

14. The definition of "use" in The Retail Sales Tax Act be changed to exclude 
storage of goods that are held for resale. (29:1 12) 

15. The deposit or bond of 3 per cent of the total contract price required of 
non-resident contractors carrying out a contract in Ontario be revised to relate 
more closely to the proportion of construction contract prices ordinarily represented 
by sales tax. (29:113) 

16. The definition of non-resident contractors be changed to exclude corpora- 
tions that are incorporated in Ontario. (29:1 14) 

17. Rentals and tangible personal property be taxable except on the amounts 
provided therein for 

(a) property and services on which the lessor was subject to tax, and 

(b) interest and other financing costs. (29: 115) 

18. The present exemption for gifts be enlarged to exempt from retail sales 
tax all gifts from one individual to another, including those made by way of 
transactions for inadequate consideration. (29:116) 

19. The Government of Ontario negotiate with the other provincial govern- 
ments to establish more effective means of collecting sales tax on goods sold in 
one province that are delivered to customers in another province. (29:120) 

20. The Government of Ontario, together with the other provincial govern- 
ments, negotiate with the federal government to obtain its agreement to collect on 
behalf of the provinces provincial sales taxes upon the importation of goods into 
Canada. (29:121) 

MOTOR VEHICLE REVENUES 

1. The remuneration for collecting fuel taxes paid to "collectors" under The 
Gasoline Tax Act and to "registrants" under The Motor Vehicle Fuel Tax Act be 
gradually eliminated over the next five years. (30:15) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

252 



Chapter 7: Motor Vehicle Revenues 

2. The retail sales tax be levied on gasoline and other motive fuel, on a price 
base that includes any fuel tax that is applicable. (30:21) 

3. Any fuel tax paid on motive fuel for any use other than that of propelling 
a vehicle on a public road be wholly refundable, and any sales tax thereon 

(a) be wholly refundable when paid by farmers or commercial fishermen, and 

(b) be refundable to the extent based on the refundable amount of fuel tax 
when paid by others. (30:27) 

4. The licensing fees for all commercial vehicles owned by municipalities, 
school boards, local boards and commissions be set at the same levels as the fees 
for privately owned vehicles. (30:41) 

5. The fee for licensing trolley buses be raised from the present flat $2 to at 
least the standard rates that apply to motor buses. (30:44) 

6. The fees charged for operating licences under The Public Commercial 
Vehicles Act and The Public Vehicles Act be set at a level such that the revenue 
derived will approximate the costs incurred in administering these two Acts. 
(30:53) 

7. The fees for the various categories of garage licences be reduced to a level 
such that the revenue derived will approximate the cost of licensing. (30:58) 

8. The transfer fee charged to purchasers of motor vehicles be reduced to a 
level such that the revenue derived will approximate the cost of registering the 
transfers. (30:59) 

9. Toll charges for the use of the Burlington and the Garden City Skyways be 
eliminated. (30:79) 

10. The licence fee for passenger vehicles, dual-purpose vehicles and trucks 
weighing less than 2Vi tons gross weight be set at a flat rate of $25, and the licence 
fee for trucks from IVz to 3 tons gross weight be raised to $30. (30:107) 

OTHER PROVINCIAL TAXES 

1. The Hospitals Tax Act be repealed and all expenditures on amusements 
and entertainment be taxable under the retail sales tax. (31:32) 

2. The tax, on a person holding a horse racing meeting, of $1 for each day of 
racing, be abolished. (31:47) 

3. The security transfer tax be abolished, and commissions charged by security 
dealers and brokers for their services be taxable under the retail sales tax; and for 
this purpose, where no commission is charged by a security dealer or broker, a 
reasonable commission be deemed to have been charged. (31:61) 

4. The land transfer tax be abolished and that commissions charged for services 
by real estate agents be made subject to the retail sales tax. (31:71) 

5. The tax on fire insurance premiums imposed under The Fire Marshals Act 
be abolished. (31:84) 

253 



Recommendations 
REVENUE FROM MINES 

1. (a) The profits tax under The Mining Tax Act be revised so as to impose 

on the profits of a mine derived from both mining and processing 
operations a two-stage tax consisting of 
(i) a flat-rate Mines Services Tax from which payments to designated 

mining municipaUties and other public service expenditures related 

to mining would be financed, and 
(ii) a flat-rate Mines Profits Tax which would yield an appropriate 

return for the use of Ontario's mining resources. 

(b) The profits subject to the Mines Profits Tax be the profits subject to the 
Mines Services Tax less the Mines Services Tax and the deductions 
hereinafter recommended by us. (32:61) 

2. No basic exemption be allowed with respect to the profits subject to either 
the proposed Mines Services Tax or the Mines Profits Tax. (32:64) 

3. Payments to gold mines under the Emergency Gold Mining Assistance Act 
be excluded from the computation of profits subject to the proposed Mines Profits 
Tax. (32:71) 

4. The provision permitting the Minister of Mines to remit the mining tax on 
iron ore smelted in Canada be repealed. (32:73) 

5. (a) The base for computing the investment allowance, deductible from 

profits subject to the proposed Mines Profits Tax, 
(i) include the gross investment of the mine operator at the end of the 
taxation year in all assets acquired for the purpose of the mining 
and processing operations, as well as the unamortized portion of 
exploration and development expenditures, and 
(ii) exclude the investment in mining lands or any interest in mining 
lands, 
(b) For the purpose of computing the allowance, the investment of the 
mine operator in unamortized exploration and development expenditures 
and in depreciable property be the cost thereof less amounts deducted, 
deductible or deemed to have been deducted by way of amortization or 
depreciation in the taxation year and in prior taxation years. (32:81) 

6. So long as Ontario continues to exempt processing profits from mining tax, 

(a) the general processing allowance be determined in accordance with pro- 
visions in The Mining Tax Act or Regulations thereunder, and that the 
formula be revised so as to compute the allowance on the written-down 
value rather than the original cost of assets used for processing, without 
any minimum or maximum limitation of the allowance based on combined 
mining and processing profits, and 

(b) the special processing allowance to nickel mines be abolished. (32:90) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

254 



Chapter 7: Revenue From Mines 

7. The profits subject to the proposed Mines Services and Mines Profits Taxes 
be reduced by depreciation allowances on depreciable assets employed in mining 
and processing at the rates now set out in the Act, provided that where it can be 
demonstrated that the life of the mine is less than 6% years, the Lieutenant 
Governor in Council may, upon the recommendation of the Minister of Mines, 
allow a greater rate based upon the expected life of the mine. (32:95) 

8. All expenses allowable for income tax purposes, with the exception of 
interest and financing costs, royalties and rentals in respect of mining lands or rights 
other than those payable to the Crown, municipal property taxes and allowances 
for depletion of a mine, be allowable in computing profits of a corporation subject 
to the proposed Mines Services and Mines Profits Taxes, in whole if the corpora- 
tion had no other business activity or source of income, and to the extent reasonably 
apportionable to the business of mining and processing if it did have another 
business activity or source of income. (32:96) 

9. The profit subject to the proposed Mines Profits Tax be reduced by the 
amount of taxes paid by the mine operator to all municipalities and school boards 
on non-exempt property used directly or indirectly for the purposes of deriving 
income from mining or processing. (32:99) 

10. (a) The profits subject to the proposed Mines Profits Tax be mandatorily 

reduced by the amount of expenditure on exploration in Ontario 
incurred in the year, and incurred in previous years but not deductible in 
such years, but that such deduction be limited to the amount of profits 
otherwise subject to the tax; 

(b) the profits subject to both the proposed Mines Services Tax and the 
proposed Mines Profits Tax be reduced by an annual allowance of 10 
per cent of expenditures on mine development in Ontario, which, at 
the option of the mine operator, may be increased to a rate not exceed- 
ing 20 per cent, provided that where it can be demonstrated that the 
life of a mine is less than five years, the Lieutenant Governor in 
Council may upon the recommendation of the Minister of Mines allow 
a greater rate based upon the expected life of the mine; and 

(c) the above allowances be deductible from the combined profits of all 
mines operated by the taxpayer in Ontario, but that the allowance for 
mine development expenditures not commence until the year that the 
mine for which the expenditures are incurred comes into production in 
reasonable commercial quantities. (32:114) 

1 1 . For the purpose of computing the deductions from profits for exploration 
and development, and the investment allowance, a mine operator who has incurred 
exploration expenditures and expenditures for the development of a mine that had 
not come into production in reasonable commercial quantities at the effective date 
of the revised system of taxation which we recommend, or that had come into 

255 



Recommendations 

production in the four-year period prior to the effective date, be deemed to have 
been allowed in respect of such expenditures in the period prior to the effective 
date of the new system the greater of 

(a) the amounts actually deducted in the computation of his mining tax under 
the old system, or 

(b) 20 per cent for the year that the mine came into production and 20 per 
cent for each year thereafter prior to the effective date of the new system. 
(32:117) 

12. The profits subject to the proposed Mines Profits Tax be reduced by losses 
from mining and processing incurred in the five preceding and the two succeeding 
taxation years, to the extent that profits of any preceding taxation year have not 
already been reduced by such losses, but that such deduction be fimited to losses, 
excluding an investment allowance, incurred in the fiscal year that the proposed 
system becomes effective and in subsequent years. (32:121) 

13. The proposed Mines Services Tax be established at the flat rate required 
to yield an amount approximately equivalent to the aggregate of the payments to 
be made by the Province to designated mining municipalities, and the proposed 
Mines Profits Tax be established initially at the rate of 12 per cent. (32:130) 

14. The administration of The Mining Tax Act be transferred from the Depart- 
ment of Mines to be proposed Department of Revenue. (32:135) 

15. Pending any revision of the structures of Ontario mining tax and federal 
income tax, Ontario press the federal government for a change in Regulation 701 
under the Income Tax Act so that mining taxes, except to the extent that they are 
imposed on processing profits or other income which is not derived from mining, 
will be fully deductible from income for federal income tax purposes. (32:141) 

16. Upon the adoption of the revised system of taxing mining profits recom- 
mended by us, Ontario press the federal government to make such changes in 
Regulation 701 under the Income Tax Act that all of the mining tax payable by 
Ontario mines will be deductible for income tax purposes. (32:142) 

17. The rate of acreage tax on mining lands be set and maintained at such 
level as is needed to perform the function of discouraging the holding of mining 
lands without the performance of adequate exploration, development or mining 
work. (32:152) 

18. Rentals on leased mining lands and mining rights be set on the basis and 
at the rates recommended by the Select Committee on Mining of the Ontario 
Legislature or at such higher level as is needed to perform the function of dis- 
couraging the holding of mining lands and rights without the performance of 
adequate exploration, development or mining work. (32: 156) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

256 



Chapter 7: Revenue From Forest Resources 
REVENUE FROM FOREST RESOURCES 

1, The present ground rent and fire protection charges on Crown lands be 
abolished and replaced by tenure charges fixed at rates per foot of allowable cut 
based on sound principles and on further study by the Department of Lands and 
Forests. (33:35) 

2. The Department of Lands and Forests make appropriate adjustments in 
the rates of Crown dues so that combined tenure charges and Crown dues per cubic 
foot cut by a licensee, whose actual cut is equal to his allowable cut, will approxi- 
mate the amount of such combined charges under present rates. (33:37) 

3. With respect to privately owned forest land, fire-protection charges be 
reviewed and set on a cost-recovery basis. (33:39) 

4. In the negotiation of general federal-provincial fiscal agreements, Ontario 
offer to repeal The Logging Tax Act in return for an additional share of income 
taxes imposed upon taxpayers engaged in logging that approximates the present 
net return to Ontario from the existing logging tax arrangement, and, pending such 
repeal, The Logging Tax Act be amended by the enactment of loss-carry-over 
provisions similar to those included in the federal Income Tax Act and The Cor- 
porations Tax Act of Ontario. (33:46) 

REVENUE FROM OTHER NATURAL RESOURCES 

1. In accordance with the general principles that we have developed for the 
taxation of mines, the tax on production of natural gas be changed to a uniform 
flat-rate profits-based tax, equivalent to 1 2 per cent of the economic rent accruing to 
the producer. (34:6) 

2. The proposed profits-based tax on a producer of natural gas be reduced by 
an amount equivalent to 75 per cent of the rentals or royalties payable under leases 
from the Province of the lands from which the production is derived. (34:9) 

3. A tax be introduced on the profits derived from oil production on the same 
basis, at the same rate and with the same relief to operators on Crown lands as 
recommended for natural gas production. (34: 1 1 ) 

4. A review be made of the terms and rates of hunting and fishing licences. 
(34:32) 

REVENUE FROM ALCOHOLIC BEVERAGES 

1 . The Liquor Control Board of Ontario be instructed to bring its mark-up on 
so-called "low-priced" Canadian spirits into line with the mark-ups that it appUes 
to other Canadian spirits. (35:33) 

2. The Liquor Control Board of Ontario apply the same mark-up to the cost 
of an imported spirit, wine or malt beverage as is used for the corresponding class 
of domestic product . (35:34) 

257 



Recommendations 

3. The Liquor Control Board of Ontario purchase Ontario wines at prices no 
higher than those dictated by market forces. (35:35) 

4. The licence fees at present levied on breweries and wineries be altered so 
that the revenue will approximate the costs of licensing and inspection. (35:37) 

5. The tax on winery store sales be adjusted so that the rate of provincial 
revenue from sales of domestic wine in winery and Liquor Control Board stores 
will be equated to the extent possible without the wineries being deprived of a 
reasonable rate of return from their retailing operations. (35:38) 

6. The gallonage tax on breweries be set at a single rate per gallon for all 
beer produced and sold in Ontario. (35 :4l ) 

7. The price of beer to home consumers and licensed premises be made 
uniform. (35:44) 

8. The licence charge based on beer consumption be set at a single rate 
applicable to all types of licensed premises. (35:47) 

9. After thorough study by the Liquor Licence Board, liquor licence fees be 
set on a basis such that in addition to covering all issuing and regulatory costs, 
they will appropriate to the Province any monopolistic profits that the licensing 
system has made possible. (35:48) 

10. The financial basis of the agreements whereby municipalities receive pay- 
ments from the Liquor Licence Board be adjusted so that such payments will 
reflect as closely as possible the cost to the municipalities of enforcing The Liquor 
Control Act and The Liquor Licence Act. (35:49) 

1 1 . The transfer fees now in effect for liquor licences be abolished and replaced 
by a flat fee to yield an amount not exceeding the administrative costs to the 
Liquor Licence Board of effecting and regulating transfers. (35 :52) 

12. The fee structure now in effect for special occasion permits be abolished 
and replaced by a flat fee that will yield an amount not exceeding the administrative 
costs borne by the Liquor Licence Board in issuing the permits. (35:54) 

13. There be instituted specific procedures for transferring to the Treasury 
on a regular basis the surplus cash held by the Liquor Control Board of Ontario. 
(35:56) 

14. In accounting for its assets, the Liquor Control Board of Ontario adopt 
the depreciation methods that normally apply in private business. (35:59) 

15. The Liquor Control Board of Ontario be directed to institute a program of 
continuing research into the revenue and other effects of changes in the prices 
of spirits, wine and beer . (35:87) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 

258 



Chapter 7: Revenue From Alcoholic Beverages 

16. The Government of Ontario, through the Liquor Control Board of Ontario 
and the Alcoholism and Drug Addiction Research Foundation, seriously study 
the feasibility of establishing a price structure that would take as its primary basis 
the alcoholic content of different types of alcoholic beverages. (35:90) 

17. Representations be made to the federal government for closer federal- 
provincial co-ordination of revenue policies relating to alcohoUc beverages. (35:91) 

PROVINCIAL GOVERNMENT ENTERPRISES 

1 . The Power Commission Act be amended 

(a) to define cost of power so as to be consistent with generally accepted 
accounting practices, and 

(b) to require billing at cost plus a profit margin not exceeding, except with 
the approval of the Lieutenant Governor in Council, a specified percentage 
of the cost. (36:17) 

2. Government-owned business enterprises be subject to income taxes under 
the Ontario Corporations Tax Act. (36:21 ) 

3. The Province consider discontinuing its practice of guaranteeing the securi- 
ties issued by those public enterprises whose offerings can be sold readily in the 
open market on acceptable terms. (36:23) 

OTHER NON-TAX REVENUES 

1 . The Financial Administration Act be amended to require that there be tabled 
in the Legislature a quinquennial review explaining the nature and level of all fees 
charged by the government. (37:9) 

FINANCING HOSPITAL AND MEDICAL CARE 

1. Ontario negotiate the withdrawal of the federal government hospital con- 
struction grant program for Ontario hospitals in return for further tax room or 
abatement sufficient for Ontario to assume the responsibility on an adequate basis. 
(38:29) 

2. Ontario hospital construction grants be changed from a per-bed basis to a 
percentage of approved construction cost basis. (38 :30) 

3. Ontario hospital construction grants be broadened to cover the costs of 
constructing the portions of the hospital which are to be used for administration 
and servicing. (38:31) 

4. The Ontario Hospital Services Commission allow hospitals to include 
in reimbursable operating costs an annual amount sufficient to amortize over a 
reasonable period the cost of renovations, alterations or other major repairs that 
are not recovered through major renovation grants and that would result in com- 
mensurate operational savings. (38:32) 

259 



Recommendations 

5. Upon implementation of the two preceding recommendations, Ontario dis- 
continue construction grants for special rehabilitation facilities and tuberculosis 
sanatoria. (38:33) 

6. Ontario negotiate the withdrawal of the federal government hospital operat- 
ing grant program for Ontario hospitals in return for tax room or abatement 
sufficient for Ontario to assume the responsibility on an adequate basis. (38:42) 

7. Ontario negotiate the withdrawal of the federal health grants program in 
Ontario in return for tax room or abatement sufficient for Ontario to assume the 
responsibility on an adequate basis. (38:48) 

8. Premium rates for the Hospital Care Insurance Plan be maintained at a 
level to yield roughly one-third of the total financial resources required to meet 
operating costs. (38:71) 

9. Consideration be given to replacing the present two-tier premium structure 
of the Hospital Care Insurance Plan with a three-tier structure comparable to 
that of the Ontario Medical Services Insurance Plan. (38:72) 

10. When future changes in premium levels become necessary, consideration 
be given to incorporating into the Hospital Care Insurance Plan a scheme of 
subsidized premiums comparable to that in the Ontario Medical Services Insurance 
Plan. (38:74) 

PROVINCIAL DEBT POLICY TO 1975 

1. As a partial solution to its projected annual expenditure-revenue gaps, the 
Province permit a modest expansion of its net debt at a rate at least equal to the 
growth in provincial domestic product. (40:8) 

2. In any given period, provincial policies concerning appropriate levels 
and composition of taxation and expenditures be consciously directed towards the 
objective of moderating cyclical fluctuations within the Ontario economy. (40: 1 1 ) 



The numbers in brackets following each recommendation refer to the chapter and paragraph 
where it is made. 



260 



Chapter 
8 



Fiscal Effects of 

the Recommendations: 

Prescription for Future Needs 



INTRODUCTION 

1. The three hundred and fifty or so recommendations listed in the preced- 
ing chapter can be broken down into four categories. First, there are recom- 
mendations whose impact on provincial and local finance is direct and measurable. 
In this category, for example, are the recommendations that would subject services 
to sales taxation, remove the property tax exemption of institutions of higher 
learning, provide a new unconditional grant to municipaUties, or introduce a 
revised provincial mining tax. Second, there are a number of recommendations 
whose impact on provincial and local finance is direct, but defies measurement at 
this time. Thus, for instance, the province-wide reassessment we recommend will 
directly affect property tax yields and the relative burden of the tax on different 
classes of taxpayers, but its outcome cannot be quantified because of the widely 
diverging assessment practices that now prevail in Ontario municipaUties. Third, 
there are recommendations that affect neither the base nor the rates of taxes and 
grants, but that are bound to have indirect effects on provincial and local finance. 
Included in this category are such important recommendations as those that seek 
the creation of regional governments and those that look to a more effective and 



261 



Fiscal Effects of the Recommendations 

equitable tax appeals system. Fourth, there are a number of recommendations 
that seek to enhance the equity and efficiency of the revenue system through purely 
structural and administrative means. A uniform fiscal year for provincial and local 
governments, and improved financial reporting by all governmental authorities are 
examples. 

2. This chapter deals only with recommendations in the first category, that is, 
those whose impact on provincial and local finance is direct and measurable. Its 
task is to lay before the reader the financial impact of the direct and quantifiable 
recommendations made in Volumes II and III, and, on the basis of their con- 
sequences, to outline certain other measures affecting in particular the level of 
school grants and of provincial tax rates. Taken together, these measures provide 
the means necessary to meet provincial and local requirements, both now and for 
the foreseeable future, which under our projections is the year 1974-75. They are 
based on two most important assumptions: that there will be no new expenditure 
commitments other than those arising from the re-allocation of provincial-local 
spending responsibiUties we suggest, and no changes in federal-provincial fiscal 
arrangements. Of themselves they do not constitute in the words of our terms of 
reference, a "tax and revenue system [that] is as simple, clear, equitable, efficient, 
adequate and as conducive to the sound growth of the Province as can be devised". 
The development of this system, as we see it, hinges as well upon our many recom- 
mendations whose fiscal effects are either immeasurable or indirect, and on future 
patterns of federal-provincial negotiation. What we consider in this chapter, 
therefore, is only the mix of tax, grant and debt policies that, in our judgment, can 
best meet provincial and local fiscal requirements under prevailing federal-provincial 
arrangements in the light of the quantitative data available to us. 

3. The material that follows is organized in three parts. In the first, we develop 
our best estimates of what the financial picture would have been in 1966-67 had 
the changes we contemplate been in effect. Because this exercise can be based in 
large part on actual data, it enjoys the greatest degree of accuracy possible at this 
time. The second part of the chapter, which is subject to a considerably wider 
margin of error than the first, attempts to outline the fiscal consequences of our 
recommendations from the first fiscal year in which they could take effect — that is 
to say, 1968-69 — to the last year for which we have made projections, 1974-75. 
In the third and final part, we offer a commentary on our over-all sketch of the 
Ontario fiscal scene with particular reference to the broad context of federal- 
provincial fiscal arrangements and to adjustments in these arrangements which, if 
successfully negotiated, might modify the impact of the revenue measures we have 
had to contemplate. 

THE FISCAL SCENE IN 1966-67 

4. Table 8:1 launches our attempt to reconstruct the fiscal year 1966-67 in the 
light of our quantifiable recommendations. This Table shows our estimates of the 
fiscal impact of the measurable recommendations that affect local government. All 
recommendations whose fiscal effect is shown in the Table are developed in Volume 

262 



Chapter 8: Paragraphs 2-6 

II, save for our recommendation extending the sales tax to all tangible personal 
property purchased by local authorities, made in Volume III. 

Table 8:1 

THE FISCAL EFFECT ON LOCAL GOVERNMENTS, 

HAD RECOMMENDATIONS MADE IN VOLUMES II AND III 

BEEN EFFECTIVE IN 1966 

(millions of dollars) 

Actual Tax Levies (Estimated) 960 

Deduct: 

Reduced expenditure from provincial assumption of the 

administration of justice 15 

Increased revenue from new unconditional grant to 
municipalities 32 

All other changes in grants to municipalities (net) 15 

62 

Less sales tax payable by local governments 15 47 

Revised Revenue Requirement 913 

Deduct: 

Increase in provincial payments in lieu of tax on 
previously exempt property 38 

Basic shelter exemption grant Ill 149 

Revised Levy on Local Property Taxpayers 764 



Local Debt Outstanding at End of Fiscal Year 1,997 

Deduct: 

Reduction in borrowing because of revised school 
capital grants 35 

Revised Local Debt (Including separate school debt of 
$162 million) 1,962 

5. The first figure in the Table, $960 million, is our calculation of the amount 
of tax actually levied on property in 1966. From this amount we subtract $62 
million, which represents the reduction in claims on the property tax occasioned by 
our recommendations that the Province assume complete jurisdiction over the 
administration of justice at an estimated cost of $15 million, pay a new uncon- 
ditional grant yielding approximately $32 million more than the one in force in 
1966-67, and rationalize existing conditional grants to municipalities with a net 
increase in aid of about $15 million. The $62 million reduction is then offset by 
an increase of $15 million in local government outlays occasioned by the removal 
of their sales tax exemption on purchases of tangible personal property to yield a 
revised local revenue requirement of $913 million. It is on the basis of this $913 
million requirement that local govenmients would have struck their mill rates had 
the quantifiable recommendations made in Volumes II and III been in effect in 
1966-67. 

6. Under our recommendations, $913 million would of course not be the 

263 



Fiscal Effects of the Recommendations 

amount effectively levied on local property taxpayers. This is because the $913 
million would be applicable to governmental and institutional properties hence- 
forth liable for full provincial payments in lieu of tax, and also because the 
Province, through the basic shelter exemption grant, would pay either the tax 
levied on the first $2,000 of the provincially equalized taxable assessment of each 
self-contained residential property, or 50 per cent of the tax, whichever is less. 
To take account of these measures, Table 8:1 deducts from the $913 million a 
total of $149 million, which is the sum of our estimates for the additional payments 
in lieu of tax by the Province ($38 million) and the provincial basic shelter 
exemption grant ($111 million). The residue, $764 million, represents the effective 
1966 levy under our recommendations on all classes of local property taxpayers. 
The reduction in the burden on these taxpayers is accordingly in the order of 
20 per cent. 

7. The concluding figures in Table 8:1 cover the effects of the recommenda- 
tions on the debt position of local governments. The $1,997 million appearing in 
the Table is our estimate of the actual debt carried by these governments at the 
close of the 1966 fiscal year. It can reasonably be assumed that none of the 
changes giving rise to the revised effective levy on property taxpayers would have 
altered the debt position of these governments.^ At this point, however, we can 
introduce the financial effect on local government of a final quantifiable recom- 
mendation not yet taken into account. We refer to a revised grant policy toward 
school capital expenditures whereby the Province, from the year of implementation, 
would make once-and-for-all grants on capital costs at the time they are incurred. 
This recommendation would not affect grant recognition of debt charges on behalf 
of borrowing undertaken prior to the year of implementation, but would sub- 
stantially reduce local borrowing from that year on. The $35 million shown in 
the Table represents our estimate of this reduced local borrowing for 1966, and 
leaves a revised figure for outstanding local debt under our recommendations of 
$1,962 million, including separate school debt of $162 million. 

8. Turning now to Table 8:2, the scene shifts from the local to the provincial 
level of government. 2 To our calculation of actual provincial expenditure in 
1966-67, $1,929 million, are added all the items of increased provincial aid, 
including school capital grants, shown in Table 8:1. Amounting to $246 million, 
these items yield a revised provincial expenditure total of $2,175 million. On the 
reveruie side, actual revenue estimated at $1,789 miUion is increased by $132 mil- 
lion, being the sum of $128 million additional revenue from the revised sales tax 
base and a net of $4 million from all other tax changes, to produce revised 

^The only recommendation in this category that could potentially affect local govern- 
ment debt is the one relating to the provincial assumption of all responsibility for the 
administration of justice. There would be an effect on debt inasmuch as local govern- 
ments had financed in 1966 the construction of new court houses and jails through 
debentures. Under our recommendation, such construction would no longer entail 
local outlays, but we are unable to estimate the consequent amount of debt reduction, 
if any, for 1966. 

'This shift involves a time discrepancy in that the provincial fiscal year begins and ends 
three months after that of local governments. We have chosen to ignore this dis- 
crepancy, since its effect on the magnitudes under discussion is marginal. 

264 



Chapter 8: Paragraphs 7-9 

Table 8:2 

THE FISCAL EFFECT ON THE PROVINCIAL GOVERNMENT, 

HAD RECOMMENDATIONS MADE IN VOLUMES II AND III 

BEEN EFFECTIVE IN 1966-67.* 

(millions of dollars) 

Expenditure 

Actual Expenditure (Estimated)t 1,929 

Add proposed increases: 

Administration of justice 15 

New municipal unconditional grant 32 

Other municipal grants (net) 15 

Payments in lieu of taxes 38 

Basic shelter exemption grant Ill 

New school capital grants 35 246 

Revised Expenditure 2,175 

Revenue 

Actual Revenue (Estimated) 1,789 

Add: 

Additional revenue from new sales tax base 128 

All other revenue changes (net) 4 132 

Revised Revenue 1,921 

Deficit 

Actual Deficit (Estimated) 140 

Net effect of changes set out above 114 

Revised Deficit 254 

Net Capital Debt Actual Revised 

Net Capital Debt April 1, 1966 1,514 1,514 
Add: 

Deficit for year ended March 31, 1967 140 254 

Net Capital Debt March 31, 1967 1,654 1,768 

♦Expenditures, revenue deficit and debt reflect advances to the universities through the 
Ontario Universities Capital Aid Corporation and payments for debt service by the universities 
to O.U.C.A.C. 
tDerived from Budget Statement of the Treasurer of Ontario, 1967. 

provincial revenues of $1,921 million. The net effect of all revenue and expenditure 
changes adds $114 million to the $140 million deficit actually sustained in 1966-67 
for a revised provincial deficit of $254 miUion. Net provincial capital debt as of 
the end of the fiscal year is $1,768 million in contrast lo the actual figure of 
$1,654 million. 

9. So much for the fiscal effect on provincial and local governments of the 
quantifiable recommendations made in Volumes II and III. In a nutshell, they 
have made possible a reduction of 20 per cent in the effective levy on local property 
taxpayers at a cost to the Province of $246 miUion, of which $132 miUion is 
covered by recommended provincial tax changes and $114 million becomes an 
addition to the 1966-67 provincial deficit. They entail no change in the existing 

265 



Fiscal Effects of the Recommendations 

level of provincial grant support for school boards, which is in the order of 
45 per cent of expenditures. They do reflect the revised grant treatment of school 
capital outlays recommended in Volume II, but the effect of this recommendation 
is introduced at the prevailing level of provincial school support only. 

10. At a number of points in this Report, we have made it plain that, in our 
opinion, the existing level of provincial grants results in a degree of school board 
reliance on the property tax that is unwarranted because of the patent deficiencies 
of this tax. Accordingly, we must now contemplate a revision in the level of 
provincial grants sufficient to substantially reduce local recourse to the property 
tax for school purposes. One by-product of this change will be to bring the 
property tax into somewhat closer conformity with the benefit principle. But in 
revising the level of provincial grants, we are of the opinion that three supplemental 
considerations are of importance. The first is that school board autonomy demands 
a degree of reliance on local taxes sufficient to maintain close accountability to the 
public. The second is that any reduction in recourse to the property tax must be 
gauged in the light of its repercussion on the level of other taxes and on the result- 
ing distribution of government benefits and costs among different classes of 
taxpayers. The third is the fact that our basic shelter exemption grant will mitigate 
the most regressive aspects of the property tax. Ultimately, of course, the equity of 
a tax system depends on the effective distribution of expenditure benefits and tax 
burdens among individuals. 

1 1 . In light of the above, we point out that the quantifiable recommendations 
made elsewhere in this Report have already achieved a substantial reduction in the 
property tax burden. This makes it possible to contemplate a level of school grants 
that is consistent with the objective of maintaining school board responsibility 
through a realistic degree of reliance on the one autonomous revenue source 
available to them: the property tax. Finally, there is the question of the repercus- 
sion of the changes on rates of income and consumption taxes and on levels of 
debt. All of these concerns are given quantified expression in Table 8:3, where we 
introduce the fiscal effect on the provincial government of school grants designed to 
finance, on the average, 60 per cent of local education costs. 

12. Table 8:3 must necessarily repeat a good deal of the material covered in 
Table 8:2. To simplify the reader's task in following the data, we accordingly set 
out in italic type the figures in Table 8:3 that depart from those in Table 8:2. 

13. Beginning with the provincial expenditure picture, the first major change is 
the insertion of the additional cost to the Province of school grants designed to 
yield 60 per cent of local education expenditure, calculated by us as $136 million. 
Because this additional aid reduces local revenue requirements, it is offset somewhat 
bv reductions in the two recommended provincial contributions shown in Table 
8:2 whose level depends on the size of these requirements. We refer to payments 
in lieu of taxes, which now become $34 million instead of $38 million, and to the 
basic shelter exemption grant, which falls from $111 million to $95 million. 
Finally, the new school capital grants rise from $35 million to $50 million because 

266 



Chapter 8: Paragraphs 10-13 



Table 8:3 

THE FISCAL EFFECT ON THE PROVINCIAL GOVERNMENT FOR 1966-67, 

ASSUMING CHANGES RECOMMENDED IN VOLUMES II AND III, INCREASED 

PROVINCIAL SCHOOL GRANTS, AND TAX RATE CHANGES NECESSARY TO 

MAINTAIN A REASONABLE RATIO OF DEBT TO PROVINCIAL 

DOMESTIC PRODUCT 

(millions of dollars) 

Expenditure 

Actual Expenditure (Estimated) 1,929 

Add: 

Increased grants to school boards 136 

Administration of justice 15 

New municipal unconditional grant 32 

Other municipal grants (net) 15 

Payments in lieu of taxes 34 

Basic shelter exemption grant 95 

New school capital grants 50 377 

Revised Actual Expenditure 2,306 

Revenue 

Actual Revenue (Estimated) 1,789 

Add: 

Additional revenue from new sales tax base 128 

All other revenue changes (net) 4 132 

Revised Revenue 1,921 

Deficit 

Actual Deficit (Estimated) 140 

Net effect of changes set out above - 245 

Revised Deficit before tax rate increases 385 

Deduct Additional Revenue from tax rate 

increases of: 

8% federal basic personal income tax 128 

1% sales tax 103 

1^ gasoline tax (1.4^ other motor fuels) 18 249 

Deficit after tax rate increases 136 

Net Capital Debt 

Net Capital Debt April 1, 1966 1,514 

Add: 

Deficit after tax rate increases 136 

Revised Net Capital Debt March 31, 1967 1,650 

Increase in debt allowed for new school capital 

grants permitting corresponding reduction in 

municipal debt 50 

Remaining Revised Net Capital Debt 1,600 

Estimated Provincial Domestic Product, 1966 20,500 

Remaining Revised Net Capital Debt as a Percentage of 
P-D.P 7.8% 



267 



Fiscal Effects of the Recommendations 

they are subject to the over-all increase in school grant levels to 60 per cent. 
With the other items of provincial expenditure unchanged from Table 8:2, Table 
8:3 shows a total increase in spending of $377 million, bringing revised actual 
expenditure for 1966-67 to $2,306 million. Since revised revenues, at $1,921 
million, are unchanged from Table 8:2, there is a resulting over- all deficit of 
$385 miUion, of which $245 million represents the net increase over the deficit of 
$140 million actually sustained in 1966-67. 

14. It is abundantly clear that, under the provincial debt policy we espouse 
and shall explain shortly, a deficit of this magnitude could not have been tolerated. 
For this reason we are forced to contemplate tax increases in three revenue fields: 
the personal income tax, the sales tax and the gasoline tax. As shown in Table 
8:3, we would have drawn from the first an additional $128 million in revenue, 
from the second $103 million and from the third $18 million. Totalling $249 mil- 
lion, these revenue increases would have reduced the deficit from $385 million 
to $136 milUon, a level very closely comparable to the $140 million deficit 
actually sustained, according to our calculations, by the Province in 1966-67. 

15. It now behooves us to explain briefly the reasoning behind the tax increases 
we contemplate. These admittedly large increases are the direct result of additions 
to provincial expenditure designed solely to reduce local government recourse to 
another revenue source, the property tax. To hghten property tax burdens is to 
cut back the tax that our incidence study shows to be by far the most regressive. 
To the extent that property tax reductions are met by increases in the personal 
income tax, they are financed by the tax that is best in accord with the principle 
of ability to pay. Our over-all objective, however, is an Ontario fiscal system that 
is not sharply progressive but, as explained at the outset of this volume, moderately 
so. For this reason, we are hardly prepared to finance all property tax reductions 
through the personal income tax. To follow this course would in any event all but 
preclude such future personal income tax increases as might become necessary, to 
say nothing of bringing about undesirably sharp rate changes in but a single year. 
Under these circumstances, the personal income tax increase of 8 per cent of the 
federal basic tax shown in the Table, all of which would have been, in 1966-67, 
a net addition to the 24 per cent provincial tax abated by the federal government, 
represents what to us is the maximum advisable reliance on this tax for that year. 
We note in this context that two provinces whose personal income tax is collected 
by the federal government now exceed the federal abatement by 5 percentage 
points. 

16. Turning now to consumption taxes, it is with some reluctance that we 
arrive at an extra 1 per cent on the retail sales tax, thereby bringing its effective 
rate from 5 to 6 per cent. Under the recommendations in Volume III whereby we 
broaden the base of this tax, $128 million has already been added to its weight. 
In superimposing the $103 million produced by our 1 percentage point rate 
increase, we are in effect relying upon the sales tax for $23 1 million in additional 
revenue. We hasten to point out, however, that our reluctance is due far more 

268 



Chapter 8: Paragraphs 14-20 

to the sudden introduction of a change of this magnitude than to any consequences 
in equity. Depending on the family-income group, our incidence studies show that 
the Ontario retail sales tax is generally proportional or mildly progressive. Because 
our sales tax increase, large though it may appear, entails corresponding reductions 
in the regressive property tax, the equity of the Ontario fiscal system is thereby 
enhanced. The same comment applies to the equity effect of our illustrative 
increase in gasoline and diesel fuel taxes. 

17. But in that we regard motor vehicle fuel taxes as closely tied to road 
benefits, there are limits on the increases that can be contemplated in any given 
year. In our chapter on the subject, we have expressed the opinion that taxes on 
road users should yield annually no less than 65 per cent and no more than 75 
per cent of total road expenditures. The 10 increase we show for 1966-67 leaves 
the yield of these taxes well within this range. 

18. For the purpose of our 1966-67 exercise, we do not choose to have 
recourse to rate increases in any other tax fields, and this for three reasons. First, 
taxes on property, income and consumption are the largest revenue producers in 
Ontario. Reduced reliance on any one of these inevitably entails heavy recourse to 
the others. Second, because income and consumption taxes are so much more 
equitable than the property tax, equity is enhanced by financing reduced property 
tax burdens through higher income and consumption taxes. Third, there are grave 
drawbacks to contemplating early increases in any of the other taxes. Thus, for 
example, this Report advocates far-reaching structural changes in succession duties 
and the mining profits tax. To superimpose rate increases on a newly revised tax 
structure would complicate matters. As for the corporation income tax, its 
uncertain incidence and capricious economic effects mark it as a decidedly inferior 
source of additional revenue. None of this is to say that we would refrain from 
contemplating increases in these or any other taxes under certain circumstances. 
Such increases might be necessary to avoid a clearly unacceptable degree of 
additional reliance on income and consumption taxes. Fortunately, however, the 
1966-67 fiscal picture requires no such drastic measures. 

19. With $381 million of additional revenue in hand, and a resulting deficit 
therefore comparable to that sustained in 1966-67, we can now return to Table 
8:3. Added to the provincial net capital debt of $1,514 million at the beginning of 
the fiscal year, our projected deficit of $136 million after tax rate increases yields 
an end-of-year debt of $1,650 million. Is this an acceptable level of debt for the 
Province of Ontario? 

20. In the chapters of Volume I and III that we devote to debt policy, we 
conclude that for the Province of Ontario to maintain debt at a relatively constant 
ratio of provincial domestic product would constitute a basically conservative 
fiscal approach. We have none the less followed this approach in dealing with 
the period covered by our projection, that is to the year 1974-75. This is because 
our projection cannot take account of new expenditure programs that might be 

269 



Fiscal Effects of the Recommendations 

generated in the context of future economic growth. Accordingly, we have formu- 
lated the rule that the Province should maintain debt at a ratio of approximately 
9 per cent of P.D.P. In any given year, considerations of counter-cycUcal fiscal 
policy should impel the Province to carry forward debt increases that would raise 
this ratio in recession and reduce it in prosperity. As economic circumstances in 
1966-67 were unusually buoyant, the pohcy we recommend calls for an end-of-year 
debt somewhat below the 9 per cent ratio. 

21. The debt level projections under which we develop our 9 per cent rule 
must now be adjusted to take account of our recommendation concerning school 
capital grants. Under the grant system we depict for 1966-67, the Province would 
have contributed 60 per cent of the school capital outlays made in that year. In 
addition, however, the Province would have reimbursed local governments for 60 
per cent of the debt charges they incurred from borrowing in earlier years under 
the capital grant system then in force. It follows that a special debt allowance is 
necessary for the transitional period during which the Province simultaneously 
assumes what would otherwise become local school debt and makes grants toward 
previously incurred local debt charges. We accordingly introduce in Table 8:3 a 
calculated allowance of $50 million, thereby producing a revised net capital debt 
figure of $1,600 million. Taken as a proportion of P.D.P. , this figure yields a 
debt-to-P.D.P. ratio that we deem acceptable in a year of unusual economic 
buoyancy — 7.8 per cent. 

22. While achieving this satisfactory debt level in a setting of substantially 
enhanced aid to local government has necessitated substantial tax increases, we 
feel bound to point out that 1966-67 is a most favourable year in which to attempt 
a statistical demonstration of the effects of our recommendations. This is not 
simply because economic prosperity boosted tax yields beyond what would 
normally be expected. More especially, it is because the state of the provincial 
accounts on which we base our exercise is considerably more unfavourable than 
can reasonably be expected in any future year. In Chapter 6 we develop a set of 
projections that show an ever-widening gap between provincial revenues and 
expenditures to the year 1974-75. So long as this gap remains manageable, as it is 
for 1966-67, it is possible to implement our recommendations through provincial 
tax increases which, though large, are hardly punitive. But subsequently, as the 
projected gap widens, substantial tax increases appear unavoidable simply to meet 
existing provincial commitments, let alone finance the additional ones entailed by 
our Report. Thus, when the quantitative impact of this Report is assessed for 
succeeding years, it will be necessary to consider much higher tax increases than 
those used in our 1966-67 illustration, or to stage the timing of additional pro- 
vincial aid to local government, or both. 

23. But this cloud hovers over a horizon that we shall not reach until the next 
section of this chapter. For the moment, we can confine ourselves to the task of 
surveying the 1966 local scene under our Report. The fiscal effect on local 
government of all quantifiable recommendations made in Volumes II and III, 

270 



Chapter 8: Paragraphs 21-24 

together with a 60 per cent level of school grants, is depicted in Table 8:4. The 
reduction in levy on local property taxpayers — from $960 million to $648 million — 
is within an eyelash of a full one-third. As to local debt outstanding at the end of 
the fiscal year, its ratio to P.D.P. is one of 9.5 per cent. Later in this Report, we 
conclude that municipal debt as constituted at present should not be permitted to 
exceed 9 per cent of P.D.P. We also recommend that municipalities be required 
to borrow for separate school boards as well as other school boards. The 9.5 per 
cent debt-to-P.D.P. ratio shown in Table 8:4 is consistent with these two measures 
in that it includes separate school debt, and comprises a level of municipal debt 
which, if calculated on the old basis, would have amounted to a little less than 
9.0 per cent of P.D.P. It is therefore fully satisfactory. 



Table 8:4 

THE FISCAL EFFECT ON LOCAL GOVERNMENTS FOR 1966, 

ASSUMING CHANGES RECOMMENDED IN VOLUMES II AND III, 

AND INCREASED PROVINCIAL SCHOOL GRANTS 

(millions of dollars) 

Actual Tax Levies (Estimated) 960 

Deduct: 

Increased school grants 136 

Administration of justice 15 

New municipal unconditional grant 32 

Other municipal grants (net) 15 

198 
Less sales tax payable 15 183 

Revised Revenue Requirements 777 

Deduct: 

Increased payments in lieu of tax 34 

Basic shelter exemption grant 95 129 

Revised Levy on Local Property Taxpayers 648 

Local Debt Outstanding at End of Fiscal Year 1,997* 

Deduct: 

Reduction in borrowing because of revised school 
capital grants 50 

Revised Local Debt 1,947 

Provincial Domestic Product 20,500 

Revised local debt as a per cent of P.D.P 9.5% 

♦Includes separate school debt of $162 million. 



24. We deem it particularly instructive at this juncture to reach behind the 
figures in Table 8:4 for a discussion of two subjects that we have found especially 
challenging — school finance and the general equity of the property tax. Concerning 
the first, we wish to emphasize that school grants at a level of 60 per cent of local 
education costs are not the sole source of additional provincial aid we make avail- 

271 



Fiscal Effects of the Recommendations 

able to school boards. The provincial basic shelter exemption grant contributes to 
school board revenue because it is payable on behalf of school taxes no less than 
municipal. Again, school boards will benefit from increased provincial payments 
in lieu of taxes proportionately more than municipalities, in that the latter have 
heretofore received payments for which school boards were ineligible. The over-all 
effect of our recommendations is therefore to give school boards something like 
two-thirds of their revenue requirements from provincial sources. At the same time, 
because the basic school grant rate of 60 per cent still requires school boards on 
average to levy at a mill rate based on 40 per cent of their expenditure, autonomy 
and responsibility are not thereby unduly endangered, 

25. With respect to the equity of the property tax, whether for municipal 
or school purposes, we readily admit that a fiscal sow's ear has hardly been 
transformed into a silk purse. By its very nature, the property tax can never be 
truly equitable. It must none the less retain importance because it is the financial 
cornerstone of local goverimient. We believe that, under our recommendations, the 
property tax can henceforth survive with appreciably reduced inequity. This is 
not simply because less revenue will be required of it. More especially, the effect 
of the basic shelter exemption grant is to make available proportionately more tax 
reUef where it is most needed. Indeed, on residential properties with the lowest 
market values, up to 50 per cent of the tax may be removed from the owners or 
occupants. The most harshly regressive aspects of the tax are thereby substantially 
mitigated. 

THE FISCAL SCENE: 1968-75 

26. Departing now from our 1966-67 statistical exercise, we shift to the period 
1968-75. This shift is of immense practical importance because, after all, our 
recommendations can be implemented only in the future. But it necessitates 
considerable sacrifices in accuracy. The calculation of the effect of our recom- 
mendations, which for 1966-67 was a matter of departing largely from actual data, 
now involves pihng estimates on projections which are themselves estimates. These 
projections were completed during the summer of 1966 and were of necessity 
based on the information available in that time. They accordingly do not take 
account of certain new developments, such as the recent federal-provmcial arrange- 
ments for the financing of post-secondary education and the accompanying size of 
provincial expenditure commitments to community colleges. Nor are they based 
on economic conditions as buoyant as those that have in fact materialized. 

27. In making our projections, we were concerned with general trends over a 
longer period rather than with the circumstances of any one year. We assumed that 
the economy, which was in a highly prosperous condition in 1 966, would experience 
some slowing down in its rate of expansion and would return to the projected level 
of P.D.P. by 1969. Thereafter, we assumed that fluctuations would occur around 
the projected values. 

28. As we consider the position a year later it appears that the P.D.P., barring 

272 



Chapter 8: Paragraphs 25-31 

a more serious recession than we think at all probable in the light of post-war 
experience, is likely to be somewhat above the value we projected for the next 
few years. What is the effect on our projections of government revenue, expendi- 
ture and debt of a level of P.D.P. that exceeds the value we projected for it? 

29. It is immediately obvious that if P.D.P. or income is higher than we had 
expected, then, with a given level of tax rates, government revenues, especially 
those of the Province, will also be higher than we had projected. But it is also true 
that in a more prosperous period costs are hkely to be higher than they would have 
been otherwise. On balance we would expect that the gain in revenue when the 
economy is more prosperous than projected would be somewhat greater than the 
increase in expenditure, but what is clear is that there are forces pulling in both 
directions and no definite statement can be made as to which one will dominate. 
We are of the view that, if the economy of the Province for the next few years is 
somewhat more prosperous than we had projected, the scale of revenue, expendi- 
ture and debt will be changed, but we would not expect any striking change in the 
proportion they bear to one another, and to P.D.P.^ 

30. Bearing in mind the difficulty of the exercise, we have chosen to illustrate 
the statistical dimension of the measures we contemplate in only three of the seven 
fiscal years that span the period 1968-75. The first, 1968-69, is the earliest in 
which any of our recommendations could begin to take hold. The second, 1971-72, 
is the middle year in the time period under discussion. The third, 1974-75, is also 
the last in the period and as such enables us to sketch a scene that takes cumulative 
account of all statistically predictable developments. 

31. Our exercise begins with T-able 8:5. This Table shows, for each of the 
years under discussion, projected provincial expenditures and revenues before and 
after the recommendations made in Volumes II and III, including provision for 
higher school grants. Figures for 1968-69 appear in two columns, A and B, of 
which the former assumes full implementation of all items of additional aid to local 
government, and the latter involves a phased approach to be discussed shortly. 
Item 7, the most important line in the Table, shows the projected deficit after the 
revenue recommendations in Volumes II and III but before tax rate changes. 
These deficits are, for 1968-69, $598 million (column A) and $533 million 
(column B), for 1971-72 $819 million, and for 1974-75 $1,123 mUlion. The 
staggering magnitude of these amounts, so much greater than the $385 million 
with which we attempted to cope in our 1966-67 exercise, is due in large part to the 
widening provincial revenue-expenditure gap projected in our forecast, a gap that 
haunts the fiscal scene with or without our recommendations. 



^Recent experience with the provincial accounts gives us some small encouragement on 
this score. The 1967-68 provincial revenue and expenditure estimates as given in the 
1967 provincial budget are both substantially higher than our projection of these items, 
as would indeed be expected in a prosperous period. But the increase in the net capital 
debt of the Province as estimated by the Provincial Treasurer is $162 million, while 
our projected figure adjusted to the provincial accounts basis is $161 million. 

273 



Fiscal Effects of the Recommendations 

Table 8:5 

PROJECTED PROVINCIAL DEFICIT AFTER RECOMMENDATIONS, INCLUDING 

PROVISION FOR HIGHER SCHOOL GRANTS, BUT BEFORE TAX RATE 

CHANGES, IN SELECTED FISCAL YEARS 1968-75 

(millions of dollars) 



1968-69 1968-69 

A B 1971-72 1974-75 

1. Projected provincial expenditure 

before recommendations* 2,280 2,280 2,820 3,569 

2. Additional provincial expenditures after 
recommendations, including provision for 

higher school grants 390 325 441 500 

3. Total projected provincial expenditures 
after recommendations, including 

provision for higher school grants 2,670 2,605 3,261 4,069 

4. Projected provincial revenue before 

recommendations 1,925 1,925 2,265 2,724 

5. Additional provincial revenue from 
recommendations made in Volumes 

II and III 147 147 177 222 

6. Provincial revenue after 
recommendations made in Volumes 

II and III 2,072 2,072 2,442 2,946 

7. Projected deficit before requisite tax 

rate changes 598 533 819 1,123 

*The projected expenditure figures for each of the years shown are lower than those originally 
projected in Chapter 6 by $10 million in 1968-69, $66 million in 1971-72 and $153 million in 
1974-75. Each of these figures represents reductions in interest payments. The 1968-69 
adjustment is necessitated by the fact that economic conditions more buoyant than those 
originally forecast will have resulted in an outstanding debt at the beginning of that year 
lower than the one originally projected by us. As to 1971-72 and 1974-75, interest reductions 
are necessary because of the cumulative effect of the revenue measures we develop later in 
this chapter. We assume that these measures are allowed to take hold in such manner that 
the debt outstanding in any given year during the period under consideration has been held 
in a constant relation to P.D.P., thereby reducing the interest load in subsequent years. 

32. Facing as we do clearly unacceptable deficits, we indicate in Tables 8:6 
and 8:7 the outcome of a quest for requisite tax rate increases whose additional 
yield could reduce the deficits to tolerable size. Table 8:6 shows tax increases 
over 1967 levels for each of nine revenue fields in the years under discussion, 
together with their resulting yields. Its companion Table, 8:7, lists the over-all 
provincial tax rates that would be applicable under the contemplated increases. 
Because of their complicated structure, it is impracticable to devise, for Table 8:7, 
the applicable rates of liquor mark-up, tobacco tax and succession duty. 

33. Concentrating first on the year 1968-69, we begin by introducing personal 
income and sales tax increases similar to the ones contemplated in our 1966-67 
exercise. These increases are 8 per cent on the federal basic tax, bringing the 
provincial personal income tax rate to 36 per cent, and 1 per cent on sales for an 
over-all tax of 6 per cent. They are subject to the same comments as were made in 
the context of 1966-67 and involve the maximum change we deem tolerable 

274 



Chapter 8: Paragraphs 32-33 
Table 8:6 

TAX RATE CHANGES REQUIRED TO COPE WITH DEFICITS PROJECTED IN 

TABLE 8:5 

(dollar figures in millions) 

Cumulative Tax Increase Over 1967 and Resulting Revenue Yield 

1968-69 1971-72 1974-75 

Cum. tax Cum. tax Cum. tax 

increase Yield increase Yield increase Yield 

Personal income tax — 
additional percentage 
points applicable to 
federal basic tax 8% $144 10% $210 12% $324 

Sales tax — additional 
percentage points 
applicable to sales 1% 113 2% 264 2% 320 

Gasoline and motor fuels 

taxes— additional cents ^4 gas 3^ gas M gas 

per gallon 2.7^ other 40 4<t other 66 4<f other 72 

Corporation income tax — 
additional percentage 
applicable to taxable 
incomes 1% 27 1% 31 3% 111 

Liquor profits — percentage 

increase in sales prices .... 5% 30 5% 35 7% 60 

Insurance premiums tax — 
additional percentage 
points applicable to 
premiums nil nil 1% 12 1% 15 

Tobacco tax — increase in 

level of tax nil nil '/a 8 Vs 9 

Succession duties — increase 

in level of tax nil nil 10% 11 10% 14 

Mines profits tax — increase 
in percentage points 
applicable to mines 
profits nil nil nil nil 3% 6 

Total Yield from 

Tax Rate Changes $354 $637 $931 

in a single year. But given the magnitude of the 1968-69 deficit, we are forced 
to seek still greater revenue elsewhere. We consider motor vehicle fuel taxes to be 
the strongest candidate. This is because, under our equity rule that road-user taxes 
should finance between 65 and 75 per cent of road expenditures, there is room within 
the ceiUng of the range for a 20 rise in the gasoline tax, 10 more than we would 
have utilized in 1966-67, accompanied by a proportional increase in diesel-fuel tax. 
Where fiscal requirements are large, we deem it reasonable that the revenues con- 
tributed by road users should be at the top of the range permitted by the benefits 
principle. 

275 



Fiscal Effects of the Recommendations 

Table 8:7 

RATES OF TAX* THAT WOULD BE IN EFFECT AFTER RATE CHANGES, 
COMPARED TO ACTUAL RATES AS OF JANUARY 1, 1967 

Jan. 1, 1967 1968-69 1971-72 1974-75 

Personal income taxf 

Rate applicable to federal basic tax 28% 36% 38% 40% 

Sales tax 

Rate applicable to sales 5% 6% 7% 7% 

Gasoline and other motor fuel taxes ,.^ lo-* m,* m^ 

Rate per gallon ^^^ ^as 18<f gas 19<f gas 19<f gas 

Kaie per gaiion 22<J other 24.7<f other 26(f other 26^ other 

Corporation income tax 

Rate applicable to incomes 12% 13% 13% 15% 

Insurance premiums tax 

Rate applicable to premiums 2% 2% 3% 3% 

Mines profits tax 

Rate applicable to mines profits 12% 12% 12% 15% 

♦This Table omits three revenue sources — the tobacco tax, liquor profits and succession 
duties. The tobacco tax is excluded because it applies at variable rates and is therefore too 
complicated for summary presentation. The other two revenue sources would be restructured 
under recommendations made in this Report; their rates are therefore not subject to simple 
tabular comparison with those in effect in 1967. 

tThe personal income tax rate was increased by 4 percentage points, and the corporation 
income tax rate by 1 percentage point effective January 1, 1967. At this time the federal 
government increased its abatement correspondingly as a result of revised arrangements for 
sharing post-secondary education costs. 

34. Unfortunately, there is no escaping yet further provincial tax increases 
under our projections for 1968-69 if net capital debt, which we shall examine 
momentarily, is to be within hailing distance of 9 per cent of P.D.P. Drawing only 
the coldest comfort from the unlikely prospect that 1968 might be a year of such 
magnificent prosperity as to preclude the need, we hesitantly draw on the corpora- 
tion income tax and on liquor profits. An extra 1 percentage point on corporate 
income, bringing the Ontario tax rate to 13, coupled with a rise in the liquor 
mark-up equivalent to a 5 per cent increase in sales price, yields an additional $57 
million. Added to the sum produced by the personal income, sales and motor 
vehicle tax changes, the result is the $354 million appearing at the bottom of 
Table 8:6. As to our reluctance at tapping the corporation income tax and liquor 
profits, we simply refer back to our comments in the context of 1966-67 and post- 
pone further discussion to the final section of this chapter. 

35. We now press on to 1971-72 and 1974-75. As a preliminary point, we 
must unhappily report that the scene is even darker than it appears in the Tables. 
Whereas, in 1968-69, the Province could have realized a tolerable deficit simply 
by effecting in that year the revenue changes we depict, the same is not true of 
either 1971-72 or 1974-75. Because our projected expenditure-revenue gap widens 
annually, it requires modification that is likewise annual. Accordingly, of the tax 
increases we show for 1971-72 and 1974-75, some will have had to be made in 

276 



Chapter 8: Paragraphs 34-38 

earlier years. If they have not, then the 1971-72 and 1974-75 gaps will be that 
much larger and would require at those times even greater increases than the 
ones shown. 

36. With this ominous observation in mind, we can summarize the requisite 
tax changes as follows. By 1971-72, the personal income tax would have had 
to reach 38 per cent of the federal basic tax, and to have increased further to 40 
per cent by 1974-75. Sales and gasoline taxes, after rising again by 1971-72 to 7 
per cent and 190 respectively, could remain unchanged for the rest of the period. 
Though the corporation income tax and liquor profits could maintain their 1968-69 
levels through 1971-72, additional increases would have to materialize sub- 
sequently, resulting in a 15 per cent corporate tax and liquor prices 7 per cent 
above existing levels. For the rest, we envisage a 3 rather than 2 per cent insurance 
premiums tax, a one-third increase in the tobacco tax and the equivalent of a 10 per 
cent adjustment in succession duties, all by 1971-72. A 3 per cent boost in the 
mines profits tax could be postponed to 1974-75. 

37. In that we envisage increases ultimately affecting virtually every revenue 
source in Ontario, we must stress that our prime consideration is equity, not 
expediency. In equity, no tax can be completely isolated from the fiscal system of 
which it is part. Thus, to take a few examples, additional taxes on personal income 
must eventually call for an upward revision in the taxation of wealth, of which 
succession duties constitute the key form. There also comes a point where the tax 
on corporation income must be reconsidered in the light of that on personal income. 
Again, if the retail sales tax is rising, so should taxes on tobacco and insurance 
premiums, which stand in lieu of sales tax. If we therefore advocate increases widely 
dispersed among tax fields, this is the result of our concern for an equitable and 
balanced fiscal system, not the outcome of a simple grapeshot approach. 

38. We now carry the revenues yielded by our exercise, $637 million in 1971-72 
and $931 million in 1974-75, together with the $354 miUion obtained in 1968-69, to 
Table 8:8. Here our increases can be seen to reduce the projected deficit to a size 
that leaves net capital debt, after allowing an adjustment for the new school 
capital grant," at exactly 9 per cent of P.D.P. in each of 1971-72 and 1974-75, 
but above this ratio in 1968-69. The reader will note that, as in Table 8:5, we 
present data for 1968-69 under two columns, A and B, of which the first assumes 
immediate implementation of all contemplated assistance to local government, 
and the second a phased approach. When stated in terms of the relation between 
debt and P.D.P., the two approaches yield ratios of 9.8 and 9.5 per cent 
respectively. 



*This particular adjustment declines steadily in value because it is warranted only in the 
transitional period during which the Province simultaneously finances the capital out- 
lays of school boards at the time they are made and continues to make grants on debt 
charges locally incurred prior to the year of implementation. No adjustment will be 
called for once all school debt contracted prior to the year of implementation has been 
retired; in the meantime, the adjustment gradually declines with each succeeding 
retirement of "old" school debt. 

277 



Fiscal Effects of the Recommendations 

39. If we are willing to countenance, in 1968-69, debt ratios substantially 
above 9 per cent, it is because we believe that our tax rate changes for that year 
lie at the outside limits of tolerance. Even after substantially increased use of 
personal income and consumption taxes, we are forced to have recourse to the 
economic uncertainties of an increase in corporate income tax. Going still 
further, we have not only violated the principle of neutrality in the taxation of 
consumption by singling out liquor for a price rise but, in that liquor prices wUl 
themselves be subject to the higher retail sales tax, we have countenanced what is 
in effect a double tax increase. Under such circumstances, we find ourselves 
forced to concede the necessity for a debt ratio in excess of 9 per cent, but as 
between the levels of 9.8 and 9.5 per cent, the latter is clearly preferable. We note 
in this context that while the difference between the two ratios of only 0.3 per 
cent may appear almost marginal, expenditure commitments of no less than $65 
million are involved. 

40. Fortunately, the case for restraint that is indicated by revenue and debt 
levels also beckons in the light of a rational approach to the grants we recommend. 
To be sure, most of these grants do not, in our view, lend themselves to a policy 
of gradual introduction. Thus we would be loath to advocate phased implementa- 
tion of our basic shelter exemption grant, because this subsidy brings relief where 
it is most needed. Provincial payments in lieu of tax, for their part, will close what 
has been an all but inexcusable loophole in the property tax base. The full amount 
of our new unconditional grant to municipalities is necessary to abolish the split 
mill rate. School grants, however, are another matter. Here we find a convincing 
case for gradual implementation, one arising from our very recommendations on 
the subject. 

41. In the chapter we devote to school finance, we espouse a number of 
complex adjustments in the school grant structure. Time is required, by the 
responsible provincial authorities no less than by the local school boards, to give 
effect to these measures. Furthermore, it is most desirable to ensure that major 
structural changes be accompanied by a rising level of aid that will ease the impact 
of adjustment. 

42. With ample justification on grounds of debt, tax and grant policy, we 
accordingly urge that the government achieve the 60 per cent level of school aid 
we envisage through deliberate staging. From their present average level of about 
45 per cent, the grants should take their sharpest rise at the outset because of the 
revenue effects of abolishing the split mill rate for school as well as municipal 
purposes. We estimate that a first year average rate of 52 per cent is sufficient to 
meet our objectives equitably, and it is on this basis that the grants were calculated 
for column B of Tables 8:5 and 8:8. Thereafter the grants might be allowed to 
reach a 56 per cent level in the second year, and should attain their full 60 per 
cent average in the third year. Accordingly, we recommend that: 

The Province raise the average level of education grants to 8:1 
60 per cent of school board expenditure over a three-year 
period. 

278 



Chapter 8: Paragraphs 39-43 

Table 8:8 

PROJECTED PROVINCIAL DEFICIT BEFORE AND AFTER TAX RATE 
CHANGES, AND RESULTING NET CAPITAL DEBT POSITION 

(millions of dollars) 

1968-69 1968-69 

A B 1971-72 1974-75 

Projected deficit before tax rate changes 

(Table 8:5) 598 533 819 1,123 

Deduct additional yield from tax rate 
changes (Table 8:6) 354 354 637 931 

Projected deficit after tax rate changes 244 179 182 192 

Add projected net capital debt at 

beginning of fiscal year 1,926 1,926 2,124 2,547 

Projected net capital debt at end of 
fiscal year after tax rate changes 2,170 2,105 2,306 2,739 

Deduct allowance for new school 
capital grants 60 52 45 30 

Projected net capital debt at end of fiscal 
year after tax rate changes and allowance 
for new school capital grants 2,110 2,053 2,261 2,709 

P.D.P 21,600 21,600 25,000 30,000 

Projected net capital debt as a percentage of 
P.D.P 9.8% 9.5% 9.0% 9.0% 



43. With the above recommendation, we can complete our statistical sketch 
by addressing ourselves to Tables 8:9 and 8:10. Table 8:9 simply records projected 
local expenditure, revenue and debt under this Report, including separate school 
debt. Its companion Table sets forth the degree of relief accorded to local property 
taxpayers. As the latter shows, under a phased implementation of school grants, 

Table 8:9 

LOCAL EXPENDITURE, REVENUE AND DEBT POSITION, 
ASSUMING IMPLEMENTATION OF THE RECOMMENDATIONS 

(millions of dollars) 

1968 1971 1974 

Expenditure after recommendations 2,028 2,504 3,086 

Deduct revenues after recommendations 1,968 2,384 2,926 

Additions to debt 60 120 160 

Debt at end of fiscal year* 2,120 2,440 2,920 

P.D.P 21,600 25,000 30,000 

Debt as a percentage of P.D.P.t 9.8% 9.8% 9.7% 

*Debt figures are reduced to take account of school capital debt to be assumed by the 
Province under the recommendations. 

tDebt includes separate school debt as under our recommendations municipalities would 
borrow for separate school boards. Debt, excluding separate school debt, as a percentage 
of P.D.P. would be 9 per cent for each of the three years. 

279 



Fiscal Effects of the Recommendations 

Table 8:10 

EFFECTIVE LEVY ON LOCAL PROPERTY TAXPAYERS, ASSUMING 
IMPLEMENTATION OF THE RECOMMENDATIONS AS A PERCENTAGE 

OF PROJECTED TAX 

{millions of dollars) 

1968 1971 1974 

Projected tax levies before recommendations 1,099 1,387 1,748 

Deduct additional provincial payments 

under recommendations* 255 374 435 



Effective levy on local property taxpayers 844 1,013 1,313 



Effective levy as a per cent of projected levy 76.8% 73.0% 75.1% 

* Excluding school capital grants. 

the effective local tax levy in 1968 plummets to only slightly more than three- 
quarters of the level it would otherwise reach. By 1971 when the school grants 
are completely implemented, it is even lower. But the reader will observe that 
countervailing forces are at work. The full effect of our recommendations in 1971 
is an effective levy of 73 per cent of the projected levy, whereas, in the exercise we 
undertook on the basis of 1966 data, it was within a small margin of two-thirds. 
Furthermore, our projections include a moderate annual rise in the property tax of 
1 mill. This rise will become apparent on every tax bill from the time all new 
grants are fully in effect. By 1974, the effective levy as a percentage of the 
projected levy has indeed begun to rise. The reason is as simple as the classic fiscal 
story of local government. The natural forces at work on local expenditures out- 
strip the elasticity of their revenue sources, including some that we ourselves have 
devised. This is particularly so of our new unconditional grant, which is tied to 
population and is impervious to rising local costs. It is true as well of our basic 
shelter exemption grant, which does not take into account higher levels of market 
value. All of this argues for the need to keep the local fiscal scene under continued 
surveillance, as we recommend in this Report. It also underlines the fact that the 
provincial tax increases we suggest do not by any means imply that the property 
tax will itself be exempt from the pressures on the fiscal system. Accordingly, there 
may well be a need for an upward revision in the level of grants we recommend 
before the period under discussion ends, and this even in the light of the drastic 
income and consumption tax increases the Province will already have been called 
upon to make. 

THE FISCAL SCENE: CONCLUDING COMMENTS 

44. In closing this chapter, we wish first to remind the reader that its exposition 
is confined to those of our recommendations whose impact is direct and quantifi- 
able. The remainder are no less important, whether from the viewpoint of equity, 
efficiency or economic growth. Not the least of their virtues is that they can 
substantially mitigate the harsh effects of the provincial tax increases we envisage. 

280 



Chapter 8: Paragraphs 44-47 

45. We are duty bound, of course, to comment at some length on the size of 
these increases. First, their size demonstrates in stark terms the magnitude of the 
revenue problem that faces the Province of Ontario. Second, they are meant to 
illustrate the manner in which we would distribute tax increases in the future, that 
is, to indicate the relative emphasis upon the various tax and other revenue sources 
we think it most appropriate to adopt. Third and finally, they generate important 
consequences both for the structure of taxation and for federal-provincial 
negotiation. 

46. Concerning this problem of the sharp increases in the prospective magni- 
tude of Ontario's expenditure-revenue gap, we face a situation whose gravity is 
not to be underestimated. We emphasize that the tax increases that we have 
projected are based only on the needs generated by the expenditure programs to 
which provincial and local governments were committed at the time we made our 
projections. While these projections cannot take account of possible future 
economies that would reduce the cost of present programs, we find it reasonable 
to assume that any new expenditure commitments in the period under review will 
involve either equivalent additional taxation or recourse to additional debt. As to 
the latter, the debt policy we espouse is in fact not so rigid as to preclude a secular 
rise in provincial debt that would result in debt ratios moderately above 9 per cent 
of P.D.P. However, we have felt bound to apply the 9 per cent rule with reason- 
able stringency in developing prospective tax increases precisely because our 
expenditure projections cannot take account of possible new programs. We have 
no mandate to comment on government expenditure, but we must point out that 
even the tax levels that we have been compelled to contemplate give us serious 
concern about whether the resulting revenue system would be "as conducive to the 
sound growth of the Province as can be devised". The searching scrutiny that 
should accordingly be given to any new spending programs is therefore obvious, 
as is the need to ensure that existing expenditures are efficient and equitable. 

47. As to the relative weight we place on different taxes in our illustrative 
increases, what we depict is the kind of balance we deem advisable in meeting 
through taxation the sharply rising demands on the Ontario revenue system. 
Having drastically reduced the burden of the property tax, we weight most heavily 
taxes on income and consumption, recognizing their superiority in equity, clarity 
and simplicity. But we also recognize that taxes are often inter-related, and that 
hence, to take an example, higher taxes on personal income legitimately call for a 
reconsideration of succession duties. We are therefore reasonably satisfied with 
the balance exhibited by our revenue pattern. Nevertheless, we are concerned 
about the use of the corporate income tax, which must be considered most care- 
fully in terms of its economic consequences. In particular, because of its possible 
effects on the competitive position of Ontario firms, the corporate income tax 
should at all times be set, if not at precisely comparable levels, at least with due 
regard to the levels of corporate taxation that prevail in other jurisdictions, 
foreign as well as Canadian. 

281 



Fiscal Effects of the Recommendations 

48. With this reservation duly noted, we believe that, in meeting its future 
revenue requirements through taxation, the Province should follow the pattern 
of relative weights that our tax increases indicate. We therefore recommend that: 

To the extent that higher provincial taxation will be needed 8:2 
to meet future revenue requirements^ the Province employ 
a carefully balanced combination of increases in income, 
consumption and wealth taxes designed to take account of 
the considerations made explicit in this Report. 

49. Finally, there are the twin questions of tax structure and federal-provincial 
affairs. Nowhere are these more closely intertwined than in the personal income 
tax. Here the need for a drastic overhaul in rate structure is imperative. Thus, for 
example, when we reluctantly add 12 percentage points to the provincial personal 
income tax, we produce combined federal and provincial tax that is nothing less 
than a confiscatory tax in the higher rate brackets. To illustrate, the top combined 
marginal rate at present, 84 per cent on foreign investment income, becomes one 
of 94 per cent. Quite aside, therefore, from the question of additional federal 
abatement, there is an urgent need to revise personal income tax rates if only to 
enable the provinces to levy additional taxes of their own. We note, in this 
context, that the top effective rate of any tax must always be a matter of special 
concern. The new system of succession duties we recommend, for instance, involves 
a progressive rate scheme whose top bracket has been set at a level that, under any 
equity rule, leaves less room for increases than those below. 

50. The Government of Ontario should therefore be in the forefront of those 
who advocate a revision of the personal income tax schedule. For the rest, this 
Report builds a clear-cut case for three categories of revisions in federal-provincial 
revenue arrangements. Those in the first category aim principally at enhancing 
the simplicity of the tax system and the structural integrity of collection arrange- 
ments. Here we advocate, for reasons stated in Volume III, that the federal gov- 
ernment vacate the succession duty field, that it allow provincial sharing in the 
yield of the non-resident withholding tax, and that it recognize that its special 
corporate surplus distribution taxes reduce the base on which the provinces levy 
personal income tax. 

51. The revisions in the second category involve increased federal abatement 
in lieu of existing shared-cost programs. There is an exceedingly strong case for 
such abatements, which we develop at length in this Report. But we feel bound 
to point out, in the context of the evident magnitude of the Province's financial 
problems, that tax room in lieu of existing shared-cost programs should not be 
made at the expense of further unencumbered abatement in federal taxes. 

52. This brings us to the third and last category of revisions in federal- 
provincial arrangements: the necessity for unencumbered additional tax abate- 
ments to the Province. Such abatements are clearly indispensable if the Canadian 
fiscal system is to provide an equitable and rational means of financing the enormous 
revenue requirements incurred by the provincial governments in the course of 

282 



Chapter 8: Paragraphs 48-54 

providing ever-rising levels of public services that fall within their constitutional 
jurisdiction. In that we have already stressed this financial need at great length, 
we shall only summarize a few of the guiding principles we develop in other 
chapters. Since the personal income tax has greater elasticity than any other 
revenue field, there can be no doubt that abatement points on this tax are to be 
preferred over all others by Ontario. The only limit that we detect in principle on 
the abatement of this tax is the point beyond which federal capacity to shoulder 
overriding responsibility for economic stabilization policy would be endangered. 
Precisely where this point is reached is in no small part a function of the effective- 
ness of federal-provincial co-ordination in economic matters, but we think that 
in any event this point lies somewhat beyond the 50 per cent abatement level 
frequently cited as an upper limit. Accordingly, we place a high premium on the 
continued development of machinery for this purpose. 

53. If it is necessary to complement personal income tax abatement, as appears 
likely, we are attracted by the possibility of instituting provincial sharing of federal 
consumption tax revenue. Such a move is complicated by the British North 
America Act, which in restricting the provinces to direct taxation, precludes 
provincial sharing of indirect consumption tax revenue by the abatement technique. 
In the absence of an appropriate constitutional revision, the alternative is for the 
federal government to pay to the provinces a portion of its revenue from the general 
manufacturers' sales tax and other excise duties. The admitted deficiency of this 
scheme is that the provinces would receive revenue from tax rates they had not 
levied. But it may well be preferable to the final alternative — additional abatement 
on the corporate income tax. 

54. However apportioned among income and consumption taxes, Ontario's 
need for additional tax room from the federal government is unambiguous. We 
therefore recommend that: 

Ontario negotiate with the federal government for substan- 8:3 
tial tax room over and above any abatements that might be 
granted in lieu of existing shared-cost programs. 



283 



Appendix A 



ORGANIZATIONS FROM WHICH SUBMISSIONS WERE RECEIVED 

Arthur Andersen & Co.* 

Association of Assessing Officers of Ontario, The Research Committee* 

The Association of Canadian Distillers* 

The Association of Mining MunicipaUties of Northern Ontario* 

The Association of Ontario Counties* 

Association of Ontario Land Economists* 

Association of Ontario Mayors and Reeves* 

Automotive Transport Association of Ontario* 

The Board of Education for the City of Toronto 

The Board of Education for the Township of North York 

The Board of Trade of MetropoHtan Toronto* 

Building Owners' and Managers' Association of Toronto 

Bureau of Municipal Research* 

Caland Ore Company Limited 

The Calvin Christian School Society of Toronto^ 

The Canadian Arthritis and Rheumatism Society 

The Canadian Arthritis and Rheumatism Society, Ontario Division 

Canadian Automobile Chamber of Commerce 

The Canadian Bankers' Association 

Canadian Bar Association (Ontario Division), Commercial Law Subsection* 

Canadian Book Publishers' Council* 

Canadian Booksellers Association 

Canadian Construction Association and Affiliated Ontario Construction 

Associations* 
Canadian General Electric Company Limited 
Canadian Institute of Steel Construction 
The Canadian Life Insurance Officers Association* 
The Canadian Manufacturers' Association* 
Canadian National Railways* 
Canadian Pacific Railway Company* 
The Canadian Rehabilitation Council for the Disabled 
Canadian Underwriters' Association 
Canadian Wholesale Council 
Canadian Wine Institute 
City of Niagara Falls 
City of Sarnia 
City of Toronto 



♦Presented brief at a hearing of the Committee. 

tPresented at a public hearing with three others as: Ontario Alliance of Christian Schools. 

284 



Volume 1 



The Committee of Presidents of Provincially Assisted Universities and 

Colleges of Ontario* 
Communist Party of Canada, Ontario Executive Committee* 
The Conservation Council of Ontario* 

Consumers' Association of Canada, Ontario Provincial Association* 
Corporation of the City of Fort William 
The Corporation of The Townships of Medora and Wood 
The County of Ontario* 
The Equitable Income Tax Foundation 
Gas and Petroleum Association of Ontario 
Hamilton Automobile Club 
Immanuel Christian School of East Torontot 
Imperial Oil Limited 

Imperial Tobacco Company of Canada Limited 
The Independent Secondary Schools in Ontario 
The Institute of Chartered Accountants of Ontario* 
The Inter-Church Committee on Legal Affairs* 
The Investment Dealers' Association of Canada* 
The Life Underwriters Association of Canada 
M. Loeb Limited 

Motion Picture Theatres Association of Ontario 
Municipal Clerks and Finance Officers Association of Ontario 
The National Council of the Baking Industry* 
North Western Ontario Municipal Association 
Old Yonge Estates Ratepayers Association 
The Ontario Alliance of Christian Schools* 
Ontario Association of Architects 
Ontario Bar Association, Taxation Subsection* 
Ontario Barbers Association 
Ontario Brewers' Institute* 
Ontario Carbonated Beverage Association* 
The Ontario Chamber of Commerce* 
Ontario Credit Union League Limited 
Ontario Educational Association 
Ontario Federation of Agriculture* 
The Ontario Federation of Anglers & Hunters Inc. 
Ontario Hospital Association* 

The Ontario Library Association, and The Ontario Library Trustees Association 
Ontario Medical Association* 
Ontario Mining Association* 
Ontario Motor League 

Ontario Municipal Purchasing Agents' Association* 
Ontario Professional Foresters Association 



* Presented brief at a hearing of the Committee. 

tPresented at a public hearing with three others as: Ontario Alliance of Christian Schools. 

285 



Appendix A 

Ontario Property Owners Association, and Property Owners Association of 

Metropolitan Toronto* 
Ontario Provincial Council of Women* 
Ontario Pulp and Paper Companies 
Ontario Retail Lumber Dealers Association Inc. 
Ontario School Trustees' and Ratepayers' Association, Inc.* 
The Ontario School Trustees' Council* 
Ontario Separate School Trustees' Association, and L'Association des 

Commissions des Ecoles Bilingues d'Ontario* 
Ontario Teachers Federation* 
Ontario Women's Liberal Association 
Petroleum Association of Ontario* 
Public Utilities Commission of the City of Kingston 
The Retail Council of Canada* 
Roman Catholic Bishops of Ontario* 
Scarborough and Associated Farmers Association* 
School of Economic Science, The Alumni Group* 
Timothy Christian School Association of Torontot 
Toronto District Christian High School Associationt 
Toronto Parking Operators Association 
Toronto Stock Exchange 

Town Planning Institute of Canada, Central Ontario Chapter* 
Trans-Canada Pipe Lines Limited 

The Trust Companies Association of Canada, The Ontario Section* 
The United Church of Canada* 

United Electrical, Radio and Machine Workers of America 
The Urban Development Institute (Ontario Division)* 
Vaughan Farmers Association 
Windsor Estate Planning Council 
York County Federation of Agriculture* 



*Presented brief at a hearing of the Committee. 

tPresented at a public hearing with three others as: Ontario Alliance of Christian Schools. 



286 



Appendix B 



INDIVIDUALS FROM WHOM SUBMISSIONS WERE RECEIVED 

Best, Ralph L. Brantford 

Blackwell, J. M. Scarborough 

Blanchard, Thomas R. Toronto 

Bricker, Harold Hamilton 

Bristol, Everett, Q.C. Toronto 

Bunt, Lome E. Toronto 

Capon, Frank S., C.A.* Montreal 

Clark, Charles R. Angus 

Cookson, T. A. Toronto 

David, Thomas Toronto 

Donovan, William A.* Chatham 

Dorland, Ray O. Chatham 

Edwards, W. A. Toronto 

Fisher, Charles P. Kitchener 

Homsey, G. La Salle 

Kee, Douglas Toronto 

Keele, Mrs. Mary J. Kingston 

Kennedy, Peter J. Brockville 

Kent, Mayor W. A. Newmarket 

Kernighan, H. S., P.Eng.* Milton 

Laurie, R. M. London 

LeLoup, R. H.* Toronto 

Long, Norman W. Toronto 

Lorenzen, Francis, C.A. Windsor 

Lucas, Miss Mary Welland 

Maclaren, G. F., Q.C. Ottawa 

Mannell, Laurie S.* Oakville 

Mcintosh, James Ottawa 

Mcintosh, John Toronto 

McKinney, Norman Toronto 

Menard, Mrs. Lena Campbell Hawkesbury 

Mortinez, Mrs. T. Taylor Toronto 

Pocock, R., P.Eng. Woodbridge 

Ralph, Mrs. WiUiam Falconbridge 

Robert, Miss Germaine Ottawa 

Schofield, Frank Dunnville 

Smith, Marshall Y. London 

Smith, P. J. Toronto 



''Presented brief to a hearing of the Committee. 

287 



Appendix B 




Smith, William 


Scarborough 


Stronach, Mayor F. Gordon 


London 


Templeton, Gilbert 


Toronto 


Thili, John 


Toronto 


Wardle, Ernest 


Ottawa 


White, Frank A. 


London 


Wood, W. C. 


Guelph 


Woodward, A. J. 


Toronto 



♦Presented brief to a hearing of the Committee. 



288 



Appendix C 

STAFF AND CONSULTANTS 

Officials 

F. Warren Hurst, F.C.A. Executive Director 



Secretary 
Editorial Director 



Consumers Gas Co, 

Toronto 
Ontario Treasury Board, 

Toronto 
University of Toronto, 
Toronto 
Director of Economic University of British 
Studies Columbia, Vancouver 

F. Gerald Townsend, C.A. Director of Tax Thorne, MulhoUand, 

Structure Studies Howson & McPherson, 

Toronto 



Hugh R. Hanson 
Prof. J. Stefan Dupre 
Prof. Robert M. Clark 



Research Staff 
Anthony G. S. Careless 
Dr. Kenneth Cheng 
Colin C. Dalingwater, C.A. 
Robert C. Evans 
Lionel D. Feldman 
James Forsyth, C.A. 
Frank G. Felkai 
Vinay A. Gupta, C.A. 
Mrs. Ann L MacGregor 
William Reynolds 
John L. Scadding 
John G. Sheldrick, C.A. 
Mrs. M. Jacqueline Taylor 
John D. Taylor, C.A. 
C. Robert Tyson 
Lawrence A. Ward 
Henry L. E. White 

Editorial Associates 
Frederic H. Finnis 
Prof. D. G. Hartle 
Prof. J. E. Hodgetts 
Prof. D. C. MacGregor 
Prof. David Nowlan 
Ronald Robertson 



University of Toronto, Toronto 

Department of Economics & Development, Toronto 

Toronto 

Harvard University, Cambridge 

Toronto 

Treasury Department, Hamilton 

University of Toronto, Toronto 

Treasury Department, Toronto 

Department of Municipal Affairs, Toronto 

Arthur Andersen & Co., Toronto 

University of Chicago, Chicago 

Toronto 

Toronto 

Toronto 

University of Toronto, Toronto 

University of Toronto, Toronto 

Osgoode Hall, Toronto 



Toronto 

University of Toronto, Toronto 
University of Toronto, Toronto 
University of Toronto, Toronto 
University of Toronto, Toronto 
Canadian Tax Foundation, Toronto 



289 



Appendix C 

Editorial Assistants 
Mrs. Millie Goodman 
Robert A. Fenn 
Cash Mahaffy 
Geoffrey Matthews 

Co-ordinating Editor 
Mrs. Barbara Urquhart 

Indexer 

Gerald Brougham 



Canadian Tax Foundation, Toronto 

University of Toronto, Toronto 

Toronto 

University of Toronto, Toronto 



Toronto 



Toronto 



Secretarial 

Miss Rosalind E. Boyd 
Miss M. Josephine Coulthard 
Miss Ann Kesnesky 
Mrs. Wilma M. Snell 

Consultants and Research Study Authors 



Prof. John R. Allan 
George Bam 
Prof. Clarence L. Barber 
W. A. Beckett Associates 

Ltd. 
Brian Bixley 
W. D'Arcy Blair, Q.C. 
Prof. Ronald M. Bums 



McMaster University, Hamilton 
Upper Lakes Shipping Ltd., Toronto 
University of Manitoba, Winnipeg 
Toronto 



University of Toronto, Toronto 
Toronto 

Queen's University, Kingston 
William A. Bradshaw, C.A. Canadian Institute of Chartered Accountants, 

Toronto 
Department of Finance, Ottawa 
Toronto 
Toronto 
Wahn, Mayer, Smith, Creber, Lyons, Torrance 

and Stevenson, Toronto 
University of Toronto, Toronto 
University of British Columbia, Vancouver 
University of Toronto, Toronto 
Ottawa 



Douglas H. Clark 
Philip T. Clark, F.C.A. 
James Cole 
G. Edward Creber, Q.C. 



Prof. John H. Dales 
Lloyd F. Dctwillcr 
Prof. Ian Drummond 
A. Kenneth Eaton 

(deceased) 
Stanley E. Edwards, Q.C, 



Arnold Englander 
Ronald J. Farano 
J. Eric Ford, C.A. 
Michael D. Goldrick 



Eraser, Beatty, Tucker, Mcintosh and Stewart, 

Toronto 
Toronto 

Goodman, Cooper, Cohen and Farano, Toronto 
Clarkson, Gordon & Co., Toronto 
Bureau of Municipal Research, Toronto 



290 



Volume 1 



Wolfe D. Goodman 
Dr. John A. G. Grant 
Frank J. Hamill 
Prof. C. Lowell Harriss 
Prof. Dennis C. Hefferon 
Laratt T. Higgins 

John M. Hodgson 
E. A. Jarrett, F.C.A. 
G. H. Johnson, C.A. 
Prof. Harry G. Johnson 
Prof. James A. Johnson 
W. J. Johnston 
Prof. Bora Laskin 
William H. Merritt 
Prof. J. B. Milner 
Prof. A. Milton Moore 
John Palmer, C.A. 
Peat, Marwick, Mitchell 

&Co. 
J. Harvey Perry 
Joseph Perry 
Henry M. Ploeger 

Prof. Kenyon E. Poole 
B. U. Ratchford 
Robert F. Reid, Q.C. 
Prof. John Sawyer 
Prof. Anthony Scott 
Dr. Eric C. Sievwright 
James I. Stewart 
Prof. Robert W. Thompson 
David. Y. Timbrell, C.A. 
Dr. Mabel Walker 
Prof. J. C. Weldon 
Prof. Philip H. White 
Gerald I. M. Young 



Goodman, Cooper, Cohen and Farano, Toronto 

Wood, Gundy & Co., Toronto 

Blake, Cassels and Graydon, Toronto 

Columbia University, New York 

Osgoode Hall, Toronto 

Hydro-Electric Power Commission of Ontario, 

Toronto 
Blake, Cassels and Graydon, Toronto 
Glendinning, Campbell, Jarrett & Dever, Toronto 
Thorne, Mulholland, Howson & McPherson, Toronto 
University of Chicago, Chicago 
McMaster University, Hamilton 
The Municipal Board of Manitoba, Winnipeg 
University of Toronto, Toronto 
Philips Electronics Industries Ltd., Toronto 
University of Toronto, Toronto 
University of British Columbia, Vancouver 
McDonald, Currie & Co., Toronto 
Toronto 

Canadian Bankers' Association, Toronto 
Northwestern University, Evanston 
Department of Economics and Development, 

Toronto 
Northwestern University, Evanston 
Federal Reserve Bank, Richmond 
Day, Wilson, Campbell & Martin, Toronto 
University of Toronto, Toronto 
University of British Columbia, Vancouver 
Toronto 

Stewart, Young and Mason, Toronto 
McMaster University, Hamilton 
McDonald, Currie & Co., Toronto 
Tax Institute of America, Princeton 
McGill University, Montreal 
University of British Columbia, Vancouver 
Stewart, Young and Mason, Toronto 



291 



Appendix D 



STUDIES TO BE PUBLISHED BY THE COMMITTEE 

Study A uthor 

The Incidence of Government Revenues and Dr. James A. Johnson 

Expenditures 

Intergovernmental Finance in Ontario: Dr. J. Stefan Dupre 

A Provincial-Local Perspective 

The Ontario Business Tax William H. Merritt 

Ontario Estates in 1963-64: A Tabular Analysis of Dr. Kenneth Cheng, Dr. 

Personal Wealth held in Estates out of which John A. G. Grant, and 

Ontario Succession Duties were Paid Henry M. Ploeger 

The Retail Sales Tax: An Economic Study Dr. Kenyon E. Poole 

Theory of Fiscal Policy as Applied to a Province Dr. Clarence L. Barber 



292 



Index 



Abbott, D. C, on transportation tax, 39: 5 

Ability to pay: 

development of progressive tax system, 

1: 40 
and the law of diminishing marginal 

utility, 1: 41-7 
as principle of tax equity, 1: 35-50 
see also under specific taxes 

Accessions tax, 28: 12-17 
defined, 28: 12 

difficulties, administrative, 28: 17 
difficulties of application, 28: 14-16 

Accounting systems, public: 
municipal, 9: 100-101 
national-accounts approach, 3: 40; 24: 

14 
"ordinary" and "capital" expenditure, 

3:39 
provincial, 24: 7-14 

Advertising cost, retail sales tax on, 
29: 69-71 

Advisory Committee on Child Welfare, 
1964 report, 23: 90 

Aged, homes for the, 21: 55-7 

Agreements for sale and purchase: and 
succession duties, 28: 104 

Agricultural Rehabilitation and Develop- 
ment Act, 11: 191 

Agricultural Societies Act, property tax 
exemption, 12: 16 

Agriculture: 

labour force, reduced, 4: 8 
relative decrease in net value, 4: 8 

Agriculture, Department of: 

community centre grants, 21: 82 

loans, 36: 6 

revenue from sales, 37: 13 

Aitcheson, J. H., 10: 6, 12n 

Alberta: 

administration of justice, responsibility 

for, 9:91 
amusements tax — none, 31: 22 
corporate income tax, 27: 2 
county system and school finance, 

20:77 



Alberta: — Continued 

and the death tax structure, 28: 68 

federal hospital operating grants, com- 
pared with per-capita income, 
38:37 

fire insurance tax, 31: 73 

forest resources, revenue from: 
Crown dues, 33: 12 
tenure charges (1964), 33: 10, 11 

home-owner grants, 11: 83 

income tax, personal, adoption of, 
26: 3, 48 

interprovincial movements of persons, 
26: 138, 139 

motor vehicle fuel, tax rate on, 30: 7 

motor vehicle licensing reciprocity with 
Ontario, 30: 60 

motor vehicle registration fees (1964) 
T30:4 

municipal revenue from permits and li- 
cences, 17: 7 

municipal utilities, revenue from, 17: 50 

mineral production: 
royalty on, 32: 24 
value, 1966, T32: 5 

mining lands taxes, T32: 9; 32: 144, 
145 

mining tax, type of, 32: 24 

poll tax abolished, 16: 5 

retail sales tax, 1936-37, 29: 12 

retail sales tax — none today, 29: 18, 
99 

succession duty, adoption of, 28: 48, 
50 

tobacco tax — none, 31: 7 

wine prices, T35: 5 

see also Provinces 

Alcoholic beverages, revenue from, 
35: 1-91 
background, 35: 3-11 
burden, 35: 64-8 

liquor licence fees, 35: 68 
spirits and beer, 35: 65-6 
wine, mark-ups and taxes on, 35: 67 
and consumer demand, 35: 75-85 
elasticity and revenue, 35: 84-5 
federal-provincial policy co-ordination 

needed, 35: 91 
fifth most important revenue source, 
35: 1 



Chapter numbers are in bold face; paragraph numbers in light face. T= Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



293 



Index 

Alcoholic beverages — Continued 
general considerations, 35: 63-91 
general recommendations, 35: 86-91 
growth and sources of revenue, 35: 

9-11 
justification, 35: 69-74 
social costs, 35: 70-72 
social policy based on consensus, 
1: 67, 68, 72; 35: 73-4 
Liquor Licence Board, licences and 

fees, 35: 42-54 
liquor licences and "monopolistic com- 
petition", 35: 48, 52 
liquor regulation, development of, 35: 

3-8 
mechanics of sale and control, 35: 
12-27 
Liquor Control Board, 35: 13, 14-16 
Liquor Licence Board, 35: 21-7 
off-premises consumption, 35: 13-19 
on-premises consumption, 35: 20-27 
statutes governing, 35: 12 
pricing policies, 35: 6, 28-62 

fees for wineries, breweries, 35: 37 
gallonage tax on beer, 35: 39-41 
tax on Canadian wine, 35: 38 
principal sources, 35: 11 
projected increase (1968-69), 8: 34, 

36, 39 
reason for government's traffic in 

liquor, 35: 1, 88 
related aspects of revenue policy, 

35: 55-62 
taxes and fees on sale of Canadian 

wine and beer, 35: 36-41 
US and UK studies on price and 
income elasticity of demand, 
35:77-81 
implications for Ontario, 35: 82-3 
see also Liquor Control Act, Liquor 
Control Board, Liquor Licence 
Act, Liquor Licence Board 

Alcoholism: 

and beer-drinking, 35: 90 
rates of, 1939-61, 35:71-2 

Alcoholism and Drug Addiction Research 
Foundation, 35: 90; 38: 1 1 

Alcoholism and Drug Addiction Research 
Foundation Act, property tax ex- 
emption, 12: 16 

Allan, James N., and introduction of 
retail sales tax, 29: 17 

Allan, John R., on the income tax burden 
on Canadian shareholders, 27: 47n 

Amusements tax: see Hospitals tax 

Andrews, J. M., see Johnson, A. W. 



Annual Report of Municipal Statistics: 
discrepancies in exemption data, 12: 

21-2 
inadequacies of debt reporting, 22: 

110-14 
weaknesses of, 9: 97-103 

Annuities: small, exemption from suc- 
cession duties, 28: 130 

Art galleries: sales tax exemptions, 29: 78 

Arthritis and Rheumatism Society, 38: 50 

Assessment, provincial taxes — general 

procedures, 25: 13-15 
government should publish information 

memoranda, 25: 15 
limitation of assessment period, 25: 13 
reason for tax demands should be 

stated, 25: 14 

Assessment, real property, 11: 27-68, 
13: 1-169 
appeals: see Local revenue system, 

appeals 
assessed value and taxable assessment, 

11: 67-8 
Assessment Branch of Department of 

Municipal Affairs, 10: 95 
bridges and tunnels crossing provincial 

boundaries, 13: 63-4 
capital vs rental value, 11: 35-40 
cost of levying and collecting, 13: 5 
county assessors, 10: 92-3 
changes, late nineteenth century, 10: 30 
date and frequency of valuation, 

11: 49-52 
determining actual value, statutory 

direction for, 11: 31-3 
defining value for property tax pur- 
poses, 11: 30 
equalization: 

county, 13: 139-43; 18:21-2 
provincial, 10: 81, 105; 11: 55-9; 13: 
90, 119, 137-47 
equalization indexes, 13: 31 
equitable assessments, achievement of, 

11: 29 
of exempt and payments-in-lieu prop- 
erties, lag in, 10: 99 
fixed, 12: 153-66 
function, 13:93-115 

the Assessment Manual, 13: 108-15 
"assessment" vs "appraisal", 11:44; 

13:98-104 
estimating value, 13: 105-7 
the year's work, 13: 93-7 
golf courses, 10: 116; 12: 155-7 
and grants to school boards, 20: 12, 

13. 14 
Hydro-Electric Power Commission, 
13:69-71 



294 



Index 



Assessment, real property — Continued 
improving standard of, 10:91-5 
inequities of, 13: App. 
in law and in practice, 10: 78-81 
municipal utilities, 13: 65-8 
1940 values, 10: 79, 81; 13: 10 
pipe lines, transmission, 13: 54-9 
present vs highest and best use, 11: 41-3 
problems stemming from legislation, 
13: 33-88 
assessment, basis of, 13: 40 
assessors, appointing and licensing 

of, 13: 39 
statutory sources, 13: 33-8, App. 
uniformity, steps toward, 13: 41-5 
provincial manual, 10: 95, 106; 13: 30 
provincial statutes other than The As- 
sessment Act with a bearing on the 
assessment function, 13: App. 
"rack rent" as assessed value, 10: 23 
railways, 13: 60-62 

reform, alternative paths of, 13: 116-35 
assessment at present value, 

13: 125-8 
local vs provincial administration, 

13: 116-24 
reassessment, needed frequency of, 
13: 129-35 

census taker's review, 13: 134 
reported changes, 13: 134 
spot checking, 13: 134 
three-year inventory, 13: 134 
valuation data, processing of, 
13: 134 
reform, preparation for, 13: 136-69 
cost and timing, 13: 165-8 
developing a professional approach, 
13: 148-53 

licensing of all municipal asses- 
sors, 13: 152 

training program, 13: 151 
equalization, 13: 137-47 

county equalization, 13: 139-43 
large assessment units, proposed, 
13: 146 

systems of equalization, 13: 138-9 
public acceptance of actual value, 
13: 154-64 
reform in progress, 13: 89-92 
requirements: 

comprehensive coverage, 13: 2, 4 
equitability, 13: 3, 4 
separating the residential assessment 

from the farm, 13: 85-8 
special-assessment properties, 
10: 107-8, 13:46-84 
problems, 13: 72-84 



Assessment, real property — Continued 

state of assessing in Ontario, 13: 8-32 

Assessment Branch Survey, 13: 24-5 

assessing practice, shortcomings 

of, 13: 25 

discrimination against classes of 

properties, 13: 13, 16 
farm assessments, 13: 18-23 
inequalities, causes and consequences 

of, 13: 29-32 
parallel findings in the rest of Can- 
ada, 13: 26-8 
under-assessment, problem of, 

13: 9-12, App. 
variation within one class of prop- 
erty, 13: 14-16 
statutory valuation, 10: 7 
telephone and telegraph companies, 

13: 47-9 
total taxable, unequalized (1965) 12: 

1, 19 
transportation companies, 13: 50-53 
under-assessment, problem of, 10: 
105-6, 11: 27-68 passim, 13: 9-12. 
App. 
exempt properties, 12: 2 
utility companies, 13: 50-53 
valuation restored to assessor, 10: 12 
value by comparison with similar 

properties, 11: 34 
value in exchange, 11: 44-6 
valuing land and structures separately, 

11:47-8 
yield. 13: 6 

Assessment Act, 10: 92; 13: passim; 33: 1 
assessors, appointment and licensing, 

13: 39 
assessment, basis of, 13: 40 
and the Beckett Committee, 10: 89 
"business" not defined, 11: 138 
county — role in collections, 14: 68 
exemptions, 12: 12, 13, 105 
forested land, 12: 149, 152 
places of worship, 12: 119, 120 
exemptions from business tax, 12: 

169-72 
"farm" not defined, 11: 202 
function of, 13: 34 
improved basic definitions suggested, 

11:23-5 
instalment payment of tax, 14: 37 
"land" — use of word, 11: 17-19 
and levying taxes by mining munici- 
palities, 12: 175-6 
methods of enforcing collection. 14: 59 
and mining profits tax, 10: 71 



Chapter numbers are in bold face; paragraph numbers in light face. T^ 
Vol. 1, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



: Table. 



295 



Index 



Assessment Act — Continued 

and mining properties, 12: 175-87; 32: 

53 
and The Mining Tax Act, 32: 18 
overdue taxes, mterest on, 14: 54 
prepayment of taxes, 14: 48 
and property valuation, 10: 107-8 
Provmcial Land Tax Act and Local 
Roads Boards Act, assessment pro- 
visions of, transferring to Assess- 
ment Act, 13: 41-5 
special-assessment properties, 11: 

165-74 
status of County Judge, 18: 3 
tax sales procedure, 14: 79, 81, 82 

Assessment Act of 1793, 10: 3, 6, 7 

Assessment Act of 1803, 10: 7 
made permanent, 1825, 10: 8 

Assessment Act of 1850, 10: 17-23 
amendments to, 10: 18-22 

Assessment Act of 1853, 10: 23 

Assessment Act of 1866, 10: 25-6 

Assessment Act of 1904, 10: 53-60, 61 

exemptions, 26: 39-40, 43 

and Maclennan Commission, 10: 53-60 
passim 

and municipal personal income taxes, 
26: 38-41 

personal employment income exemp- 
tions, 26: 40, 43 

steps toward compliance, 26: 41 

Association of Assessing Officers, 10: 94 

Association of Ontario Counties, and 
local government reform, 23: 17 

Atlantic provinces: 
poll tax, use of, 16: 3 

Atlantic Smoke Shops Ltd. v. Conlon 
and A ttorney-General for Canada, 
30: 29n 

Attorney General, Department of, fee 
revenue, 37: 4, T37: 1 

Australia, capital gains, 26: 194 

Baldwin Act (1849), 10: 15, 33 

Bank of Canada, monetary policies and 
supply of capital, 26: 17 

Banks: corporate taxes, 27: 8, 9, 127, 133 

Barber, Clarence L., 3: lOn, 29n 34n 
on unbalancing of the government 
budget, 3: 5 

Basic shelter exemption: 

cost of establishing, 11:1 14-17 
50 per cent ceiling, 11: 103 
fiscal effects, 1966, 8: 6, T8: 2 



Basic shelter exemption: — Continued 
and landlords holding long-term leases, 

11: 113 
level of property taxation, impact on, 

11: 102 
mechanics, 11: 108-11 
proposed, 11: 100-119 
recreational properties, 11: 126, 128-30 
and regressiveness of the property tax, 

11: 106 
and residential taxpayers, effects on, 

11: 104-5 
shared-occupancy accommodation, 11: 

101, 112 

Basic Shelter Exemption Grant, 8: 13, 24, 
25, 40, 43; 11: 117-18; 21:96 
will mitigate regressiveness of property 
tax, 8: 10, 25 

Beach Protection Act, 32: 1 

Beaver Valley Developments Limited v 
Township of North York, 15: 75 

Beckett Committee: see Select Committee 
on The Municipal Act and Related 
Acts 

Beer, draft: gallonage tax, 35: 39-41 
sales tax exemption, 29: 74 

Bell Telephone Company, 17: 36 

Beneficiary under succession duty: 

effects of proposed rate schedule, 28: 

168 
obligation to pay duties, 28: 171, 173 
proposed classes, 28: 146 
and rates of tax, 28: 152-4 
in Succession Duty Act, 28: 56, 129 

Benefits received: 

earmarking and funding, 1: 31-2 

and fees, 1: 27 

as principle of tax equity, 1: 26-34 

where inappropriate, 1: 29 

see also under specific taxes 

Bentham, Jeremy, 28: 24 

Bird, Frederick L., 13: 15 

Blind Persons' Allowance, federal abate- 
ment for, 26: 114, 115 

Blind Persons' Allowance Act, 38: 73 
and OMSIP premiums, 38: 16 

Board of Review (proposed): 25: 30 
costs of hearing before, 25: 36 

Boards and commissions: 

finances not reported in Public Ac- 
counts, 24: 8 

revenue responsibility should be under 
Department of Provincial Reve- 
nue, 25: 8 



296 



BoUens, John C, on the fragmentation of 
governmental activities, 23: 34n 

Bollinger, Lynn L., see Butters, J. Keith 

Bondett, Harold, formula for mining pay- 
ments, 12: 228-9 

Books, and sales tax exemptions, 29: 79 

Boy Scouts Association, property tax 
exemption, 12: 13, 105 

Bradshaw, Thomas: on municipal credit 
worthiness, 22: 119 

Brandon, Manitoba, personal property 
tax replaced by business tax, 10: 
- 38 

Break, G. F., on income taxes and the 
incentives to work, 26: 12n 

Breweries, fees for, 35: 37 

Brewers' own retail stores: 

percentage of total sales of alcoholic 

beverages, 35: 29 
sale and control of alcoholic beverages: 

off -premises consumption, 35: 13, 

18 

Brewers' Warehousing Company Ltd: 

creation of, 35: 5 

percentage of total sales of alcoholic 
beverages, 35: 29 

ratio of operating expenses to sales, 
35:61 

sale and control, off-premises consump- 
tion, 35: 13, 17 

British Columbia: 

administration of justice, responsibility 

for, 9:91 
alcoholism rates, 1939-61, 35: 71 
amusements tax — none, 31:22 
commercial vehicles, municipal licens- 
ing of, 30: 80 
corporate income tax, 27: 2 
and death tax structure, 28: 68 
federal hospital operating grants, com- 
pared with per-capita income, 
38: 37 
forest resources, revenue from, 33: 35 
Crown dues, 33: 12 
logging tax, 33: 40 
rental based on area, 33: 28 
rental based on stumpage, 33: 26 
tenure charges, 33: 10-11 
home-owner grants, 11: 83 
income taxes, 27: 1 1 
interprovincial movements of persons, 

26: 138, 139 
meals tax, 29: 54 



Index 

British Columbia: — Continued 

mineral production value, 1966, T32: 5 
mining acreage tax, T32: 9, 32: 144 
mining profits tax, rates of, 32: 124 
mining tax: 

base, 32: 25-31 passim 
rates and basic exemption, 32: 32, 33 
type of, 32: 24 
motor vehicle fuel tax rate, 30: 7 
motor vehicle licensing reciprocity with 

Ontario, 30: 60 
motor vehicle registration fees (1964), 

T30:4 
municipal revenue derived from 
permits and licences, 17: 7 
personal income tax (1876), 

26: 2, 3, 48 
personal property tax, 10: 38 
poll tax abolished, 16: 5 
property tax collections, percentage 

collected, 14: 24 
real property, assessment of, 11: 32 
retail sales tax, 29: 15 

production machinery, 29: 67 
succession duties, 28: 40 
assessment of, 28: 224 
compared with Ontario and Quebec, 

28: 155 
dispositions, three-year period prior 

to death, 28: 107 
increased tax credit, 1964, 26: 75 
introduction of, 28: 48, 49 
re-entry into (1963), 26: 73 
uniform statutes, 28: 226 
tobacco tax. T31: 1 
water power rentals, 34: 16, 17 
see also Provinces 

British North America Act, 2: 11, 18, 43 
federal abatement of consumption 

taxes, 8: 53 
interpretations by Judicial Committee 

2: 17 
limitation of provinces to direct 

taxation, 25: 9, 26: 1 
and municipal-provincial relations, 

2:69 
and property tax exemption, 12: 6 
and provincial taxing powers, 26: 36 
separate schools, 2: 114 
succession duty: 

vs estate tax, 28: 44 
tax base for, 28: 61 
taxation of government entities, 2: 61 
tax-exempt status of provincial 

properties and HEPC, 12: 30 



Chapter numbers are in bold face; paragraph numbers in light face. T= Table. 
Vol. L 1-8; Vol. n, 9-23; Vol. IH, 24-40 



297 



Index 



Buchanan, James M.: 

on federalism and fiscal equity 

2: 48n, 49n 
the pubUc finances, 27: 73 

Budget Statement (provincial), 24: 5 

Buffalo and Fort Erie Public Bridge 

Authority, fixed taxation, 13: 63-4 

Burlington Skyway, 30: 74, 79 

Business, definition of, 11: 138-40 

Business, family: and succession duties, 
28: 189-96 

Business income: 

allocation of between provinces, 
26: 102-10 
complications of varying tax rates, 

26: 145-53 
part-time resident of Canada, 
26: 108 
loss carry-over, -back, 26: 180 

Business taxes: 11: 131-207 
alternatives, 11: 141-6 

charges for municipal services, 

11: 144 
non-property taxes, 11: 143 
turnover tax, 11: 145-6 
appraisals of, 10: 88 
assessment and taxation, 10:110-11; 

11: 131-64 
farm properties, 11: 178-207 
importance to municipalities, 6: 22 
improvement of, 11: 147-57 

flat-rate business tax, effects of, 
11: 152-7 
and interprovincial competition, 

11: 151 
mining properties, 11: 175-7 
ordinary realty tax, 11: 133-7 
proposed, 11: 158-64 

effects on current leases, 11: 160-63 
occupant tax, 11: 159 

problem of tax delinquency, 
11: 164 

realty tax on owner, 11: 159 
proposed by Maclennan Commission, 

10: 40, 42-3 
and school costs, 11: 136 
transportation and communications 

properties, 11: 165-74 
types of, 11: 131-2 
variable rate, 6: 2, 24-5; 11: 132 
weakness, 11: 149-51 

Butters, J. Keith, Lawrence E. Thompson 
and Lynn L. Bollinger, 
Effects of Taxation: Investment hy 
Individuals, 26: 19n 



Cairns Construction Ltd.; v. Government || 
of Saskatchewan, 30: 29n 1 

California: 

hotel and motel rooms tax, 19: 5, 7n 
retail sales tax audit, 29: 103 

Canada Assistance Plan, 21: 43, 45 
and Children's Aid Societies, 21: 53 

Canada Pension Plan: funds used for 
school borrowing, 20: 47; 
22: 136-7 

Canada Student Loan Plan, 36: 7 

Canadian Good Roads Association, on 
road classification, 21: 23 

Canadian National Exhibition Associa- 
tion: exempt from Hospitals Tax 
Act, 31: 15 

Canadian National Railways, payment of 
full local taxes, 12: 80, 88 

CPR V. Sudbury, 13: 80n 

Canadian Red Cross Society, 38: 50 
property tax exemption, 12: 165 

Cancer Act, property tax exemption, 
12: 16 

Capital, flow of, effect of corporate in- 
come tax on, 27: 35-7 

Capital gains, 26: 187-201; 27: 102; 28: 2 
conclusions, 26: 201 
economic effects of tax, 26: 199-200 
equity vs. certainty, 26: 197 
lack of tax permits escape from taxes 

by reinvestment, 27: 72 
minimum conditions for tax, 26: 198 
practices in other countries, 26: 190-95 
problems of distinguishing from tax- 
able income, 26: 188-9, 196 
question of equity, 26: 189, 195-9 

Capital levies, special, 15: 4-57 

apportioning the cost of projects, 
15: 36-44, 54-7 
exemptions, 15: 41-2, 53 
municipal share, 15: 37-8 
owner's share, 15: 39-40 
capital works financed by, 15: 7-9 
definition, 15: 4 

initiating works financed by, 15: 10-35 
Drainage Act and Tile Drainage 

Act, 15: 4, 27-29 
Local Improvement Act, 

15:4, 11-19, 34 
Municipal Act, 15: 4, 20-25, 34 
municipal council, 15: 34-5, 52 
Ontario Water Resources Commis- 
sion Act, 15: 4, 26 
Police Act, 15: 4, 33 
Public Utilities Act, 15: 4, 32 
Telephone Act, 15: 4, 30-31 



298 



Capital levies, special — Continued 
rationalizing, 15: 45-57 
revenue from, 15: 5-6 

see also Developers, capital works 
financed by 

Capreol, Frederick Chase, 39: 28 

Cemeteries, property tax treatment, 12: 
129-32 

Centennial Centre of Science and Tech- 
nology Act, property tax exemp- 
tion, 17: 16 

Central Canada Exhibition Association, 
exempt from Hospitals Tax, 
31: 15 

Central Mortgage and Housing Corpora- 
tion, 14: 40; 22: 42-5 
municipal borrowing through, inade- 
quately reported, 22: 113 

Charitable, community service and other 
non-profit organizations: property 
tax exemption, 1: 67, 69, 72; 12: 
133-43 

Children's Aid Societies, 21: 2, 39 
property tax exemption, 12: 13 
and public welfare, 23: 86 
special status, 12: 142 
and welfare grants, 21: 53-4 

Children's Institutions Act, 21: 53 

Children's Mental Hospitals Act, property 
tax exemption, 12: 16 

Churches: see Places of worship 

Citizens Research Institute: and the 

growth and nature of subdivision 
agreements, 15: 62n, 63-8 

City Engineers' Association, and the 

growth and nature of subdivision 
agreements, 15: 63-8 

Civil Service, Department of, no inciden- 
tal revenues, 37: 2 

Clark, Robert M., Development of the 
Personal Income Tax, 26: 43n 

Coins: sales tax exemption, 29: 81 

Colleges of Applied Arts and Technology: 

see under Education 
Commission on Municipal Institutions 
(1888), 10: 33 

on personal property tax, 10: 37 

Commission on Municipal Taxation 

(1893), and personal property tax, 
10: 37 



Index 

Commission on Railway Taxation, 1904, 
10:51-2 
and special-franchise properties, 10: 52 

Commission on Taxation, 1893, 10: 34 
and exempt properties, 10: 102 

Commission on Workmen's Compensation 
Act' 
1950, 38: 58n 
1966, 38: 58n 

Common Schools Act of 1816, 20: 6, 11 

Common Schools Act of 1850, 10: 16 

Communications properties; see Trans- 
portation and communications 
properties 

Community Centres Act, property tax 
exemption, 12: 15 

Community Enrichment Grant, proposed, 
21: 85-9 

Community of property; and succession 
duties, 28: 81-2 

Community Psychiatric Hospitals Act, 
property tax exemption, 12: 16 

Community services, grants for, 21: 81-9 

Conditional grants: see under Federal- 
provincial shared-cost programs; 
Grants 

Conservation Authorities Act, property 
tax exemption, 12: 15 

Conservation grants, 21: 65-6 

Consumption expenditure, as index of 
tax-paying capacity, 1: 36-9 

Corporate financing, efi'ects of corporate 
income tax, 27: 59-61 

Corporate income tax, 27: 24-113 
allocation of income, problems of, 

27: 80-83 
collection agreement: 

advantages of, 26: 122; 27: 85-9 

assurance of additional tax from 

reassessments, 27: 89 

bad-debt losses, elimination of, 

27:88 

economy and efficiency of admin- 
istration, 27: 87 

reduction in cost of compliance, 

27: 86 

uniformity, 27: 85 
disadvantages. 27: 90-96 

misallocation of taxable income 

among provinces, 27: 92 

rate limits, possibility of, 27: 91 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



299 



Index 



Corporate income tax, 
collection agreement: 

disadvantages — Continued 

tax base, loss of autonomy over, 
27: 94-6 

weaker bargaining position, 27: 93 
recommendation, 27: 97 
description, 27: 24-8 
different provincial rates, and geo- 
graphic distribution of investment, 
27: 67 
economic consequences of increase, 

8:4-7 
economic effects, 27: 50-67 

Canadian exporters, competitiveness 

of, 27: 62-7 
corporate financing, 27: 59-61 
investment, 27:51-8 

absence of capital gains tax, 
27:52 

adverse effects, 27: 56 
effect of rates higher than federal 

abatement, 26: 155 
effect on flow of capital, 27: 35-7 
equity, 27: 41-9, 69-72, 74 
ability to pay, 27: 41-2 
"double taxation of corporate in- 
come", 27: 43ff 
and personal income taxes, 27: 43 
retained portions of the corporate 
profits, 27: 46ff 
federal corporate taxes, sharing of 

special, 27: 105 
first imposed by provinces, 27: 1 1 
incidence, problem of, 27: 29-40 
long-run shifting, 30: 34-7 
separate entity vs. a type of partner- 
ship, 27: 30 
short-run shifting, 27: 31-3 
statistical evidence on the shifting of, 
27: 38-40 
inferior source of added revenue, 8: 18 
justification for, 27: 68-84 
levied by Province, 10: 75 
municipal, 10: 75, 76, 77; 19: 15 
need for uniformity, 27: 78-9 
1952 tax rental agreement, 26: 57 
1962 changes in, 27: 13 
non-resident withholding taxes, 27: 106 
and personal income tax, problems, 

26: 186 
projected increases, 8: 33, 34, 36, 37, 

39 
reintroduced, 1957, 26: 61 
reliance on, 27: 74-7 
shifting, and economic effects, 27: 

51-67 passim 
shifting, and problem of equity, 
27: 42-9 



Corporate income tax — Continued 

should be integrated with personal in- 
come tax, 27: 49, 74, 101 

tax base, federal-provincial consulta- 
tion on, 27: 98-102 

yield, 27: 68 

see also Corporations tax 

Corporate tax adjustment grant, and 
the elementary school boards, 
20: 28-30 

Corporations Information Act, 27: 124 

Corporations tax, 27: 1-144 
admmistration, 27: 16-22 

cost of operating the Branch, 27: 19 
notices of income tax reassessment, 

27:21 
numbers of corporations, 1964, 

27: 18 
tax roll, maintaining, 27: 16-17 
administration and appeals, recommen- 
dation, 27: 136-44 
appeals, 27: 23 

categories of corporations, 27: 8 
corporations, first taxed as separate 

entities, 10: 30 
deduction for mining tax, 32: 137 
exemptions from insurance premium 

taxes, 31: 74 
federal tax on corporate distribution, 
effect on provincial personal in- 
come tax base, 8: 50 
federal tax on utilities, transfer to 

provinces of, 27: 103-4 
first imposed, 10: 51 
history, 27: 6-15 

no allocation to provinces, 27: 8 
and insurance taxes, 27: 72 
in lieu of taxes on corporate distribu- 
tions — provinces should share in 
yield, 26: 129, 132-3 
and local income taxes, 19: 15 
and the logging tax, 26: 160; 33: 43 
paid-up capital and place-of-business 

taxes, 27: 11, 4-25 
as percentage of P.D.P., 6: 49 
problem of finding base of taxation, 

27: 8 
projected revenue from, T6: 7 
and provincial government enterprises, 

36:21 
reintroduced, 1957, 26: 61 
revenue, 1961-66, 27: 5 
revenue 1965-66, and administrative 

body, T25: 1 
special taxes, 27: 126-35 

chartered banks, 27: 126, 133 
conclusions, 27: 133 
express companies, 27: 130, 133 
insurance companies, 27: 132, 133 
railway corporations, 27: 128, 133 



300 



Corporations tax, 

special taxes — Continued 

sleeping, parlour and dining car 

companies, 27: 131, 133 
summary, 27: 134-5 
telegraph companies, 27: 129, 133 
tax rental agreements, 26: 57; 

27: 13-14 
various Ontario taxes introduced, 

27: 12, T27: 2 
see also Corporate income tax 

Corporations Tax Act, 1957, 27: 14-15 

appeal procedure, 25: 27 

conflict with federal Income Tax Act, 
- 27: App. 

definition of "permanent establish- 
ment", and the retail sales tax, 
29: 114 

elimination of conflict between federal 
and provincial statutes, 27: 107-13 

and Mining Tax Act, 32: 134 

"permanent establishment", 26: 103 

refund, conditions for, 25: 19 

Crawford, K. G., Canadian Municipal 
Government, 9: 93n, 12: 29 

Creighton, Donald, on liquor controls, 
35:4 

Crown Timber Act, 33: 1, 2, 4-39 
historical background, 33: 5-6 
present revenue structure, 33: 7-9 
and property tax exemption, 12: 14 
types of charges; 

Crown dues, 33: 8-9 

severance, 33: 8 

tenure, 33: 8 
types of cutting licences, 33: 7-9 

district cutting, 33: 7-8 

order-in-council, 33: 7-8 

sales, 33: 7-8 

salvage, 33: 7-8 

Dalton, Hugh, on multiple tax system, 
1: 55-6 

Death taxes, 28: 18-23 
characteristics, 28: 24-46 
defined, 28: 19 

economic consequences of, 28: 34-9 
effect of on total accumulation of 

capital goods, 28: 38 
impact on savings, 28: 35-7 
private businesses, effect on owners, 

28: 39 
private wealth, reduction in size, 
28: 34 
federal government should withdraw 
from field, 28: 221, 225-6 



Index 

Death taxes — Continued 

federal-provincial sharing of, 28; 223-6 
importance of uniform statutes, 

28: 226 
incidence, 28: 24-33 
distribution by size of estate, 28: 32-3 
shifts in liquidity of assets, 28: 27-8 
justification, 28: 20-22 
and 1962 federal-provincial fiscal 

arrangements, 26: 64 
1963 federal-provincial conference on, 

26: 73, 75 
succession duties vs. estate taxes, 

28: 40-46 
responsibility of payment, 28: 173-6 
see also Estate tax; Succession duties 

Debentures, municipal, 22: 32-3 

Debt: see Municipal debt; Provincial 
debt 

Debt, government: projection, 1966-75, 
6: 1-128 

Debt guarantees: of public enterprises, by 
the Province, 36: 22-3 

Democracy, constitutional: 

basic purpose the common good, 1: 5-6 
individual rights and duties, 1:7-11 
and society, 1: 12-15 
and taxation, 1: 3-20 
two elements of, 1:4 

Denmark: 

capital gains, 26: 193 
wealth tax, annual, 28: 9 

Dependant's allowance, and succession 
duty, 28: 131 

Dependant's allowance and reductions: 
not used in proposed succession 
duty rate structure, 28: 169 

Dependant's reduction, 28: 132 

Developers, capital financing by, 

15: 58-92 
and Department of Municipal Affairs, 

15:71-9 
future policy, 15: 86-92 
role in municipal expansion, 15: 80-85 
subdivision agreements, 15: 60-70 

Disabled Persons' Allowance, federal 
abatement for, 26: 114, 115 

Disabled Persons' Allowance Act, 38: 73 
and OMSIP premiums, 38: 16 

Dispositions: and death duties, 28: 105-10 

District Councils Act of 1841, 10: 10 



Chapter numbers are in bold face: paragraph numbers in light face. T^Table, 
Vol. I, 1-8; Vol. II. 9-23; Vol. Ill, 24-40 



301 



Index 

Domicile, law of, and succession duties, 
28: 63-4, 206, 209 

Dominion Unemployment Relief Act 
(1930), 21:42 

Drainage Act, capital levies (special) — 
initiating works financed by, 
15: 4, 27-9 

Due, John: 

provincial sales tax, 29: 66n 
on retail sales tax audit, 29: 103 

Dupre, J. Stefan, 23: 88n 

Intergovernmental Finance in Ontario, 

9:92n; 20: lln; 21: 3n, 103n 
Ontario grant breakdown, 21: 7n 

Durham Report, 10: 11, 14 

Dymond, M. B., and OMSIP and OHCIP 

integration, 38: 77n 



Eckstein, Otto, on modern fiscal theory, 
3:6 

Economic objectives: 

conflicts among, 3: 14-17 

and lenders and borrowers, 3: 15 
importance of diagnosis to attainment 
of, 3:41-42 

Economic policy: 

instruments of, 3: 11-13 

main objectives, 1: 16-17 

means of achieving, 1: 18-20 

and neutrality in taxation, 1: 57, 59 

"Economic rent", 32: 40; 33: 25; 34: 6 
definition, 9: 39n 

Economic stability, and employment 
level, 3: 15, 16 

Edmonton: 

business tax, variable rates, 11: 151 
personal property tax, replaced by 
business tax, 10: 38 

Education: 

College of Applied Arts and Tech- 
nology; 
capital costs, projection, 6: 88 
operating costs, projection, 6: 85-7 
finance and local government structure, 
internal organization, 23: 158-65 
"foundation" schemes, 2: 129 
legislation to change school areas and 

districts, 23: 9-10 
needs of the labour force, 4:12 
post-secondary, 6: 60-72 

cost to Province, T6: 9, T6: 22 
cost implications of possible changes 

in system of, 6: 91-7 
distribution of students. 6: 66-70 
enrolment projection, 6: 63-72 



Education: 

post-secondary — Continued 
projected expenditure, 6: 57-97 

superannuation, 6: 58-9 

teachers' colleges operating and 

capital costs, 6: 83-4 

university capital costs, 6: 79-82 

university debt service charges, 

6: 89-90 

university operating costs — projec- 
tion, 6: 73-8 
provincial capital grants to universities, 

6: 82 
in rural municipalities, and recreational 

properties, 11: 126-7 
secondary schooling and the county 

regions, 23: 91-7 
teachers' colleges: 

effect if degree required, 6: 95-6 
universities, sources of revenue, 6: 75-8 

Education, Department of: 

assessment administration in school 

areas, 13: 35, 38 
fee revenue, 37: 4, T37: 1 
grants for public libraries, 21: 81 
non-profit camps grant, 21: 6 
and property tax exemptions of insti- 
tutions of higher learning, 
12: 110, 112 
recreational programs, grants for, 
21: 82 

Emergency Gold Mining Assistance Act, 
32: 13, 14, 27,45, 67-71 

Emergency Measures Organizations, 
grants to, 21: 90 

Employment: 

fluctuations in, and economic stability, 

3: 15, 16 
projection, 6: 8 
wage and salary earners, and welfare 

measures, 4: 10 
working definition of fuU employment. 

3: 16 

Energy and Resources Management, De- 
partment of, municipal park 
grants, 21: 82 

Equalization payments, 2: 23-31 
basis of, 2: 24-7 

place in provincial-municipal relations. 
2:76 

Equity: 

and capital gains tax, 26: 189, 195-8 
corporate income tax, 27: 41-9. 69-72. 

74 
dependent on distribution of burdens 

and benefits, 8: 10 
and equalization policy. 2: 47-8 



302 



Equity: — Continued 

importance of knowledge of net fiscal 

incidence, 5: 49 
prime characteristic of tax system, 

1:20 
the principle of ability to pay, 1: 35-50 
principle of benefits received, 1: 26-34 
earmarking and funding, 1: 31-2 
when inappropriate, 1: 29 
principle of equal treatment of equals, 
1:21-5 
justification of taxes, 1: 25 
protection, 1: 23-5 
relates solely to individual or family, 

1: 50 
unequal treatment of unequals, 1: 25 

Established Programs (Interim Arrange- 
ments) Act, 26: 74 
"opting-out" formula, provincial tax 
credits, 26: 114-15 

Estate Tax Act: 

assets held in safety deposit box, 
28: 182 

dispositions made in three-year period 
prior to death, 28: 107 

and foreign ownership, 28: 208 

and life insurance, 28: 101 

payments from employers of the de- 
ceased, 28: 98 

and quick succession, 28: 116 

taxing powers of the federal govern- 
ment, 28: 67 

Estate taxes: 

administration of, 28: 41 

assessment, 28: 200 

correlation with income tax, 28: 225 

deductions, and exemptions, 28: 133 

gift tax credit, 28: 213 

method of payment, 28: 174 

Ontario's share, projection of, 6: 50, 

T6:7 
and the 1962 federal-provincial fiscal 

arrangements, 26: 71 
vs. succession duties, 28: 40-46 
and the BNA Act, 28: 44 
differences, 28:40-41 
tax rate, compared with U.S. and U.K., 

28: 156 
rebate to provinces, 28: 49 
see also Death tax; Succession duty 
Excise taxes: disadvantage, 1: 57 

Executor: 

payment of estate taxes, 28: 174-5 
power of encroachment, 28: 201 
power of sale to pay succession duties, 
28: 176 



Index 

Exemptions, property taxes, 11: 26; 
12: 1-235 
as alternative to grants, 12: 7, 8 
basic shelter exemption, 11: 100-119 
from business occupancy tax, 12: 167- 
74 
farms, 12: 171 
private clubs, 12: 170 
free employee parking, 12: 174 
rooming houses, 12: 169 
and shopping centre parking areas, 

12: 168 
subordinate lodges and friendly soci- 
eties, 12: 172-3 
classification, 12: 21 
compulsory exemptions, 12: 29 
educational, religious, charitable ex- 
emptions, 1: 67, 69, 72; 12: 27-8 
federal Crown corporations and agen- 
cies, 12: 80 
federal properties, 12: 74-88 

properties excluded from grants-in- 

lieu, 12: 79, 82 
proposed treatment of, 12: 82-7 
appeal procedures, 12: 86-7 
grants-in-lieu, for foreign govern- 
ment properties, 12: 83 
Indian lands, 12: 84 
school grants, 26: 85 
recommendations concerning, 12:88 
fixed assessments, 12: 153-66 

the golf course principle, 12: 155-7 
by private Act, 12: 158-66 
grants, advantages over exemptions, 

12: 135-6 
historic sites and monuments, 12: 55-8 
for home improvements, 11: 89-94 
Hydro properties, 12: 35-41 
legislation granting exemptions, 

12: 12-17 
list of statutory exemptions, 12: App. 
local government properties, 12: 89- 
103 
inter-municipal taxing, 12: 92-103 
holding self-taxation to minimum, 

12:92-103 
municipal utilities, 12:91 
mining properties, and provincial pay- 
ments to mining municipalities, 
12: 175-235 
non-government properties, 12: 104-52 
assessment of universities, private 

schools and hospitals, 12: 118 
cemeteries, 12: 129-32 
charitable, community service and 
other non-profit organizations, 
12: 133-43 



Chapter numbers are in bold face; paragraph numbers in light face. T= Table. 
Vol. I, 1-8; Vol. II. 9-23; Vol. Ill, 24-40 



303 



Index 



Exemptions, property taxes, 
non-government properties — 
Continued 

institutions of higher learning, 

12: 108-12 
land tor forestry purposes, 12: 144- 

52 
places of worship and other religious 

property, 12: 119-28 
private schools, 12: 113-14, 118 
public hospitals, 12: 115-17 
payments-in-iieu, shortfall in, 12: 20 
percentages, by municipal classifica- 
tion, 12: 25-6 
percentages, by type of exemption, 

12:24 
pros and cons, 12: 5-11 
provincial and Hydro properties, pro- 
posed treatment, 12: 35, 42-67 
assessment of property, 12: 43 
forested lands, 12: 50 
highways, 12: 51 
land betterment works, 12: 52-8 
local improvement levies, 12: 48 
properties providing certain services 

for themselves, 12: 61-4 
provincial parks, 12: 65-7 
public housing, 12: 71 
remote or underdeveloped lands, 

12: 59, 60 
school boards, allocation of pay- 
ments, 12: 44-7 
windfall revenue, 12: 68-70 
provincial properties, 12: 30-72 

Crown and Crown agency properties, 

12:31-4 
properties excluded from taxation or 

grants-in-lieu, 12: 34 
recommendations concerning, 
12: 72-3 
relation to total assessments, 12: 18-29 
significance, 12: 18-29 
total, 1965, 12: 1, 19 
treatment of municipal utilities, 12: 22 
types of property exempted, 12: 3 

Expenditure, government: 
allocation of, 1961, T5: 3 
assumptions regarding allocation of 

benefits, 5: App. 
benefits as percentage of adjusted 

broad income, T5: 7 
factors in increase, 6: 4 
by family money-income class, T5: 4 
on goods and services, distinguished 

from transfer payments, 5: 19 
methods of estimating benefits from, 

5: 18-26 
"progressive" and "regressive" benefit 

rates defined, 5: 30 
projection, 1966-75, 6: 1-128 



Expenditure and revenue, growing gap 
between, 40: 1 

Expenditure, gross and net, distinction 
between, 4: 23 

Expenses, business: should be tax deduc- 
tible, 27: 99 

Export credits v^. corporate (direct) taxes 
— economic effects, 27: 64 

Exports, corporate income taxes, effects 
on, 27: 62-7 

Express companies: corporate taxes, 27: 
8, 9, 130, 133 

Fair value, determination of for retail 
sales tax purposes, 29: 110 

Family and Social Services, Department 
of: 
grants from, 21: 4 
low-rental housing, 21: 78, 80 

Farm, definition of, 11: 202-7 
Farm properties: 

assessment of, 13: 18-23 

assessment and taxation issues, 11: 

178-89 
effect of contracts, or quotas, 13: 

22-3 
on farm use, 11: 41 
separating residence from working 

farm, 13: 85-8 
taxation of, 11: 178-207 

assessment and taxation issues, 11: 

178-89 
and changing character of farming, 

11: 195-8 
incidence, 11: 191-4 
local services to farms, 11: 190 
proposed, 11: 199-201 
safeguarding position of farm lands 

under realty tax system, 11: 186 
and urban encroachment, 11: 182-3, 

185, 186, 189 

Farmers: 

fuel tax exemption, 30: 22-7 passim 
retail sales tax exemption, 29: 68 

Federal government: 

corporate income tax, 27: 2 
corporate taxes, special, sharing of, 

27: 105 
and counter-cyclical fiscal policy, 3: 8 
expenditure (benefit) rates, by income 

classes, 5: 34-5, 37 
expenditures (benefits), net, gained by 

residents of Ontario, 5: 42-3 
fiscal incidence, net, pattern, 5: 46 
grants-in-lieu, allocation to school 

boards, 12: 77 



304 



Federal government: — Continued 

has greatest elTect on income distribu- 
tion, 26: 33 
hospital grants, 38: 68-71 
construction grants, 38: 26 

objections to, 38: 28, 29 
operating grants, 38: 35-42 

defects, 38: 37-9 
income tax, personal, partial with- 
drawal from, 26: 6 
income taxes, personal and corporate, 

introduction of, 26: 4 
insurance premiums tax, 31: 73 
main source of progressiveness in tax 

rates, 5: 46, 48 
rrionetary policy, sole prerogative of, 

3: 13 
and municipal borrowing, 22: 139-41 
non-resident withholding taxes, 27: 106 
opting-out formula, 26: 63 
payments in lieu of local taxes, 10: 85, 

99, 100, 12: 45 
provincial income taxes, abatement for, 

26: 111-18 
public health, research and training 

grants, 38: 45-9 
race tracks tax, 31: 41 
should vacate succession duty field, 

8: 50, 28: 221, 225-6 
as source of funds for health services, 

38: 20 
tax abatements: see under Taxation 
tax rate by income classes, 5: 30, 32-3 
taxing powers, unrestricted, 28: 67 
tobacco tax, increase (1951-53), 31: 6 
university support, 6: 75, 76 
utilities, transfer to provinces of federal 

tax on, 27: 103-4 
vocational education grants, 20: 67-71 
and Wartime Tax Agreements, 26: 52 
exemptions: see under Exemptions, 

property tax 

Federalism: 

basic principles of fiscal arrangements, 

2:5-10 
Committee's philosophy of, 2: 2-10 
co-operation, 2: 8-9, 15, 32-40 
economic mobility, 2: 6, 15, 22 
equalization of provinces, 2: 7, 15, 

23-31, 45-51 
expenditure responsibilities, division of, 

2: 11-15 
fiscal implications, 2: 5-66 
grants, role of, 2: 41-59 
the nature of, 2: 2-3 
need for flexibility, 2: 18-19 



Index 

Federalism: — Continued 

provincial and federal autonomy, 2: 5, 

14-15, 20-23 
revenue powers, the division of, 2: 

16-31 

Federal-provincial conferences: 
1963, 26: 73 

1964 — Tax Structure Committee estab- 
lished, 26: 76 

Federal-Provincial Fiscal Arrangements 
Act, 1961, 26:64 

Federal-provincial shared-cost programs 

abatements in lieu of, 8: 51 

Canada Assistance Plan, 21: 43, 45, 53 

conservation grants, 21: 65 

contracting out, 2: 57-8; 26: 74 

criticism of, 2: 54 

federal contribution to Ontario's health 
program, T38: 23 

health programs, 38: 20, 45-49 

federal withdrawal from recom- 
mended, 38: 48 

hospital construction, 38: 26-9 

hospital insurance, 2: 53; 38: 10, 14, 
20, 34-43 
federal withdrawal from recom- 
mended, 38: 42 

municipal winter works, 21: 90 

need for review, 2: 55 

old age assistance, 21: 38 

old age pensions, 21: 38 

philosophy of, 2: 52-59 

redevelopment and housing, 21: 76 

Trans-Canada Highway, 2: 53 

unemployment assistance, 2: 53; 21: 42 

Federal-provincial tax arrangements, 2: 
18, 36-8 
consultation on corporate base, 27: 

98-102 
federal abatements to Province, 8: 

50-54 
and municipal corporation income 

taxes, 10: 76 
mutual taxation, 2: 60-66 
tax collection agreements, 26: 78-91 
administration of provincial Act by 

federal government, 26: 79-81 
application of tax collections, 26: 

87-8 
basis and rate of tax, 26: 85 
for corporate income tax: 
advantages, 27: 85-9 
disadvantages, 27: 90-96 
recommendation, 27: 97 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



305 



Index 



Federal-provincial tax arrangements, 
tax collection agreements — 
Continued 

defects, 26: 125-36 

notice of intention to change pro- 
vincial rate, 26: 134-5 
provinces should share in yield of 

more taxes, 26: 129-33 
disputes and differences, 26: 91 
Ontario-Canada, 1936, 26: 51 
payments to Ontario, 26: 89-90 
powers of Minister of National 

Revenue, 26: 127 
provincial tax, changes in rate of, 

26: 86 
reasons for continuing, 26: 123-4 
uniformity of legislation, 26: 82-4 
tax rental agreements, 26: 53-7 
drawbacks of, 26: 54 
1947, 4:48; 27: 13, 14 
1952, 4:48; 27: 13, 14 
Ontario in, 26: 56-7 
1957, 27: 13, 14 
"tax room" for the provinces, 26: 6 
tax-sharing arrangements, 26: 58-63 
and death taxes, 26: 64, 66, 71, 73, 

75, 223-6; 28: 49 
drawbacks, 26: 120 
1957, provisions of, 26: 59 
1962, 26: 64-77 
personal and corporate income 
taxes, provincial legislation of, 
26: 68-70, 72 
opting-out formula, 26: 63, 74 
provision for non-agreeing provinces 
(1957), 26: 60 
Wartime Tax Agreements, 26:51, 52; 
27: 13 

Fees: cost-recovery principle, 17: 19-22, 
28-30; 35: 37, 48, 52, 54; 37: 
8, 22 
where preferable to taxes, 1: 27 

Feldman, Lionel D., 9: 92n 

Ferguson, Howard, 21: 41 

Financial Report (provincial, abridged), 
24:5 

Fines and forfeitures, provincial depart- 
mental revenue from, 37: 19-20 

Finland, capital gains, 26: 193 

Finnis, Frederic H., on Real Property 
Assessment in Canada, 13: 117n 
Fire Marshals Act: 

abolition of tax advocated, 31: 84 
and insurance premiums, 31: 72 
no provision for appeal, 25: 27 
revenue must equal expenses, 31: 72, 

76 
revenue, 1965-66, and administrative 
body, T25: 1 



"Fiscal drag", defined, 3: 18 

Fiscal effects of the Recommendations, 
8: 1-54 

Fiscal incidence, net: concept of, 5: 38-44 

Fiscal policy: 

"built-in" flexibility, 3: 19 
changing concepts of, 3: 2-10 

fallacy of the balanced budget, 3: 
2-3, 6 
counter-cyclical, 3: 7-8 

combating recessions, 3: 37-8 
provincial, 8: 20 

feasibility of, 3: 29-42 
and municipal budgets, 3: 54-7 
scope for, 40: 11-13 
need for federal-provincial co-ordina- 
tion, 40: 14 
need for public education, 3: 38 
"discretionary", the need for, 3: 18-20 

"full-employment" surplus, 3: 18 
and economic objectives, 3: 3-9 
factors governing borrowing, 3: 39 
as instrument of economic policy, 3: 

11-12 
not to be regarded as "panacea", 3: 4 
provincial, and public borrowing, Com- 
mittee's philosophy of, 3: 1-57 
trend toward decentralization, 3: 24-5 

Fish and wildlife, revenue from, 34: 

25-32 

Fishermen: retail sales tax exemptions, 
29: 68 

Foreign governments, and property tax 
exemption, 12: 83 

Foreign tax credit: 

and corporate income tax, 27: 26 
and Ontario Income Tax Act, 1961-62, 
26: 163-5 

Forest-fire-fighting costs, grants for, 21: 
90 

Forest resources, revenue from, 33: 1-46 
alternative revenue methods, 33: 21-9 
profits tax, 33: 22-5 
rental based on annual allowable 

cut, 33: 29 
rental based on area, 33: 28 
rental based on inventory, 33: 27 
rental based on stumpage, 33: 26 
costs of stumpage system, 33: 19, 20 
Crown charges, revised system of: 
proposed tenure and severance 

charges, 33: 32-9 
shifting and incidence, 33: 30-31 
Crown Timber Act, 33: 4-39 



306 



Forest resources, revenue from 
— Continued 

and forest management, 33: 16-17 
and high-grading, 33: 14 
and holding of excessive tracts of 

timber, 33: 18, 20, 33 
Logging Tax Act, 33: 40-45 
and Ontario Income Tax Act, 1961-62 
— logging tax deduction, 26: 
159-62 
shifting and incidence, 33: 30-31, 32 
stumpage, defects of system, 33: 13-20 
tenure and severance charges in other 

provinces, 33: 10-12 
and wasteful logging practices, 33: 15 
yield, 33: 2 
Forestry Act, 33: 1 
Fort William: telephone system, 15: 31; 

17: 36 
France: 

capital gains, 26: 193 

exports and indirect taxes, 27: 63 

lottery, 39: 26-7 

value-added tax, 29: 7 

Fuel taxes, 30: 5-30 

agency-collected, 25: 10 
constitutionality, 30: 28-30 
exemption and refunds, 30: 12, 22-7 
rates and administration, 30: 7-15 
refunds, 1964-65, 30: 25 
sales tax on fuels, 30: 16-21 
vs. weight-distance taxes, 30: 108-9 
see also Gasoline tax; Motor vehicle 
revenue 

Funeral expenses: as deduction for suc- 
cession duty purposes, 28: 122 

Garages: licences, 30: 57-8 

Garden City Skyway, 30: 74, 79 

Gas companies: corporate taxes, 2: 8, 28 

Gasoline: and retail sales tax, 29: 81; 30: 

16-21 
Gasoline and diesel fuel taxes, 8: 14, 
16-17, 18 
projected increases (1968-69), 8: 33, 
34, 36 
Gasoline tax: 

agency-collected, 25: 10 

government enterprises liable for, 36: 

20 
projected revenue from, 6:51, T6: 7 
revenue, 1965-66, and administrative 

body, T25: 1 
and rising highway expenditure, 6: 98, 

99 
as source of provincial revenue, 4: 47 



Index 

Gasoline Tax Act: 

collection and control, 30: 13, 15 
definition of gasoline, 30: 1 1 
exemptions and refunds, 30: 23, 25 
no provision for appeal, 25: 27 

General Agreement on Tariffs and Trade 
(GATT), 27: 62 

General Mining Act, 32: 2 

General Public Health Grant, 38: 47 

General Welfare Assistance Act of 1961, 

21:43 
George, Henry, 10: 61 
Gibson, T. W., 32: fnl, 37 

on the concept of relating tax to min- 
ing profits, 32: 3 

Gift tax, 28: 11, 210-22 

credit for succession duty, 28: 151 
and dispositions, 28: 107, 109 
exemption too high, 28: 216 
proposed for Ontario, 28: 215-22 
exemption, 28: 217 
rates and computation of tax, 28: 

218 
responsibility for payment, 28: 220 
provinces barred from imposing during 

term of fiscal agreement, 26: 85 
provinces should share in yield, 26: 
129, 131 
Girl Guides Association; property tax 

exemption, 12: 13, 105 
Golf course, fixed assessment of, 10: 
116; 12: 155-7 

Goodall, B., see Lean, W. 

Goode, Richard, on individual income 

tax, 1: 45, 46 
Government enterprises, provincial, 36: 
1-23 

debt guarantees, 36: 22-3 

lending corporations, 36: 6-9 

major enterprises, 36: 4-9 

need for review, 36: 10-19 

periodic examinations of operations a 
necessity, 36: 11-12 

providing service at cost. 36: 2, 5 

reasons for entering, 36: 3 

should be subject to income taxes. 
36:21 

taxation of, 36: 20-21 

see also Municipalities: revenue- 
earning enterprises 

Government finance: expenditure and 
revenue patterns, provincial and 
local. 4: 22-55 
explanation of figures used, 4: 22-3 



Chapter numbers are in bold face; paragraph numbers in light face. T=^ Table. 
Vol. L 1-8; Vol. n, 9-23; Vol. Ill, 24-40 



307 



Index 

Government revenue and expenditure, 
incidence of, 5: 1-49 

adjusted broad income, defined, 5: 29 

allocating benefits of general expendi- 
ture, 5: 23-4 

allocation of benefits of major expendi- 
ture programs, 5: App. 

concept of '"economic family", 5: 6 

difficulty of measuring welfare, 5: 3 

eflective benefit rates, 5: 34-7 

eflfective tax rates, 5: 30-33 

general conclusions, 5: 47-9 

importance of determining, 5: 2 

by income class, 5: 4-5 

method of estimating benefits from 
expenditure, 5: 18-26 

method of estimating tax incidence, 
5:9-17 

money income, defined, 5: 7 

money-income classes, burdens and 
benefits by, 5: 27-8 

net fiscal incidence among Ontario resi- 
dents, the pattern of, 5: 45-6 

net fiscal incidence, the concept of, 
5: 38-44 
defined, 5: 38-9 
interpreting, 5: 41-4 
limitations, 5: 40 

revenue by source, 1961, T5: 1 

shifting and incidence of major revenue 
sources, 5: App. 
see also under specific taxes 

specific and general governmental ex- 
penditure differentiated, 5: 22 

taxes, forward-shifted, percentage 
borne by Ontario residents, 5: 14 

taxes, shifting to non-residents, 5: 11, 
13-15 

transfer payments and expenditures on 
goods and services, distinguished, 
5: 19 

Governments: 

advantages of having both provincial 

and local, 9: 15 
advantage of multi-level, 1: 15 
"borrowing capacity", 3: 35 
changing role of, 4: 15-21 
economic objectives, major, 1: 16-17 

means of achieving, 1: 18-19 
increasing complexities of, 4: 16-18 
intergovernmental fiscal relationships, 

2: 1-131 
need for co-ordination, 3: 23-8 
need for increased financial capacity to 

meet increased demands, 4: 54 
pressure of increased population, 4: 7 
projection of expenditure, revenue, debt 

— projection distinguished from 

forecast, 6: 6-7 
taxation, mutual, 2: 60-66 



Graham, John F., on fiscal adjustment in 
a federal country, 2: 48n, 49n 

Grand River Conservation Act, property 
tax exemption, 12: 16 

Grants: 

equalization grants, 2: 45-5 1 
revenue deficiency grants, 2: 43-4 
the role of, 2:41-59, 91-9 
stimulation grants (shared-cost pro- 
grams), 2: 52-9 

"contracting out", 2: 57-8 

criticism of, 2: 54 

types of standards, 2: 53 
types of, 2:42, 91 

Grants, federal: 

for hospital construction, 38: 26, 28 
inadequately presented in Public Ac- 
counts, 24: 11 
in lieu of local taxes, 6: 27 
National Health Grants, 38: 45ff 
for universities, 26: 63 

Grants, municipal: 

for hospital construction, 38: 27 

Grants, provincial, to local governments, 

4:30, 53; 6:33, 37-40, 112; 10: 

12; 21: 1-108 

administration of grant policies, 21: 

103-8 

co-ordinating grant programs, 21: 

103-6 
provincial grants and fiscal policy, 
21: 107-8 
Basic Shelter Exemption Grant, 8: 10, 
13, 24, 25, 40, 43; 21:96 
proposed, 11: 117-18 
for benefit of residential taxpayers, 11: 

78-80 
capital grants, 22: 38 
changes recommended — fiscal effects, 

T8: 1, T8:2; 8:23 
Community Enrichment Grant, pro- 
posed, 21: 85-9 
conservation grants, 21: 65-6 
environmental grants, 21: 62-89 

equalization, 2: 93-5 
and fiscal policy, 21: 107-8 
health grants, 26: 68-74 

for health units, 21: 69-74; 23: 85 
for hospital construction, 38: 26, 30-33 
jail construction and operation, 9: 90 
miscellaneous grants, 21: 90-93 
administration of justice, 21: 91 
certain fur-bearing animals, 21: 93 
police and firemen, 21: 92 
Municipal Unconditional Grants 
Act, 21:94-5 
number of grant programs, impos- 
sibility of accurate count, 21: 4-7 



308 



Grants, provincial, to local governments 
— Continued 

for public health, research and train- 
ing, 38: 49-56 
recreational and community services, 
21: 81-9 
public libraries, 21: 83 
redevelopment and housing, 21: 75-80 
for relief of property taxpayer, 10: 83-7 
revenue deficiency, 2: 92 
road grants, 21: 4, 9-35 

cities and separated towns, 21: 15 

county roads, 21: 12 

development and present structure, 

21:9-17 
development roads, 21: 32-5 
differential grant treatment, 21: 21-2 
equalization, 21: 12, 13, 27-9 
ministerial discretion, 21: 30-35 
and municipal status, 21: 20-22 
need for, 21: 18 
other programs, 21: 16-17 
provincial highways, 21: 10 
rationalizing of, 21: 18-26 
should be geared to user benefits, 

21: 19-20, 23-6 
suburban roads, 21: 11 
summary of the principal road 

grants, 21: 17 
town and village roads, 21: 14 
township roads, 21: 13 
role in provincial-school board rela- 
tions, 2:91-9, 124-30 
rural grants, 21: 67 
scheduling through the year, 22: 63, 

65, 67 
school grants, 2: 124-30, 20: 10-21 
capital, 8: 21 
increased: 

fiscal effect, 8: 23-4 
and projected provincial expendi- 
ture, 8: 31 
projected increase in, 8: 40-42, 43 

staging of, 8: 42, 43 
proposed increase in, 20: 83 
revisions recommended — fiscal ef- 
fects, 8: 11-13 
for secondary schooling, limitations 
of, 23: 94 
stimulation, 2: 96-9 
types of, 21: 1 

unconditional grants, 21: 94-102 
a new unconditional grant for muni- 
cipalities, 21: 97-102 
to universities (capital), 6: 82 
welfare grants, 21: 36-61 

Children's Aid Societies and related 
child welfare services, 21: 53-4 



Index 

Grants, provincial, to local governments, 
wellare grants — Continued 
day nurseries, 21: 61 
general weltare assistance, 21: 45-52 
historical background, 21: 36-43 
homemakers' and nurses' services, 

21:60 
homes for the aged, 21: 55-7 
indigent hospitalization, 21: 59 
local administration, problem of, 21: 

47-52 
mothers' allowances, 21: 37, 43 
old age pension, 21: 38 
present status and existing problems, 

21:44-61 
unemployment relief, 21: 40-43 

Grauer, A. E., on public assistance and 
social insurance, 21:41n 

Grey County, pre-election budgeting, 14: 
5, 6-9 

Gross National Product: 

and full-employment conditions, 3: 17, 
18 

provincial-municipal finance, percent- 
age of, 3: 21 

and the rate of tax, 26: 154 

Gundy, C. L., Medical Research in 
Canada, 38: 49n 

Hamilton, City of: 

capital items financed from revenue, 
22: 100 

poll tax, recommendation for abandon- 
ment, 16: 16-17 

Hanson, Eric J.: 

on Alberta county educational system, 

23: 162 
on the public finance aspects of health 

services in Canada, 39: 9, 37 

Harvard Law School, Taxation in the 
Federal Republic of Germany, 
39: 6n 

Health, Department of: 

Medical Services Insurance Division, 

38: 16 
revenue sources, 37: 4, 13; T37: 1 
and size of health units, 21: 73-4 

Health Facilities Development fund, pro- 
posed, 38: 29, 47 

Health grants, from province to munici- 
palities, 21: 68-74 

Health Grants Program, federal tax abate- 
ment for, 26: 114, 115 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I. 1-8; Vol. II, 9-23; Vol. III. 24-40 



309 



Index 



Health services; see Hospital and Medical 
care, financing ot 

Health Sciences Research Council, 38: 47 

Highway Improvement Act, 11: 66 
development roads, 21: 32 
and subdivision agreements, 15: 83 
township road grants, 21: 13 

Highway Traffic Act, administration of 
permits and licences, 30: 34 

Highways and roads: 

cost allocation, "earnings-credit" 

method, 30: 92-3 
costs, and motor vehicle revenues, 30: 

82-96 
projected expeditures, 6: 98-100 
toll facilities, 30: 74-9 

and road-building decisions, 30: 77-9 

Highways, Department of: revenues from 
sales, 37: 13; T37: 1 
see also Grants, provincial, to local 
governments: road grants 

Hobbes, Thomas, 36 
Home-owner grants, 11: 83-6 
Hospital and medical care, financing of, 
38: 1-81 
allocation of money to components of 
health program, formulas for, 38: 
24-56 
care of the aged — problem of pension 

payments, 38: 52-3 
complicated by sharing of costs, 38: 4-5 
complicated by tradition of voluntary 

support, 38: 2, 3 
complicated by variety of components, 

38:6 
expenditure projections, 6: 101-6 
Ontario Hospital Services Commis- 
sion, 6: 102-3, 105 
Ontario Hospitals, operation and 

maintenance of, 6: 104-5 
Ontario Medical Services Insurance 
Plan, 6: 106 
government sponsorship and subsidiza- 
tion, stages of, 38: 14-16 
health services, major components of, 

38:7-16 
hospital construction, 38: 26-33 
federal grants, 38: 26, 28-9 
provincial grants, 38: 26, 30-33 
rehabilitation, 38: 26, 33 
TB sanatoria, 38: 26, 33 
unmanageable debt, 38: 26, 33 
range of costs per bed, 38: 30 
renovating and altering, shared costs 
for, 38: 32 
hospital operating costs, 38: 34-44 
hospitals, functions of, 38: 8-11 
hospitals, types of, 38: 10 



Hospital and medical care, financing of 
— Continued 
importance of public knowledge of 

costs, 38: 80-81 
indigents, care of, 38: 54-5 
insurance plans, underlying social 

philosophy of, 38: 64, 67, 71 
local health units, co-ordination of — 
and regional government, 38: 56 
municipal expenditures, projection, 6: 

35 
OMSIP and OHCIP: 
differences, 38: 78-9 
integration of, 38: 76-81 
prominent features of, 38: 3-6 
public health agencies, 38: 12 
public health, research and training, 
38: 45-56 
federal grants, 38: 45-9 
provincial grants, 38: 49-56 
revenue sources, 38: 17-23 

considerations affecting choice of, 

38:63-81 
federal government, 38: 20, 23 
local governments, 38: 22, 23 
major insurance plans, 38: 19, 23 
the Province, 38: 21, 23 
voluntary contributions, 38: 18, 23 
subsidized insurance for low-income 

people, 38: 55 
Workmen's Compensation, 38: 57-62 

Hospital Insurance and Diagnostic Ser- 
vices Act (1957), 2: 53; 38: 14, 
28, 34 

Hospital insurance program, federal 
abatement for, 26: 114, 115 

Hospital Services Commission Act, 38: 7 

Hospitals: 

property tax exemption, 12: 115-17, 

118 
and sales tax exemptions, 29: 74, 75, 
78 

Hospitals tax, 31: 14-32 
agency-collected, 25: 10 
collection of, 31: 18 
comparison with other provinces, 31: 

22 
conclusion, 31: 32 
description, 31: 14-18 
discriminatory, 31: 30-31 
incidence, 31: 23-8 
justification, 31: 29-31 
and motion picture industry, 31: 24-5 
payable on expenditure in a place of 

entertainment, 31: 17 
revenue, 1965-66, and administrative 

body, T25: 1 
taxes on meals and beverages, 29: 59 
yield, 31: 19-21 



310 



Hospitals Tax Act, 19: 2; 31: 32 

no provision for appeal, 25: 27 

repeal advocated, 29: 59, 91 
Hotel and motel rooms, tax on, 19: 4-10; 

29:90 
Houses of Refuge Act (1890), 21: 55 
Housing Development Act, 12: 71 

and capital financing by developers, 
15:58 

property tax exemption, 12: 15 

Housing grants, 21: 75-80 
Hydro-Electric Power Commission of 

Ontario, 12: 12; 34: 13, 14, 15; 

36:4 
accounting practices of, 36: 13-18 
approving municipal rates, 17: 53 
audits of municipal utilities, 17: 45 
capital cost allowances would outweigh 

"profit", 36: 21 
"contributed capital", 36: 18 
financing by funded debt, compared 

with municipal utilities, 17: 52 
fuel cost (1964), 34: 19 
and local improvement levies, 12: 48 
payments-in-lieu, 2: 110; 12:36-41 
pricing policies of, 36: 17 
property tax exemption, 12: 30, 35-41 
provincial guarantee of debt, 36: 8, 21 
special assessment for, 13: 69-71 

Ilsley, J. L., 26: 52 

Immigrants, numbers to Ontario, 4: 5 

Income: 

as index of tax-paying capacity, 1: 36-9 
money income, defined, 5: 7 
Income, adjusted broad: 
defined, 5: 29 
net fiscal incidence as percentage of, 

T5: 8 
tax and benefit rates as percentage of, 
T5: 6, T5: 7 
Income, taxable, property taxes deduct- 
ible from, 11: 87 
Income classes (money): 

burdens and benefits of government 
revenue and expenditure, distribu- 
tion among, 5: 27-8 
distribution of tax burden among, T5: 2 

Income distribution: 

effects of income tax, 26: 31-3 
and government expenditures, 1: 49 
and motor vehicle charges, 30: 3 
and taxation, 1: 29, 49 

Income tax, corporate, see Corporate in- 
come tax 



Index 

Income tax, personal, 26: 1-186 
and ability to pay, 1: 40-47 
advantage over selective excise taxes, 

1:57 
allocation rules, 26: 92-110 

apportionment procedures, 26: 92- 

101 
business income allocated between 
provinces — "permanent establish- 
ment", 26: 103-8 
business tax, and varying provincial 

rates, 26: 145-53 
net gains for Alberta, B.C., Ontario, 

26: 139 
residence rule, 26: 138-44 
calculation of income tax and Tl 

returns, 26: 173-4 
capital gains, 26: 187-201 
collection agreement with federal gov- 
ernment, 1936, 26: 51 
and corporate distribution taxes, 8: 50 
and corporate income taxes, problems, 

26: 186 
cost to Ontario of collecting provincial 

taxes, 26: 121-2 
current collection agreement: 
advantages of, 26: 123-4 
defects of, 26: 125-36 

tax sharing too limited, 26: 129-33 
definition of income, 10: 59 
economic effects, 26: 8-35 

allocation of labour among employ- 
ments, 26: 21-4 

occupational tax differentials, 26: 
22-3 
distribution of income, 26: 31-3 
incidence, 26: 25-30 
on investment incentives, 26: 18-20 
level of national income, 26: 34 
on personal savings, 26: 15-17, 20 
resource allocation, 26: 35 
on supply of capital and on invest- 
ment, 26: 15-20 
registered pension plans, 26: 20n 
work incentives, 26: 8-14 

and standard of living. 26: 10 
effect of raising rates above federal 

abatement, 26: 154-6 
and estate tax correlation, 28: 225 
evaluation of present fiscal arrange- 
ments, 26: 119-56 
alternatives, 26: 119-22 

separate administration and collec- 
tion of personal income taxes, 26: 
121-2 

tax-sharing arrangements, 26: 120 
income allocation rules, 26: 137-53 
rate of tax, 26: 154-6 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



311 



Index 



Income tax, personal — Continued 

exemptions identical, federally and pro- 

vincially, 26: 85 
expenses should be deductible, 26: 178 
federal abatement for provincial taxes, 
26: 111-18 
and the "basic tax", 26: 112-13 
federal, introduction of, 27: 11 
federal-provincial agreements: see 
Federal-provincial tax arrange- 
ments 
federal-provincial consultation, need 

for, 26: 125-8 
first progressive rate structure, 26: 3 
general considerations, 26: 175-86 
history in Ontario, 26: 37-77 

Assessment Act of 1904, 26: 38-41 
federal-provincial fiscal arrange- 
ments, 26: 64-77 
Income Tax Act, 1936, 26: 50-51 
municipal income taxation, 26: 38-49 
Ontario not in 1947 tax rental agree- 
ments, 26: 53, 55 
tax rental agreements, 26: 53-7 
tax-sharing arrangements, 26: 58-63 
Wartime Tax Agreements, 26: 52 
incidence: 

income derived from capital, 26: 28 
increased prices, 26: 26 
increased wages or salaries, 26: 26 
and labour supply, 26: 27, 29 
increased abatement, and federal fiscal 

policy, 8: 52 
increased reliance on, 26: 5-6 
insurance companies, preferential treat- 
ment of, 31: 79 
and law of diminishing marginal utility, 

1:41-7 
less progressive rate structure advo- 
cated, 26: 184 
local: 

pros and cons, 19: 11-21 
as tax on personal property, 
10: 22, 25, 26 
municipal, 10: 59, 74-7, 19: 11-12 
decrease in importance, 27: 10 
terminated, 10: 71, 75, 125 
loss carry-over, -back, of business in- 
come, 26: 180 
necessity of jurisdictions larger than 

municipalities, 26: 48 
need for revision of structure, 8: 49-53 
Ottawa-Hull area, problem of, 26: 140 
and progressivcness of total tax system, 

5:48 
projected increase, 8: 32, 33, 34, 36, 39 
projected revenue from, 6: 53, T6: 7 
property tax, no justification for mak- 
ing deductible, 26: 179 



Income tax, personal — Continued 
provincial income taxes: 

constitutional aspects of, 26:36 
increase, 8: 14-15, 18 
introduction of, 27: 1 1 
municipal sharing of, 19: 21 
and government enterprises, 36: 21 
provisions of the Income Tax Act 

1961-62, 26: 157-74 
resistance to, 10: 40 
and retail sales tax compared: 

effect on economic growth, 29: 45 
effects on saving and consumption, 

29:44 
effects on work incentive, 29: 40 
relationship to business cycle, 
29: 47-8 
shifting of burden, 26: 25-30 
should be general provisions for aver- 
aging, 26: 185 
should be integrated with corporate in- 
come tax, 27: 49, 74, 101 
spouses, present and proposed treat- 
ment of, 26: 181-3 
superiority over corporate, 1: 61 

Income Tax Act (Canada): 
allocation rules, 27: 82 
collecting corporate income taxes, 

26: 89 
conflict with Corporations Tax Act, 

27: App. 
elimination of conflict between 

statutes, 27: 107-13 
and corporate income tax, 27: 21, 25, 

27, 28 
and Corporations Tax Act appeals, 

27:23 
deduction for mining tax, 32: 137, 

140-42 
federal corporate taxes, sharing of 

special, 27: 105 
and the gift tax, 28: 210-12, 214 
"income" not defined, 26: 176 
and logging tax, 33: 45, 46 
non-resident withholding taxes, 27: 106 
taxation of inter vivos gifts, 28: 11 
unnecessary exemptions, 26: 177 
weaknesses, 26: 176-86 

Income Tax Act (Ontario), 26: 50-51 
appeals, 26: 171-2 
assessments, 26: 169-70 
defects in, 26: 159-72 
farmers and fishermen, averaging pro- 
visions for, 26: 166-8 
foreign tax credit, 26: 163-5 
logging tax deduction, 26: 159-62 
provisions of, 26: 157-74 



312 



Income Tax Act (Ontario) — Continued 
refund, conditions for, 25: 19 
why omitted from discussion of admin- 
istration, 25: 4 

Income taxes: 

international problems, 26: 137 
provincial: as instrument of economic 

stabilization, 40: 13 
as source of provincial revenue, 

4: 46, 48 

Income War Tax Act, 1917, 10: 59, 74; 
26: 4, 50 

Indian lands, property tax exemption, 
12: 84 

Institute of Municipal Assessors, 10: 94 

Institutes of Technology and Trades, 
6:86 

Insurance Act: 

no provision for appeal, 25: 27 

and taxes on insurance premiums, 

31:72 

Insurance companies: 
corporate taxes, 27: 8, 9 
and the Corporations Tax Act, 27: 132, 

133 
income tax treatment, 31: 79 

Insurance premiums, taxes on, 27: 4; 
31: 72-84 
description, 31: 72-5 
incidence, 31: 77-8 
justification, 31: 79-84 
in other provinces, 31: 73 
projected increases (1971-72), 8: 36, 37 
rates, 31: 72 
yield, 31: 76 

Interest in expectancy, 28: 92-4 

deferred payment of duties, 28: 178 

Investment: 

corporate income tax, economic effects, 
27:51-8 

Investment companies: corporate income 
tax, 27: 28 

Investment credit, corporate income tax, 
27: 56, 57 

Investment Dealers Association of Can- 
ada: suggested role in municipal 
securities issues, 22: 146 

Irish Hospitals Sweepstake, 39: 27 

Japan, exports, and direct (corporate) 

tax, 27: 63 
Jefferson, Thomas, on local government, 

23:27 



Index 

Jensen, Jens P., property taxation in the 
United States, 9: In 

Johnson, A. W., and J. M. Andrews, on 
the basis and effects of provincial- 
municipal fiscal decisions, 2: 43n 

Johnson, J. A., The Incidence of Govern- 
ment Revenues and Expenditures, 
5: In, 9n, App. 

Joint property: 

succession duties on, 28: 74-80 

Justice responsibilities, transfer to Pro- 
vince, 9: 90-95 

Kaldor, Nicholas, expenditure tax, 1: 36 

King V. Caledonian Collieries Limited, 
32: 6n, 38; 34: 5 

Kingston, personal property tax, 10: 39 

Kinsey, Robert K., on the Role of Lot- 
teries in Public Finance, 39: 37n 

Krzyzaniak, M., effects of corporation 
income tax, 27: 30n 

Labour: 

allocation among employments, effect 
of income tax, 26: 21-4 

supply of, and income tax, 26: 27, 29 
Labour, Department of, fee revenue, 

37: 4, T37: 1 
Labour force: 

agricultural, decline in, with urbaniza- 
tion, 4: 8 

changes in composition of, 4: 1 1 

increased educational needs of, 4: 12 

occupations, significant shifts in, 
4:9-10 

projection, 6:8, 11-13, 15 

public employees, percentages of, 4: 19 

role of women, 4:11 

standard of living in Ontario, 4: 13 

and urbanization, 4: 9 
"Land", definition of: 

in 1843 assessment bill, 10: 12 

in present Act, 11: 17-19 

revision proposed, 11: 24-5 
Land transfer tax, 31: 62-71 

conclusion, 31: 69-71 

departmental rulings, 31: 64 

description, 31: 62-4 

incidence, 31: 65-6 

justification. 31: 67-8 

rates, 31: 63 

revenue, 1965-66. and administrative 
body. T25: 1 



Chapter numbers are in bold face: paragraph numbers in light face. T= Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



313 



Index 

Land Transfer Tax Act: appeal procedure, 

25:27 

Landlord and Tenant Act, 14: 64 

Lands and Forests, Department of: 

as collector of Crown dues on timber, 

32: 32 
planting programs, 33: 17 
and provmcial parks, 12: 65 
revenue sources, 37: 4, 13, T37: 1 
trees sold by, exempt from sales tax, 

29:81 

Law enforcement: provincial-local respon- 
sibility for, 9: 94 

Lean, W., and B. Goodall, Aspects of 
Land Economics, 13: 20n 

Legal fees: as deduction for succession 
duty purposes, 28: 123 

Leonard, W. G., see Macpherson, L. G. 

Licence and permit fees, municipal, 
17: 2-24 
arbitrary fee levels, 17: 4 
benefits-received justification, 17: 3 
controlling the number of business en- 
trants, 17: 23-4 
distinction between types of, 17: 5-6 
distinguished from taxes, 17: 2 
importance as revenue source, 17: 7-8 
justified level of, 17: 19-21 
level of fees, 17: 12 
necessity or desirability of, 17: 13 
non-resident, 17: 22 
as a percentage of locally-derived reve- 
nues (Ontario), 17: 9 
shifting and incidence, 17: 17-18 

Licence and permit fees, provincial gov- 
ernment departments, 37:4-12, 
T37: 1 

Licence and permit powers, municipal: 
appropriate use of, 17: 15-16 
use made of, 17: 9-14 

Licences and permits: 

hunting and angling, 34: 26-32 
motor vehicle: see under Motor vehicle 
revenues 

Life insurance, and tax base for succes- 
sion duty, 28: 100-102 

Life interest: 

capital payments to widow, effects on 

duties, 28: 201 
and succession duties, 28: 83-94 
valuation of, 28: 83-4 

Life tenant: dying before duties fully paid, 
28: 187 

Liquor Authority Control Board, 35: 7 



Liquor Control Act (1927), 35: 5-8 

creation of Liquor Control Board, 35: 5 
governing sale and control of alcoholic 

beverages, 35: 12 
gradual liberalization of, 35: 7-8 
see also Alcoholic beverages, revenue 

from 

Liquor Control Board: 

accounting practices, 35: 57-9 
administrative and operating expenses, 

35: 60-62 
compared with U.S. private liquor 

stores, 35: 60 
assets and depreciation, 35: 57-9 
Canadian beer, pricing and gallonage 

tax, 35: 39-40 
control of sales to minors, 35: 16 
influence on prices at point of pur- 
chase, 35: 30 
interest earned on bank balances, 

35: 56 
major source of revenue from alcoholic 

beverages, 35: 1 1 
mark-up, 35: 31-4 
miscellaneous revenue, 35: 56 
missing from Public Accounts, 24: 8 
municipal taxation, 12: 31 
new store locations, 35: 15 
outside of departmental structure, 25: 4 
percentage of total sales of alcoholic 

beverages, 35: 29 
and pricing policy, 35: 28-35 
profit, as source of provincial revenue, 

4:47 
projected revenue from, T6: 7 
responsibilities of, 35: 5-7 
revenue from, as percentage of P.D.P., 

6:49 
sale and control of alcoholic beverages 

— off-premises consumption, 

35: 13, 14-16 
sales slips, 35: 16 

special occasion permits, 35: 53-4 
special position of Ontario wine, 35: 35 
Statement of Profit and Loss, 1963-64, 

T35:9 
types of stores, 35: 14 
wine prices, compared with other pro- 
vinces, 35: 35 
see also Alcoholic beverages, revenue 
from 

Liquor export companies: corporate taxes, 
27: 8, 12 

Liquor Licence Act, 10: 125, 35: 7 
cancellation of licence, 35: 26-7 
governing sale and control of alcoholic 
beverages, 35: 12 



314 



Liquor Licence Board: 

cancellation of licence, 35: 26-7 
classes of licences granted, 35: 22 
creation of, 35: 7 
duties, 35: 21 
licence fees, 35: 45-8 

beer gallonage, different scales of, 

35: 46-7 
by class, 35: 45 
contrast between spirits and wine, 

and beer, 35: 46 
and municipal enforcement, 35: 49 
licences and fees under, 35: 42-54 
licences issued, 1948-64, 35: 23 
licensing procedure, 35: 24-6 
outside of departmental structure, 25: 4 
on-premises consumption, pricing 

policy for, 35: 43-4 
responsibility of operator, 35: 26 
sale and control of alcoholic beverages 
— on-premises consumption, 
35: 21-7 
transfer fees, 35: 50-52 

Loan companies: corporate taxes, 
27: 8, 12 

Local government: 

annual revenue gap, 40: 6, 7 

the Baldwin Act, 10: 15 

beginnings of, 10: 2 

budgetary and debt position, projected 

(1966-75), 6:41-6 
compensation for narrowed railway tax 
base (and deductions for asylum 
inmates), 10: 51 
debt: see Municipal debt 
entrusted to Justices of the Peace, 10: 2 
expenditures, 

by function, 4: 36-7 
gross and net, 4: 24-6 
more elastic than revenues, 8: 43 
national perspective, 4: 38-41 
patterns of, summarized, 4: 32 
related to estimated P.D.P., 4: 31 
fiscal effects of recommendations, 

hypothetical for 1966, 8: 4-7 
fiscal position assuming implementation 

of the recommendations, 8: 43 
fiscal year, change in, and school grant 

payments, 20: 42 
grants from Province: see Grants, pro- 
vincial, to local governments 
local autonomy and equalization pay- 
ments, 21: 29 
local autonomy and fiscal responsi- 
bility, 9: 13-21 
allocation of resources, 9: 5-7 



Index 

Local government: 

local autonomy and fiscal responsibility 
— Continued 

implications for taxing powers, 

9: 38-9 
local tax source access, attributes of, 

9: 20-21 
need for, 9: 9 

provincial alternatives, 9: 9-18 
organization of, and the Province, 

2: 100-108 
payments-in-lieu, 10: 99, 100, 103 
property tax: see Property tax 
provincial financial assistance, growth 

of, 10: 84 
reasons for, 23: 22 
reform, mid-nineteenth century, 10: 

14-17 
revenue patterns, 4: 42-55 
as source of funds for health services, 

38:22 
tax exemption of own properties, 

12: 89-103 
taxation of mining profits, and The 

Mining Tax Act, 32: 18 
values of: 

access, defined, 23: 24-6 
access and service, 23: 23 

conflict between, 23: 28-9 

importance of, 23: 28-9 
service, defined, 23: 27 
see also Municipalities; Provincial-local 

governments; School boards 

Local government structure, reorganiza- 
tion of, 23: 1-171 
categories of proposals: 
internal structure, 23: 3-4 
territorial extent, 4: 3-4 
a co-ordinated program of local finan- 
cial operation, 23: 166-8 
and income tax, 11: 142, 19: 19, 21 
internal organization, 23: 157-68 

and educational finance, 23: 158-65 
larger assessment units, 10: 93, 94; 

13: 121-4 
local autonomy and provincial respon- 
sibility, 23: 169-71 
lower-tier municipalities, future of, 
23: 155-6 
need for reform, 9: 47, 66, 68, 88-9; 
23: 1 
and reduction of property taxes, 11: 77 
and school tax requisitioning, 20: 78 
should obviate need for equalization, 

21:28 
and tax billing and collection, 14: 89 
tax instalment payments, 22: 67 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. L 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



315 



Index 



Local government structure, reorganiza- 
tion of — Continued 
territorial extent, 23: 5-45 

access, service and the size of local 
government, 23: 30-38 

ocl hoc service areas, 23: 32-4 

balancing access and service, 23: 31, 
35-6, 37-8, 39-45 

grass-roots interest, 23: 16-19 

and the Beckett Committee, 
23: 13-14 

multiplication of small units checked 
by legislation, 23: 8 

post-war developments, 23: 7-20 
annexation, 23: 8 
development of regional govern- 
ment, 23: 11-12 
education, 23: 9-10 
total acreage increase of cities, 
23:77 

regionalism and larger local units, 
23: 5-6 

theoretical considerations, 23: 21-9 

see also Regional government, sug- 
gested scheme 

Local Improvement Act, 12: 31; 22: 104 
apportioning cost of special capital levy 

projects, 15: 36-43 
capital levies (special), initiating works 

financed by, 15:4, 11-19, 34 
and exempt properties, 12: 12 

Local revenue system, appeals, 11: 53-66; 

18: 1-24 
administrative process, 18: 8, 9-14 
Assessment Appeal Boards, 18: 12,16 
assessment appeals, small and large, 

18: 7-8 
composition of courts of revision, 18: 

9-10 
conclusions, 18: 24 
contesting validity of assessment 

methods, 18: 6 
costs and time limits, 18: 20 
equalization appeals, 18: 22 
existing procedures, 18: 2-8 
judicial process, 18: 15-19 
questions of fact and of law, 18: 3, 5, 

15 
right to examine assessment material, 

18: 13 
rights of, 11: 56-64 

other rights of appeal, 18: 21-3 
sickness or poverty plea, 18: 23 
size of jurisdictions, 18: 1 1 
specialization of judges, 18: 18-19 

Local revenue system, introduction to, 
9: 1-104 

Local Roads Boards Act: 
assessors, 13: 39 



Local Roads Boards Act: — Continued 
assessment, basis of, 13: 40 
and the assessment of property, 13: 37, 

38 
transferring the assessment provisions 

to the Assessment Act, 13: 41-5 

Local sales taxes, 19: 22-34 

Logging tax: 

and Ontario and federal income 

taxes, 26: 159-62 
revenue, 1965-66, and administrative 
body, T25: 1 

Logging Tax Act, 33: 1, 2, 40-45 
and corporate income tax, 27: 27 
historical background, 33: 40 
logging income, definition, 33: 41-2 
refund, conditions for, 25: 19 
tax base and tax credit, 33: 41-5 

Loss carry-over, -back, as income tax 
deduction, 27: 100 

Lotteries, 39: 2, 24-39 
conclusions, 39: 39 
description, 39: 24-8 
economic consequences, 39: 31-2 
history of, 39: 26-8 
justification for, 39: 29-30 
moral question raised, 39: 29 
only incidence in Canada, 39: 28 
potential yield, 39: 33-8 
yield, factors tending to deflate, 39: 38 

McGillivray, Mr. Justice, 38: 58 

McKay, W. S., The Assessor's Guide, 
10:63n; 11: 18n; 12: 168n 

Maclennan, Mr. Justice James, 10: 35, 60 

Maclennan Commission, see Ontario 
Assessment Commission (1900) 

Macpherson, L. G., and W. G. Leonard, 
municipal accounting in Canada, 
14: 4n 

Manitoba: 

administration of justice, responsibility 
for, 9:91 

amusement taxes, 31: 22 

assessment a provincial function, 
13: 117 

Assessment and Taxation Commission, 
Report of — and single property 
tax, 10: 70 

business tax in, 11: 151 

business tax optional instead of per- 
sonal property tax, 10: 38 

corporate income tax, 27: 2 

federal hospital operating grants, com- 
pared with per-capita income, 
38: 37 



316 



Index 



Manitoba: — Continued 
forest resources, tenure charges (1964), 

33: 10, 11 
home-owner grants, 11: 83, 86 
income tax, personal, 27: 1 1 
adoption, 26: 3, 48 
collection agreements with federal 

government, 26: 51 
higher provincial tax rates, difficul- 
ties of, 26: 145, 146 
1962 tax rates, 26: 72 
mineral production, value, 1966, 

T32:5 
mining lands tax, T32: 9; 32: 145 
mining profits tax, rates of, compared 

with Ontario, 32: 124, 126 
mining tax: 

tax base, 32: 25-31 passim 

tax rates and basic exemption, 

32: 32, 33 
type of, 32: 24 
motor vehicle fuel, tax rate on, 30: 7 
motor vehicle licensing reciprocity with 

Ontario, 30: 60 
motor vehicle registration fees (1964), 

T30:4 
municipal revenue derived from per- 
mits and licences, 17: 7 
poll tax, use of, T16: 1; 16: 5 
retail sales tax in, 29: 18 

proposal to tax services, 29: 85 
Royal Commission on Local Govern- 
ment Organization and Finance: 
state of assessing, 13:27, 116 
instalment tax billing, 14: 41 
the poll tax, 16: 5 

and reassessment procedure, 13: 130 
surtax, reduction of, 26: 155 
succession duty, introduction of, 28: 48 
tobacco tax, 31: 5, 7, 13 
welfare, introduction of mothers' 

allowances, 21: 37 
wine prices, T35: 5 
see also Provinces 

Marshall, Alfred, on diminishing marginal 
utility, 1: 41 

Maryland: farm land, preferential assess- 
ment of, 9: 70 

Masten, J. A., in Re Bayack, 11: 50n 

Mayo, Henry B., 23: 16 

Medical care: see Hospital and medical 
care, financing of 

Medical Carriers Incorporated, 38: 16 



Medical Research Council, 38: 20 

Medical Services Insurance Act, 38: 7, 16 

Medical Services Insurance Council, 
38: 16 

Memory Gardens vs. Township of Water- 
loo, 12: 106n 

Michigan: 

race tracks tax rate, 31: 44 
tobacco tax, 31: 7 

Mickle, G. R., 32: 4n 

calculation of nickel allowance, 32: 88 

Mill, John Stuart: 

against benefits principle of taxation, 

1:26 
direct and indirect taxes, 30: 28 
on liberty, 1: 13 
on local institutions, 23: 26, 27 

Mines, revenue from: 
Crown leases, 32: 153-6 
Mining Act, 32: 143-52 
Mining Tax Act, 32: 2-50 
mining tax, deductibility of, for income 

tax purposes, 32: 137-42 
problem of constitutionality, 32: 6, 34 
proposed tax system, 32: 51-142 

administration and appeals, 
32: 131-6 

base, 32: 53 

basic exemption, 32: 63-4 

compared with present mining tax, 
T32:7 

compared with present Ontario, Que- 
bec, Manitoba rates, 32: 126 

depletion allowance, 32: 91-3 
rejection of, 32: 92-3 

depreciation allowance, 32: 94-5 

Emergency Gold Mining Assistance, 
32:67-71 

exploration and development expen- 
ditures, 32: 109-17 

general outline, 32: 51-62 

iron ore smelted in Canada, exemp- 
tion of, 32: 72-3 

integrated iron mine and steel mill, 
32:57 

interest and financing costs, 
32: 100-101 

investment allowance, 32: 74-81, 101 
determination of, 32: 78-81 
rate of, 32: 77 

Mines Profits Tax, 32: 53ff 

Mines Services tax, 32: 53ff 

mining losses, 32: 118-21 

municipal taxes, 32: 97-9 

new mines, exemption for, 32: 65-6 



Chapter numbers are in bold face; paragraph numbers in light face. T= 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



= Table. 



317 



Index 



Mines, revenue from: 

proposed tax system — Continued 
processing allowance, 32: 82-90 

criticism of present form, 32: 83-7 
rate of tax, economic and fiscal con- 
siderations, 32: 122-'^0 
royalties and rentals, 32: 102-8 
a two-stage tax, 32: 52 
unprocessed ore, 32: 54-6 
working expenses, 32: 96 
revenue structure in other provinces, 

32: 23-33 
Supplementary Revenue Act, 1907 

amendment, 10: 71 
tax rates, compared with other pro- 
vinces, 32: 33 

Mines Profits Tax, proposed, 12: 225, 
226, 235, 32: 53fl' 
projected increase, 8: 36 

Mines Services Tax, proposed, 12: 225-7, 
233; 32:53fT 

Mining Act, 32: 143-52 
acreage tax, 32: 143-52 

historical background, 32: 143 
justification, 32: 146-51 
recommendation, 32: 152 
similar taxes in other provinces, 

32: 144-5 
Crown leases, 32: 153-6 
and property tax exemption, 12: 14 
revenue, 1965-66 and administrative 
body, T25: 1 

Mining municipalities, provincial pay- 
ments to, 10:71-3; 12:175-235; 
32: 33,41-4 
alternative solutions, 12: 228-32 
the Bondett formula, 12: 228-9 
criticism of present system, 
12: 191-204 

complicated and capricious form- 
ula, 12: 198-204 

no allowance for price fluctua- 
tions, 12: 200 

inadequacy of payments, 12: 193-4 
over-recognition of non-resident 
miners working in municipality, 
12: 195-7 

varying needs of municipalities 
not considered, 12: 191-2 
financing of, 12: 225-7 
formula for, 12: 179-87 
adjusted mill rate, 12: 182 
amount and adjustments, 12: 183-7 
amounts paid under present system, 

12: 188-90 
"municipal mines assessment", 
12: 179-81 



Mining municipalities, provincial pay- 
ments to — Continued 
mining properties exempt from local 
taxation, 12: 233-5 
power to pay not less than tax on 
mining otherwise leviable under 
Assessment Act, 12:211 
present system, 12: 178 
proposed formula, 12: 205-20 

effect on level of payments, 12: 

221-4 
limitation of payment to one-half of 

municipal budget, 12: 210 
relief when payment less than prior 

year's payment, 12: 212-17 
summary and recommendations, 12: 
218-20 

Mining properties: 

assessed at value of farm lands, 10: 30, 

55, 71 
business tax, 11: 175-7 

not feasible to treat like other prop- 
erty, 11: 176 
exempt from local taxation, 12: 175, 
177, 233-5 
see also Mining municipalities, pro- 
vincial payments to 
taxation of, 10: 71-3 

Mining tax: 

compared with proposed mining tax 
system, T32: 7 

criticism, 32: 37 

distinguished from royalty, 32: 38 

incidence, 32: 45-50 

justification of profits tax, 32: 34-44 

mining losses, no provision for carry- 
over and -back, 32: 118 

no rate increases proposed in profits 
tax, 8: 18 

Mining Tax Act, 32: 2-50 

administration and appeals, 32: 19-22 

compared with taxes of other prov- 
inces, 32: 23-33 

computation of tax, 32: 16-18 
and The Assessment Act, 32: 18 

deductions from gross revenue allowed, 
32: 4, 13, 15 

deductions from gross revenues not 
allowed, 32: 13, 15 

and Emergency Gold Mining Assist- 
ance Act, 32: 13, 14 

historical background, 32: 1-7 

justification — payments to mining mu- 
nicipalities, 32: 41-4 

The Kinf^ vs. Caledonian Collieries 
Ltd., 32: 6, 38 

method of appraising ore, 32: 10-12 

Mine Assessor, functions of, 32: 10-12, 
19, 21, 131 
criticisms of, 32: 85-7, 132 



318 



Mining Tax Act — Continued 
and municipalities, 10: 108 
present revenue structure, 32: 8-22 
refund, conditions for, 25: 19 
revenue from, 1960-65, 32: 7 
revenue, 1965-66, and administrative 

body, T25: 1 
tax base, 32: 9-15 
taxable mines, 32: 8 
"value at pit's mouth", 32: 4, 10-11, 86 

Moffatt, H. P., on independent and de- 
pendent school bodies, 23: 161 
Monetary policy: 

as instrument of economic policy, 3: 

• 11-13 
prerogative of federal government, 3: 
13, 29 

Monopolists, and corporate income tax, 
27: 33 

Montreal: 

business tax, 10: 38 
end of fiscal year, 14: 21 
retail sales tax in, 19: 24; 29: 11, 14 
Moore, Milton A., forestry tenure and 

taxes in Canada, 33: 28n 
Morgan, John S., on local administration 

of public welfare, 23: 88, 90 
Mortmain and Charitable Uses Act, and 

corporate tax, 27: 120, 123 
Motor Vehicle Accident Claims Fund, 

30: 55 
Motor Vehicle Fuel Tax Act: 

collection and control, 30: 12, 14-15 
definition of motor vehicle fuel, 30: 1 1 
exemption and refunds, 30: 22, 23 
no provision for appeal, 25: 27 
revenue, 1965-66, and administrative 
body, T25: 1 
Motor vehicle revenues, 30: 1-109 
allocation of road costs, 30: 2-3 

P alternative revenue sources, 30: 73-81 
municipal licensing, 30: 80-81 
toll facilities, 30: 74-9 

and road-building decisions, 30: 
77-9 
categories of motor vehicles, 30: 99 
fuel taxes v^. weight-distance taxes, 30: 

108-9 
incidence of motor vehicle charges, 30: 
62-73 
burden of fees among income 

classes, 30: 70-72 
commercial vehicles, 30: 64, 66-8 
fuel tax, burden among income 

groups, 30: 69 
private passenger cars, 30: 64, 65 



Index 

Motor vehicle revenues — Continued 
and income redistribution, 30: 3 
interprovincial licensing reciprocity, 30: 

60-61 
licences and permits, 30: 31-61 

appropriate relationship between 

public and private vehicle fees, 

30: 53-4 
bases for rate structure, 30: 35-6 

in other provinces, 30: 37 
bus licences, 30: 43-4 
driver and chauffeur licences and 

learner permits, 30: 55-6 
interprovincial comparison, 1964 

registration fees, 30; 37-8 
miscellaneous charges, 30: 57-9 
motorcycle licences, 30: 45 
passenger vehicle licences, 30: 35-8 

recommendation, 30: 107 
projected revenue from, 6: 52, T6: 7 
public commercial vehicle fees and 

public vehicle fees, 30: 46-54 
and rising highway expenditures, 6: 

98, 99 
as source of provincial revenue, 4: 

47 
truck and trailer licences, 30: 39-42 
motor vehicle charges, distribution 

among road users, 30: 97-109 
allocation of charges, 30: 98-103 
appropriate relationship between pri- 
vate and public vehicle shares, 30: 

102-3 
fixed and variable charges, 30: 104-9 
"incremental cost" method of cost 

allocation, 30: 98-103, 104, 106, 

109 
relation to road costs, 30: 82-96 
conclusions, 30: 96 
direct capital and maintenance costs, 

30: 83, 84-8 
financing road costs, 30: 90-95 
"social costs" of roads, 30: 83, 89 
user and non-user shares, 30: 91-6 
revenue from fuel taxes compared with 

revenue from licences and per- 
mits, 30: 105-6 
sources of, 30: 5-81 
see also Fuel taxes: Gasoline tax 

Municipal Act: 

apportioning cost of special capital levy 

projects, 15: 36-43 
assessors, appointment of, 13: 39 
borrowing beyond the year, 22: 15, 102 
and capital financing by developers, 

15: 58 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II. 9-23; Vol. Ill, 24-40 



319 



Index 



Municipal Act: — Continued 

capital levies (special) — initiating works 
financed by, 15: 4, 20-25, 34 

1849, 10: 15; 11: 209 

1866, 10: 25 

and revenue-earning enterprises, 17: 32 

on sewage service rates, 17: 47 

statutory limit on total current borrow- 
ings, 22: 11-12 

and subdivision agreements, 15: 73 

Municipal Affairs, Department of: 
assessment administration, 13: 35 
Assessment Branch, appropriate role 

of, 13: 119 
assessment manual, 13: 98, 101, 108- 

15 
assessors, licensing of, 13: 39 
and levying of taxes by mining munici- 
palities, 12: 175 
and municipal borrowing, 22: 117, 

129-32 
municipal reserves, regulation of, 22: 

8-9 
Ontario Municipal Board fees revenue, 

37: 4, T37: 1 
position regarding subdivision agree- 
ments, 15: 71-9 
property taxes: 

agreement for payment of arrears, 

14: 85 
taxes written off, 14: 86 
Provincial Assistance to Municipalities, 

Boards and Commissions, 21: 3, 5 
reform in progress, 13: 89-92 
and revenue-earning enterprises, 17: 

43-5 
and the spread of regional government, 

23: 12 
and tax arrears certificate registrations, 

14: 79 
and taxation of mining profits, 32: 18 
transportation and communications, 

proposed assessment of, 13: 83 

Municipal debt, 22: 1-148 
borrowed funds, sources of: 

market-place alternative, 22: 56-61 
New York market, 22: 60, 87, 
143 

sinking-fund debentures, 22: 61 
ways of disposing of debentures, 
22: 56-7 
senior governments, 22: 38-55 
Central Mortgage and Housing 

Corporation, 22: 42-5 
government loan funds, signifi- 
cance of, 22: 54-5 
Municipal Development and Loan 

Act. 22: 40-41 
Ontario Education Capital Aid 
Corporation, 22: 53 



Municipal debt, 

borrowed funds, sources of: 

senior governments — Continued 
Ontario Municipal Improvement 

Corporation, 22: 46-9 
Ontario Water Resources Com- 
mission, 22: 50-52 
borrowing "beyond the year", and 
length of council terms, 22: 15, 
89, 102 
borrowing requirements, procedures 

and control, 22: 3-37 
burden (net, local), projected, 40: 3 
capital borrowing controls, evaluation 

of, 22: 70-148 
capital borrowing, procedure and con- 
trols, 22: 28-37 
capital budgeting, 22: 36-7 
forms of debt, 22: 31-3 
referendum, 22: 29-30, 124-6 
capital borrowing, defined, 22: 15 
capital borrowing requirements, 22: 
15-27 

capital construction, 22: 22 
debt classified by main purpose, 22: 

26-7 
heavy dependence on, 22: 18, 21-5 
limitations on, 22: 15, 17 
total capital requirements, 22: 22-3 
criteria for municipal debentures, 22: 

119 
current borrowing controls — evaluation 

of, 22: 62-9 
current borrowing procedures and con- 
trol, 22: 10-14 
statutory limit, 22: 11-12 
current borrowing requirements, 22: 
3-8 
capital outlays, 22: 7 
debt charges, 22: 6 
influenced by tax billing and collec- 
tion system, 22: 5 
reserves, 22: 8-9 
debentures, forms of, 22: 32-3 
effect of recommendations, 8: 7 
effect of recommendations and in- 
creased school grants, 8: 23 
heavy reliance on, pros and cons, 22: 

74-87 
importance of flow of revenues, 22: 

62-8 
improving debenture marketing, 22: 

142-8 
increase since 1939, 4: 56 
increasing, 22: 24-7, 71, 73 
level of debt, definition, 22: 110-14 
limits of capital borrowing, 22: 71-89 
maximum terms, by type of asset, 

22:91 
post-war trends, 4: 61-5 



320 



Index 



Municipal debt — Continued 
ratios, 4: 57 

as percentage of P.D.P., stabilizing, 
40: 6-8 
and referendum for capital borrowing, 

22: 30 
in relation to P.D.P., 6: 44-6; 22: 72 
school boards and public library boards, 

22: 28-9 
screening of proposed borrowing, 22: 
115-26 
government screening, 22: 116-17, 

121-3 
referendum, 22: 124-6 
underwriters' screening, 22: 118-20, 
121-3 
secular growth to 1975, 40: 6 
tax collection systems, improvement of, 

22:67 
ways of reducing dependence on, 22: 
90-109 
borrowing beyond the year, new 

definition, 22: 102, 106 
capital items, narrow definition of, 

22:98 
capital items from revenue, 22: 99- 

100, 107-9 
commuted local improvement levies, 

22: 104, 106 
down payments, 22: 101 
non-recurring revenues, 22: 105 
reducing debt charges, 22: 95, 106 
reserve funds, use of, 22: 97, 106 
reserves, use of, 22: 103 
selected method, 22: 106-9 
shortened term, 22: 94, 106 
sinking-fund surpluses, 22: 96, 106 
what borrowing should be done through 
government agencies? 22: 133-41 
what provincial authority should con- 
trol borrowing? 22: 127-41 

Municipal Development and Loan Act, 
22: 40-41 

Municipal expenditure: 

benefit rates by money-income classes, 

5: 34-7 
current and capital projection, 6: 32-6 
gross, trends in, 4: 30 
gross and net, divergence between, 4: 

25-6 
net, rate of change, 4: 27 
net, gained by residents of Ontario, 5: 

42-3 
net real, 4: 28 
net real per capita, 4: 29 
projection, 6: 31-6 
roads, 30: 86, 88 



Municipal finance, 3: 55-7 

counter-cyclical fiscal measures, not 

realistic, 3: 55 
sources of data on, 9: 96-104 
weakness of figures used, 4: 22 
Municipal Grants Act (Canada): 

and federal Crown corporations and 

agencies, 12: 80 
federal grants-in-lieu, 12: 76-80 

properties excluded from, 12: 79 
and properties of foreign governments, 

12: 83 
and property exemptions, 12: 12 
Municipal revenues: 
gross: 

breakdown of, 4:51 
since 1939, 4: 43 
net, rate of increase, 4: 45 
non-tax, 17: 1-54 
definition, 17: 1 

licence and permit fees, 17: 2-24 
revenue-earning enterprises, 17: 

31-54 
user fees and charges, 17: 25-30 
poll tax, 16: 3 
possible new sources, 19: 1-34 

hotel and motel rooms tax, 19: 4-10 
local income tax: 

administration of, 19: 16-17 
and corporate taxes, 19: 15 
essentially a grant program, 19: 20 
implementing of, 19: 14 
yield, 19: 18 
local sales taxes, 19: 22-34 
motor vehicle licences, 30: 80 
taxes based on income, earning, etc., 
19: 11-21 
projection, 6: 22-7 
property tax: see Property tax 
sources, 16: 9 

Municipal Tax Assistance Act (1952), 

10: 85; 11: 60 
payments-in-lieu, 12: 31, 33 
properties excluded from taxation or 

grants-in-lieu, 12: 34 
and property exemptions, 12: 12 

Municipal Tax Exemption Act (1920), 
10:69 

Municipal Unconditional Grants Act, 10: 
86-7; 21: 59, 94-5, 98 
hospital care of indigents, 38: 54 

Municipalities: 

community service facilities, 17: 40-41 
enforcement of liquor Acts, 35: 49 
financial flexibility, limitations, 4: 62 
fiscal year, 14: 2-22 



Chapter numbers are in bold face; paragraph numbers in light face. T= 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



= Table. 



321 



Index 



Municipalities: — Continued 

grants: see Grants, provincial, to muni- 
cipalities 
growth, 4: 21 
hospital care for indigents, cost of, 

38: 54-5 
hospital construction, grants for, 38: 27 
income assessment and total assessment 

for selected years, 19: 12 
income taxes, 26: 1, 38-49 
problems, 26: 44-5 
small yield, 26: 42-5 
levy taxes for other bodies, 10: 112-14 
licence rates for commercial vehicles 

and trolley buses, 30: 41, 44 
and the Mining Tax Act, 10: 108 
motor vehicle licensing, 30: 80-81 
net fiscal incidence, pattern of, 5: 46 
and provincial park roads, 12: 66 
recreational enterprises, 17: 42 
revenue-earning enterprises: 
classification, 17: 32 
desirable revenue policies, 17: 43-54 
description and importance, 17: 

31-42 
earnings turned over to munici- 
palities, 17: 50 
problem of rates, 17: 47-9 
special-purpose bodies, 17: 34 
types of, 17: 35-42 
rural, problem of recreational prop- 
erties, 11: 126-7 
and sales tax exemptions, 29: 77, 78 
should have right to appeal payments- 

in-lieu, 11: 60 
status of: 

and health grants, 21: 69-70, 72 
and road grants, 21: 20-22 
surpluses of electrical utilities, 17: 51-2 
tax imbalance, 9: 69-89 

ways of overcoming, 9: 76, 77-89 
equalizing grants from the Province, 

9: 76, 84-7 
larger municipalities, 9: 76, 88-9 
municipal tax pooling, 9: 76, 77-81 
tax ratios, residential-farm-business, 
adjustment of, 9: 76, 82-3 
tax rates by income classes, 5: 30-31, 

33 
taxation, and mining properties, 32: 53, 

58, 59, 97-9 
urban service areas, 11: 209-18 
utilities, financed by funded debt, com- 
pared with Ontario Hydro, 17: 52 
utility operations, 17: 35-9 
welfare, declining role in, 21: 36-9 
.see also Local government 

Municipality of Metropolitan Toronto 
Act, 13: 39 
property tax exemption, 12: 16 



Museums: 

and sales tax exemptions, 29: 78 

Musgrave, Richard A.: 
on double taxation, 1: 37n 
"Eftects of Tax Policy on Private 
Capital Formation", 26: 16n 

Musgrave, Richard A., and Peggy Brewer 
Richman, on allocation aspects, 
domestic and international, 27: 
66n 

National Health and Welfare, Depart- 
ment of, 38: 20 

National Health Grants, 38: 45, 47 

National Housing Act, 22: 43, 45 

and capital financing by developers, 

15:58 

National Revenue, Department of, Cus- 
toms and Excise Division: and pro- 
vincial retail sales taxes, 29: 121 

Natural gas, production of, 34: 2-9 
lease rentals and royalties, 34: 7-9 
and Mining Tax Act, 34: 3, 4-5, 8, 9 

ultra vires, 34: 5 
profits tax recommended, 34: 6, 9 
provincial revenue derived from, 34: 3 
total, 34: 2 

Natural resources, revenue from, 34: 1-32 
"economic rent", 32: 40; 33: 25; 34: 6 
fish and wildlife, 34: 25-32 
natural gas, production of, 34: 2-9 
oil production, 34: 10-11 
as source of provincial revenue, 4: 46 
water power rentals, 34: 12-24 
see also Mines; Forest resources 

Navy League of Canada, property tax 
exemption, 12: 13, 105 

Netzer, Dick, Economics of the Property 
Tax, 9:61n; 13: 15, 20n, 98 

New Brunswick: 

administration of justice, responsibility 

for, 9:91 
amusements tax, 31: 22 
business tax, 11: 151 
corporation taxes, 27: 2, 6 
federal hospital operating grants, com- 
pared with per-capita income, 
38: 37 
forest resources, revenues from, 33: 35 
Crown dues, 33: 12 
rental based on area, 33: 28 
rental based on inventory, 33: 27 
local reliance on property tax, 10: In 
meals tax, 29: 54 
mineral production, value, 1966, T32: 5 



322 



New Brunswick: — Continued 
mining tax: 

tax base, 32: 25-3 1 passim 

tax rates and basic exemption, 32: 

32-3 
type of, 32: 24 
motor vehicle fuel, tax rates on, 30: 7 
motor vehicle licensing reciprocity with 

Ontario, 30: 60 
motor vehicle registration fees (1964), 

T30:4 
municipal licensing of motor vehicles, 

30: 80 
municipal revenue derived from per- 
mits and licences, 17: 7 
poll tax, use of, 16: 3, 5 
problem of over-mature stands of tim- 
ber, 33: 18, 27 
retail sales tax in, 29: 15 

rate, 29: 98 
Royal Commission on Finance and 
Municipal Taxation, 16: 5 
and administration of justice, 9: 9 In 
on instalment tax billing, 14: 41 
on the poll tax, 16: 15 
and reassessment procedure, 13: 130 
on state of assessing, 13: 27, 116 
sales tax, production machinery, 29: 67 
school board fiscal year, 14: 21 
succession duties, introduction of, 28: 

48 
tobacco tax, T31: 1 
wine prices, T35: 5 
see also Provinces 

New Brunswick Forest Development 
Commission — stump age system, 
defects of, 33: 13, 16, 18 

Newfoundland: 

administration of justice, responsibility 

for, 9: 9 1 
amusements tax, 31: 22 
business tax, 11: 151 
corporate income tax, 27: 2 
federal hospital operating grants com- 
pared with per-capita income, 
38: 37 
fire insurance tax, 31: 73 
forest revenue: 
Crown dues, 33: 4 
tenure charges, T33: 3 
meals tax, 29: 54 

mineral production, value, 1966, T32: 5 
mining lands tax, T32: 9, 32: 145 
mining profits tax, rates of, 32: 124 
mining tax: 

tax base, 32: 25-3 1 passim 



Index 

Newfoundland: 

mining tax: — Continued 

tax rates and basic exemption, 32: 

32, 33 
type of, 32: 24 

motor vehicle fuel, tax rates on, 30: 7-8 

motor vehicle registration fees (1964), 
30:37 

municipal licensing of motor vehicles, 
30: 80 

municipal revenue derived from per- 
mits and licences, 17: 7 

poll tax, use of, T16: 1 

retail sales tax in, 29: 15 
rate, 29: 98 

sales tax — production machinery, 29: 
67 

tax rental agreements, 27: 13 

tobacco tax, T31: 1 

wine prices, T35: 5 

see also Provinces 

New Hampshire: lottery yield, 39: 34-7 

New Toronto: partial, graded exemption 
of dwelling units, 10: 67; 11: 95, 
97 

New York: 

power exported to Ontario, 34: 19 
race tracks tax, rate of, 31: 44 
tobacco tax, 31: 7 

New York City: 

hotel and motel rooms tax, yield, 19: 5 
retail sales tax, 19: 22, 23 

Niagara Bridge Commission, 36: 4 

Niagara Parks Act, 15: 41 

property tax exemption, 12: 16 

Niagara Parks Commission, 36: 4 

Niskanen, W. A.: on consumer demand 
for liquor, 35: 79n 

Northern Broadcasting Co. vs. District of 
Mountjoy, 11: 20n 

Northwest Territories: 

mineral production, value, 1966, 

T32: 5 
no federal tax abatement, 26: 116 
succession duty, introduction of, 28: 48 

Norway, capital gains, 26: 193 

"Nothings", should be tax-deductible, 
26: 178 

Nova Scotia: 

administration of justice, responsibility 

for, 9:91 
amusements tax, 31: 22 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



323 



Index 



Nova Scotia; — Continued 

corporate income tax, 27: 2 

federal hospital operating grants, com- 
pared with per-capita income, 
38: 37 

forest revenue: 
Crown dues, 33: 4 
tenure charges, T33: 3 

local reliance on property tax, 10: In 

meals tax, 29: 54 

mineral production, value, 1966, 
T32:5 

mining acreage tax, T32: 9, 32: 144 

mining tax: 

tax base, 32: 25-3 1 passim 

tax rates and basic exemptions, 32: 

32, 33 
type of, 32: 24 

motor vehicle fuel tax, rates on, 30: 7 

motor vehicle registration fees (1964), 
T30:4 

municipal revenues derived from per- 
mits and licences, 17: 7 

poll tax, use of, 16: 3, 5 

Provincial and Municipal Taxation 
Study, 9: 9 In 

retail sales tax in, 29: 16 

sales tax — production machinery, 29: 
67 

succession duties, introduction of, 28: 
48 

tobacco tax, T31: 1 

wine prices, T35: 5 

see also Provinces 

Nova Scotia Municipal Bureau, poll tax, 
16: 10 

Oil production, revenue from, 34: 10-11 

Old Age Assistance, federal abatement 
for, 26: 114, 115 

Old Age Assistance Act, and OMSIP 
premiums, 38: 16 

Old Age Security Tax, 26: 135 
and provincial tax base, 26: 112 

Ontario Assessment Commission (1900) 
(Maclennan Commission), 4: 1, 4, 
66; 10: 35-6, 42, 45, 46, 106 

and the Assessment Act of 1904, 10: 
53-60 passim 

flat-rate business occupancy tax, pro- 
posed, 10: 42, 43 

on personal property tax, 10: 37, 39 
alternatives to, 10: 40 

and special-franchise properties, 10: 
48, 50-51 

valuation of special-assessment prop- 
erties, recommendations, 13: 74, 
75 



Ontario Cancer Treatment and Research 
Foundation, 38: 11 

Ontario Commission on Railway Taxation 
(1905), on corporation tax, 27: 7 

Ontario Development Agency, 36: 7 

Ontario Education Capital Aid Corpora- 
tion, 20: 47; 22: 53, 54, 55, 86, 
133, 136, 137, 138 

Ontario Food Terminal Act, property tax 
exemption, 12: 16 

Ontario Food Terminal Board, 36: 4 

Ontario Foundation Tax Plan, 6: 38; 20: 
20, 22-59 
basic tax relief grant, 29: 23, 32 
and the corporation tax adjustment 

grant, 20: 28-30 
equalization grant, 20: 24-5, 32 
growth need grant, 20: 33 
improving the structure of, 20: 38-59 
corporation tax adjustment grant, 

20: 52-9 
pupil load, calculating, 20: 39-42 
recognized extraordinary expendi- 
ture, 20: 43-9 
regional and other variations in 
school costs, 20:50-51 
the present school grant structure, 20: 
23-37 
advantages of, 20: 26-7 
developments since 1964, 20: 34-7 
attendance growth grant, 20: 37 
change in equalization data, 20: 
35 

increased basic tax relief grant 
and operating cost levels, 20: 36 
new capital cost system, 20: 37 
pupil load based on average daily 
enrolment, 20: 37 
operating expenditures, 20: 23-30 
recognized extraordinary expendi- 
ture, 20: 31-3 
and readjustment of residential and 

farm mill rates, 20: 74 
should incorporate most "stimulation 

grants", 20: 63-4 
and vocational school grants, 20: 69, 70 

Ontario Hospital Care Insurance Plan, 
38: 15, 19 
contributions, 38: 65, 68-9 
and hospital operating costs, 38: 43 
and OMSIP, integration of, 38:76-81 
subsidization of premiums recom- 
mended, 38: 74 
premium rates, 38: 70-72 
see also Hospital and medical care, 
financing of 



324 



Index 



Ontario Hospital Services Commission, 
12: 117; 36:6; 38:32 
hospitals under jurisdiction of, 38: 10 
as major source of provincial revenue, 

4:50 
not adequately reported in Public Ac- 
counts, 24: 8 
outside of departmental structure, 25: 4 
premiums as a tax, 6: 2 
provincial contributions to, 6: 102-3, 

105 
reasons for creation of, 38: 13-15 
and regional planning, 23: 104 
and unmanageable-debt grants, 38: 26 
see also Hospital and medical care, 
financing of 

Ontario Hospitals, operation and main- 
tenance of, 6: 104-5 
see also Hospital and medical care, 
financing of 

Ontario Housing Corporation, 17: 38; 21: 
78; 36: 7 
and capital financing by developers, 
15:58 

Ontario Institute for Studies in Educa- 
tion, 20: 34, 51 

Ontario Institute for Studies in Educa- 
tion Act, property tax exemption, 
12: 16 

Ontario Junior Farmer Establishment 
Loan Corporation, 36: 6 

Ontario Medical Services Insurance Plan 

(OMSIP), 38: 19, 55 
and O.H.C.I.P., integration of, 38: 

76-81 
premium payments, 38: 72-4 
projected cost, 6: 106 
purpose of, 38: 16 
subsidization of premium payments, 38: 

73, 79 
see also Hospital and medical care, 

financing of 
Ontario Mental Health Foundation Act, 

property tax exemption, 12: 16 

Ontario Municipal Asociation: 

on assistance to home-owners on fixed 

income, 11: 70n 
and local government reform, 23: 18 

Ontario Municipal Board: 

appeals of classification of roads, 21: 25 
approval of capital works, 15: 7-56 

passim 
approval of municipal borrowing, 22: 

31-7 passim, 49, 116-17, 121, 128, 

130-32 



Ontario Municipal Board — Continued 
assessment appeals, 18: 2-3, 4, 5 
and capital expenditure for hospitals, 

38:22 
control of current borrowing, 22: 69 
dissolving existing police villages, 23: 8 
and high school boards, equalized 

assessment, 20: 9 
and separate school debt, 22: 110 

Ontario Municipal Improvement Corpora- 
tion, 22:40, 46-9, 54, 55, 117, 
134, 135, 136; 36: 6 

and financial role of regional govern- 
ments, 23: 143 

lending rates, 22: 48 

projects eligible for financing, 22: 46 

Ontario Northland Railway, taxation on 
railway properties, 12: 31 

Ontario Northland Transportation Com- 
mission, 36: 4 
debt guaranteed by Province, 36: 8, 32 

Ontario Parks Integration Board, 12: 66 

Ontario Police Commission (third annual 
report), on small police forces, 
23: 101 

Ontario Provincial Police, and provincial 
parks, 12: 65, 67 

Ontario Racing Commission, 31: 39 

Ontario-St. Lawrence Development Com- 
mission Act, 15: 41 

Ontario School Trustees' Council, 20: 66 

Ontario Stock Yards Board, 36: 4 

Ontario Universities Capital Aid Corpora- 
tion, 6: 89; 36: 6 
inadequately presented in Public Ac- 
counts, 24: 10 

Ontario Water Resources Commission, 
22:40, 50-52, 54, 55, 117, 134, 
135; 23: 114-15; 36:4 

and financial role of regional govern- 
ment, 23: 143 

obligations to, inadequately reported, 
22: 112 

Ontario Water Resources Commission 
Act: 
capital levies (special), initiating works 

financed by, 15: 4, 26 
property tax exemption, 12: 16 

"Opting-out" formula: see Established 
Programs (Interim Arrangements) 
Act 

Ottawa-Hull area: implications for pro- 
vincial income taxes, 26: 140 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 

325 



Index 



Owen Sound, City of, pre-election bud- 
geting, 14: 6-9 

Paid-up capital, tax on, 27: 3, 12, 114-25 

Parish and Town Officers Act (1793), 
10: 2n 

Parking lots: effects of proposed changes 
in business tax, 11: 156 

Patterson, H. L., Significant Economic 
Changes in Agriculture, 11: 196 

"Permanent establishment", 27: 25 
definition in Income Tax Act, 26: 103 
definition of, and retail sales tax, 29: 

114 
and paid-up capital and place-of-busi- 

ness taxes, 27: 116, 119-20 
significance of, 26: 137 

Perry, J. Harvey: 
on the Assessment Act of 1904, 10: 59n 
on the Report of the Manitoba Assess- 
ment and Taxation Commission, 
10:70 

Pipe lines, transmission, special assess- 
ment for, 13: 54-9 

Place-of-business tax, 27:3, 12, 114-25 

Places of worship and other religious 
property, property tax exemption, 
1:67, 69, 72; 12: 119-28 

Planning Act, 15: 2 

and capital work financed by devel- 
opers, 15: 58 
and subdivision agreements, 15: 71-9 

Police Act, 11: 215 

amalgamation of municipal police 

forces, 23: 102 
capital levies (special) 15: 4, 33 

Police villages, 11:208, 209, 217 
dissolution of, 23: 8 

Poll tax, 10: 125; 16: 1-18 
alternatives, 16: 6 
conclusions, 16: 17-18 
economic considerations, 16: 7-8 
extent used by Canadian municipalities, 

16: 3 
historical background, 16: 2 
justification, 16: 9-12 
provincial trends, 16: 5-6 
recommendation, 16: 18 
shortcomings, 16: 13-16 
use in Ontario, 16: 4 

Poole, Kenyon E., Sales Tax Economics, 
29: 23n, 38n, 49n 



Population (Ontario), 4: 4-14 
age distribution of, 4: 6 
economic activities of, 4: 8-14 
numbers, 4: 4 
projection, 6: 8, 9-10 
shitt in, and increased total acreage of 

cities, 23: 7 
standard of living, 4: 13 
urbanization, increased, 4: 4-5, 7 
and the pressures of governments, 

4:7 

Port Arthur, telephone system, 15: 31; 
17:36 

Postage stamps: sales tax exemption, 
29: 81 

Power Commission Act, 11: 60, 165, 215; 
13:69 
amendments to, 10: 85 
cost of power, and accounting prac- 
tices, 36: 14-16 
and Hydro properties, 12: 43 
pricing policies of, 36: 17 
and property exemptions, 12: 12 
and the tax position of Hydro, 12: 
36-41 

Power companies, special assessment for, 
13: 50-53 

Prairie provinces, farms, preferential tax 
treatment, 9: 70 

Prime Minister, Department of, incidental 
revenue, 37: 2, 13 

Prince Edward Island: 

administration of justice, responsibility 
for, 9:91 

amusements tax, 31: 22 

business tax, 11: 151 

corporation taxes, 27: 2, 6 

federal hospital operating grants, com- 
pared with per-capita income, 
38: 37 

fire insurance, no extra tax on, 31: 73 

income tax, personal: 
adoption of, 26: 3, 48 
collection agreement with federal 
government, 26: 51 

interprovincial movements of persons, 
26: 138 

meals tax, 29: 54 

motor vehicle fuel, tax rates on, 30: 
7, 8 

motor vehicle registration fees (1964) 
T30:4 

municipal revenue derived from per- 
mits and licences, 17: 7 

poll tax, use of, T16: 1; 16: 5 

retail sales tax, 29: 16 

sales tax — production machinery, 29: 
67 



326 



Prince Edward Island : — Continued 
school board fiscal year, 14: 21 
succession duty, introduction of, 28: 48 
tobacco tax, 131: 1 
wine prices, T35: 5 
see also Provinces 

Production machinery, retail sales tax on, 
29: 67-8 

Prohibition, difficulties of, 35: 4 

Property, real and personal: 

difficulty of distinguishing, 10: 97 
distinction between. Assessment Act 
of 1850, 10: 18 

Property, recreational, tax treatment of, 
11: 123-30 

Property, special-franchise, valuation 
problem, 10:48-51 

Property tax, personal, 10: 20-22, 26; 11: 

4-7 
abandonment of, 10: 37-41 
criticism of, 10: 33-4, 37-9 
Maclennan Commission, alternatives 

to, 10:40 

Property tax, real: 

appeals: see Local revenue system, 

appeals 
assessment: see Assessment, real 

property 
base, 11: 3-26 

assessable property, defined, 11: 16- 

25 
definitions, 10: 97-109 
personal property, exclusion of, 11: 

3-7 
property valuation, terms and condi- 
tions governing, 10: 104-9 
site value taxation, 10: 70; 11: 8-15 
basic issues and policy proposals, 11: 

1-218 
basic local tax, 2: 87-8 
business assessment and taxation, 10: 

110-11; 11: 131-64 
collections, 10: 121-3; 14: 1-89 

administrative considerations, 14: 

84-9 
annual timetable, 14: 22 
competing claims, 14: 84 
conclusions, 14: 87-9 
experience of Ontario municipalities, 
14: 23-32 

business taxes, 14: 31-2 
current collections by classes of 
municipalities, 14: 26, 28-9 
inter-year comparisons, 14: 25 
taxes outstanding as percentage of 
year's levy, 14: 27, 30 



Index 

Property tax, real : — Continued 
factors affecting, 14: 33-6 

number ot mstalments, 14: 36 
instalment payment of taxes, 

14: 37-47, 51, 52 

and municipal borrowing, 14: 42 

and tax delmquency, 14: 42 
the last resort, 14: 73-83 

sale of properties for taxes, 

14: 74-8 

tax arrears certificate registrations, 

14: 79-83 
overdue taxes, 14: 54-83 

business tax, responsibility for, 14: 

60-67 

interest and penalties, compound- 
ing of, 14: 58 

methods of enforcing: suit, lien 

and distress, 14: 59-60 

penalties, 14: 54-8 

from previous years, 14: 56 

role of the county in collections, 

14: 68-72 
the municipal fiscal year, 14: 2-22 

alternatives to mid-year budgeting, 

14:5-11 

changing of fiscal year, 14: 11-21 

City of Owen Sound, pre-election 

budget, 14: 6-9 

council spending without prior 

authorization, 14: 3 

County of Grey, pre-election 

budget, 14: 6-9 

elections, changing of time, 14: 10 

mid-year budgeting, 14: 2-3 
payment of arrears, agreement for, 

14: 85 
prepayments, 14: 48-53 

working funds, accumulation of, 

14:51 
school and municipal billing, separa- 
tion of, 14: 45 
taxes written ofl", 14: 86 
corporations, problem of school sup- 
port, 20: 55-7 
cost-revenue relations, residential and 

business, 9: 71 
differences in rates imposed by local 

governments, effects of, 9: 38-47 
differential levies, 10: 114-18 
differential mill rate, 11: 68 
differential treatment, residential and 

business, 9: 69, 71-6 
effective levy, assuming implementation 

of recommendations, 8: 43 
effects of, 9: 22-68 

business properties, 9: 34-7 
incidence, 9: 53-61 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



327 



Index 



Property tax, real : 

effects of — Continued 
non-residents, 9: 48-52 

business tax, 9: 50-52 
regressiveness, 9: 58-9 
residential properties, owner-occu- 
pied, 9: 31-3 
residential rental properties, 9: 25-30 

rate of tax, higher, 9: 26-30 

rate of tax, unchanged, 9: 25 
exemptions: see Exemptions, property 

tax 
fiscal effect of recommendations, 8: 5-7, 

9, 10, 11 
general appraisal of, 9: 62-8 

weaknesses of, 9: 66 
golf courses, 11: 185 
and heavy capital borrowing, 22: 80 
history, 10: 2-95 

assessed value in law and practice, 

10:78-81 
assessing, improving the standard of, 

10:91-5 
Assessment Act of 1850, 10: 17-23 

amendments to, 10: 19-22 
Assessment Act of 1853, 10: 23 
Assessment Act of 1904, 10: 53-60 
the Baldwin Act, 10: 15 
bodies of inquiry, 1878-1905, 

10: 32-6 
business assessment alternative, 

10: 42-6 

and the Maclennan Commission, 

10: 42, 43 

and Select Committee proposals, 

10: 44-6 
changes, 1840's, 10: 10-13 
District Councils Act of 1841, 10: 10 
early collection problems, 10: 8 
early legislation, 10: 3-6 
exemption for certain farm lands, 

10:29, 116 
first, and optional, business tax, 

10: 28, 42 
late nineteenth century, 10: 27-36 
mining properties, taxation of, 

10: 71-3 
municipal income tax, 10: 74-7 
Ontario Assessment Commission 

(1900), 10: 35-60 passim 
Parish and Town Officers Act (1793), 

10: 2n 
property, statutory valuation of, 

10: 7-9 
property taxpayer, relief for, 

10: 82-7 

Municipal Tax Assistance Act, 

10: 85 

Municipal Unconditional Grants 

Act, 10: 86-7 



Property tax, real: 
history — Continued 

reform measures, 10: 14-23 
Select Committee on the Municipal 
Act and Related Acts (Beckett 
Committee), 10: 89-90 
Select Committees of the Legislature, 

1909, 1912; 1918-19, 10:62-8 
single tax flirtation, 10: 61-70 
special-franchise properties, 
10: 47-52 

Commission on Railway Taxation, 
10:51-2 

and Maclennan Commission re- 
commendations, 10:48, 50-51 
Supplementary Business Assess- 
ments, 10: 88-9 

the Beckett Committee, 10: 89 
twentieth-century developments, 
10: 61-95 
importance to municipalities, 4: 42; 

6: 22; 8: 25; 10: 1, 77, 124-8 
incidence of increase: 

business properties, 9: 34-7 
owner-occupied residential property, 

9: 31-3 
rented residential property, 9: 26-30 
loss from exemptions, 25 per cent, 

10:99 
more regressive if made income tax- 
deductible, 26: 179 
and municipal debt, 10: 119 
municipalities, tax differentials within, 

11: 209-18 
payments-in-lieu, 10: 99, 100, 103 
the present position, 10: 96-128 
point of diminishing revenue, 9: 42-4 
projected increase, 8: 43 
provincial equalization factor should 

be subject to appeal, 11: 55-9 
realty tax, levying of, 10: 112-20 
reduction of regressiveness, 8: 10, 15, 

18, 25 
relative weights on various property 

classification, 11: 208 
residential, 11: 69-118 

increased weight of, 11: 69-70 
Umitsof, 11: 120-22 
recreational properties, 11: 123-30 
reducing weight of: 

basic shelter exemption, 
11: 100-119 

deductible from taxable income, 
11: 87 
home-improvement exemption, 

11: 89-94 
home-owner grants, 11: 83-6 
partial exemption, 11: 95-9 
progressive rates, 11:88 
split mill rate, 11: 78-82 



328 



Property tax, real: 

residential — Continued 
statutory tax limit, 11: 71 
tax reductions for selected categories 
of taxpayers, 11: 72-7 
school board reliance on, 8: 10-11 
and school finance, 20: 72-87 

school tax dilTerentials, 20: 73-4 
split mill rate, abolition of, 21: 97 
suggested billing timetable, regional, 

local, school taxes, 23: 168 
unpopular but invulnerable, 9: 1-2, 62, 

66 
variable rate, 6: 2, 24-5 
see also Business taxes 
Province of Ontario Savings Office, 36: 4 

Provinces: 

administration of justice, assignment of 

responsibility for, 9: 91 
corporate tax, allocation rules, 27: 82-3 
fiscal policy, use of, 3: 9 
municipal taxation, the base of, 11: 3 

Provincial debt: 

counter-cyclical fluctuations, objective 

of, 40: 11-12 
cyclical fluctuations in, 40: 11-13 
effect of recommendations, 1966, 8: 8 
expansion of: 

fiscal effects of, 40: 8-9 

periods of most rapid, 4: 59 
gravity of situation, 8: 46 
increase since 1939, 4: 56 
increasing level, 40: 5, 9 
net direct capital debt, 4: 58, 59 
policy to 1975, 40: 1-14 
present burden of, 4:60 
projected, before and after tax rate 

changes, 8: 38, 39 
projected: 

burden of, 40: 3 

effect of recommendations, 8: 31-43 
passim 
ratio to P.D.P., 8: 13-22 
ratios, 4: 57 
see also Provincial-local debt 

Provincial Domestic Product (P.D.P.): 
definition, 6: 14 
projection, 6: 8, 14-20 8: 27-9 
Provincial expenditures; 4: 22-41 

benefits, net, gained by residents of 

Ontario, 5: 42-3 
benefit rates — by income classes, 

5: 34-7 
cost implications of possible changes in 

education system, 6: 91-7 
gross and net, 4: 24-6 



Index 

Provincial expenditures — Continued 
divergence between, 4: 25, 26 
gross less grants to municipalities and 
school boards, trends in, 4: 30 
in national perspective, 4: 38-41 
net: 

by function, 4: 34-5 
rate of change, 4: 27 
related to the estimated P.D.P., 4: 31 
net real, 4: 28 
net real per capita, 4: 29 
patterns summarized, 4: 32 
projections of, 6: 56-112 

capital expenditures, other, 6: 108, 

109-11 
education, 6: 57-97 
health, 6: 101-6 
highways and roads, 6: 98-100 
including provision for higher school 

grants, 8: 31 
municipalities and school boards, 

grants to, 6: 112 
public buildings, construction of, 
6: 107 
three heaviest, 38: 1 

Provincial government: 

authority over local governments, 4: 20 

in better financial position than munici- 
palities, 22: 86 

borrowing capacity, 3: 36 

budgetary and debt position, projection 
of, 6: 113-19 

counter-cyclical fiscal policy, feasibility 
of, 3: 29-42 

departmental approval of municipal 
capital borrowing, 22: 35 

executive branch, expansion of, 4: 17- 
18 

expenditure-revenue gap, 40: 1 
and increased taxes, 8: 46-8 
increasing, 8: 22 
projected, 6; 113-19 

federal abatement for provincial taxes, 
26: 111-18 

fiscal effects of recommendations, 1966, 
8: 8-12 

fiscal operations, magnitude of, 24: 1 

grants: see Grants, provincial, to muni- 
cipalities 

income taxes, constitutional aspects of, 
26: 36 

miscellaneous non-tax revenues of de- 
partments, 37: 1 

need for. to offset parochialism, 9: 14 

net fiscal incidence, pattern of, 5: 46 

ownership of mineral rights, 32: 6, 35, 
39; 34: 7 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



329 



Index 



Provincial government: — Continued 
patterns of expenditure, revenue, and 

debt, 4: l-b6 
payments in lieu of local taxes, 2: 110- 

11; 10: 85, 99, 100, 103; 12: 1, 3, 

9, 1 5, 20, 3 1 , 35-44 passim, 68, 70 
payments to mining municipalities: see 

Mining municipalities, payments 

to 
projection of expenditure, revenue and 

debt (1966-74) — basic assump- 
tions, 6: 2-7 
property tax exemptions, 12: 30-72 
responsibility for promoting economic 

stabilization, 2: 27-8 
responsibility for local government 

organization, 2: 100-108 
school boundaries, 2: 131 
should have right to appeal any or all 

municipal assessment, 11: 61, 62-5 
should make payments in lieu of taxes 

to municipalities: fiscal effects, 8: 

6, T8: 2 
should take over administration of 

justice, 9: 90-95 
fiscal effects for local governments, 

1966, T8: 1; 8: 7n; T8: 2 
implications for grants, 21: 91 
as source of funds for health services, 

38: 21, 23 
and special situations of municipal bor- 
rowing, 22: 134-5 

Provincial Land Tax Act, 13: passim, 28: 

1; 33: 1 
appeal procedure, 25: 27 
appointment of land tax collector, 13: 

39 
assessment, basis of, 13: 40 
exemption of places of worship, 12: 

119 
governing assessment of real property 

in unorganized territories, 13: 36, 

38 
and property tax exemptions, 12: 12, 

13, 14 
revenue, 1965-66, and administrative 

body, T25: 1 
transferring the assessment provisions 

to The Assessment Act, 13: 41-5 

Provincial-local debt, 4: 56-65 
combined revenue gap, 40: 10 
compared with other provinces, 40: 4 
historical comparisons, 40: 4 
projection to 1975, 40: 10 
ratios of burden, 4: 57 

Provincial-municipal relations, 4: 20 
basic principles, 2: 73 
combined budgetary and debt position, 
6: 120-23 



Provincial-municipal relations: 
— Continued 
combined finances as percentage of 

G.N. P., 3: 21 
combined real net revenue as propor- 
tion of P.D.P., since 1939, 4: 54 
Committee's philosophy of, 2: 73-9 
contrasted with federalism, 2: 68 
equalization, 2: 76, 85 
expenditure function, division of, 2: 

80-85 
fiscal projection, (1966-75), 6: 1-128 
increased importance of combined 

finance, 3: 21-2 
local autonomy, 2: 74, 80-83, 86-9, 

100 
mutual taxation, 2: 109-13 
nature of, 2: 67-72 
projection of expenditure, revenue and 

debt (1966-74) — conclusion, 6: 

124-8 
property tax, 2: 87-8 
provincial assistance, 2: 77-8, 85, 90 
provincial responsibility, 2: 75, 84, 86, 

100-101 
revenue sources, the division of, 2: 

86-90 
structural complexity, 2: 71-2 
superior-subordinate relationship, 2: 69 

Provincial revenue, 4: 42-55 
alternative sources: 
lotteries, 39: 2, 24-39 
transportation tax, 39: 2, 3-23 
expenditure-based, principal compon- 
ents, 4: 47 
four major sources of, as percentage of 

P.D.P., 6: 49 
gross, since 1939, 4: 43 
major classes, percentage breakdown, 

4: 46 
miscellaneous sources, 37: 1-22 
net, rate of increase, 4: 45 
net ordinary, as percentage of P.D.P., 

6:55 
Ontario Hospital Services Commission. 

as source of. 4: 50 
projected effect of recommendations, 

1968-75, 8: 31 
projections of, 6: 47-55 

federal estate tax, share of, 6: 50, 

T6: 7 
gasoline tax, 6: 51, T6: 7 
income tax, personal, 6: 53, T6: 7 
motor vehicle licences and permits, 

6: 52, T6: 7 
other current revenue, 6: 54-5 
policy issues arising from, 40: 1-5 
reporting of, 24: 5-6 
succession duty as source of, declining, 
28: 59 



330 



Provincial Revenue, Department of, 

recommendation for establishing, 
25: 7 

Provincial revenue system, introduction, 
24: 1-15 

Provincial-school board relations: 

expenditure responsibilities, the divi- 
sion of, 2: 116-18 

fiscal implications, 2: 114-31 

local autonomy, 2: 116-18, 122-3, 128 

principles, 2: 1 14-15 

provincial responsibility, 2: 116-18, 122, 
125 
.for viability of school units, 2: 131 

revenue sources, the division of, 2: 
119-23 

separate schools, 2: 115 

see also School Finance 

Provincial Secretary: 

fee revenue, 37: 4, T37: 1 

Public Accounts (provincial), 24: 5, 6 
criticism, 24: 7-13 

municipal assistance, treatment of, 9: 
103 

Public borrowing: 

"burden" defined, 3: 46 
future-generations theory, 3: 44-8, 50 
"pay-as-you-go" view, 3: 49-50 
philosophies of, 3: 43-54 

Public Commercial Vehicles Act: 

administration of permits and licences, 

30: 34 
classes of P.C.V. licences, 30: 49 
licence fees, 30: 51 
number of vehicles under one licence, 

30: 50 
provisions of, 30: 46 

Public employees — numbers, growth in, 
4: 19 

Public health, research and training, 
financing of, 38: 45-56 

Public Health Act, 21: 68; 38: 7 

Public Lands Investigation Committee, 
on acreage tax, 32: 149 

Public Library Act: regional library sys- 
tem, 23: HI 

Public Schools Act, 13: 37, 38 
assessors, appointment of, 13: 39 
property tax exemption, 12: 15 

Public Utilities Act, 11: 215 

capital levies (special) — initiating works 
financed by, 15: 4, 32 



Index 

Public Vehicles Act: 

administration of permits and licences, 

30: 34 
exemptions, 30: 47 
licence fees, 30: 52 

Public works: see Capital levies, special 

Public Works, Department of, revenue 
from sales and rentals, 37: 13, 17, 
T37: 1 

Quance v Ivey, 18: 2 

Quebec: 

administration of justice, responsibility 

for, 9: 91 
alcoholism rates, 1939-61, 35: 71 
amusements tax, 31: 22 
community of property, 28: 81 
corporate income tax, 27: 2 

rate, 26: 155 
federal hospital operating grants, com- 
pared with per-capital income, 38: 
37 
and federal "opting out" formula, 26: 

63, 74 
fire insurance, no extra tax on, 31: 73 
fiscal year end, municipalities, 14: 21 
and foreign tax credit, 26: 164, 165 
forest revenue: 

Crown dues, 33: 12 
logging tax, 33: 40 
tenure charges, 33: 10, 11 
income tax, personal: 

abatement rates, 1965-68, 26: 74 
adoption of, 26: 3 

collection agreement with federal 
government, 26: 51 
and local sales tax, 19: 24-6, 31, 32 
meals and hotels tax, 19: 6; 29: 54 
Meals Tax Act, 19: 6 
mineral production, value, 1966, T32: 

5 
mining acreage tax, T32: 9, 32: 144, 

151 
mining profits tax, rates of, compared 

with Ontario, 32: 124, 126 
mining tax: 

base, 32: 25-31 passim 

rates and basic exemption, 32: 32. 

33 
type of, 32: 24 
motor vehicle fuel, tax rate on, 30: 7 
motor vehicle registration fees (1964) 

T30: 4 
municipal revenue derived from per- 
mits and licences, 17: 7 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. IT, 9-23; Vol. Ill, 24-40 



331 



Index 



Quebec: — Continued 

1962 income tax rates (personal and 

corporate), 26: 72 
personal property tax, 10: 38 
poll tax, use of, T16: 1; 16: 5 
power exported to Ontario, 34: 19 
race tracks tax, rate, 31: 44-5 
retail sales tax, 29: 14 

interprovincial transactions and im- 
ports, 29: 118, 120 
rate, 29: 98 
sales tax — production machinery, 29: 

67 
Royal Commission on Taxation (Bel- 
anger Commission): 
advertising sales tax, 29: 69 
corporate taxes, recommendations, 

27: 3 
instalment tax billing, 14: 41 
local sales taxes, 19: 31 
race tracks tax, proposed rate, 31: 

45 
and reassessment procedure, 13: 130 
on state of assessing, 13: 27, 116 
on uniform succession duty statutes, 
28: 226 
should tax business income of non-resi- 
dents, 26: 151 
school board fiscal year, 14: 21 
succession duties, 28: 40 
assessment of, 28: 224 
compared with British Columbia and 

Ontario, 28: 155 
federal cash payment, 1964, 26: 75 
introduction of, 28: 48, 49 
tax rates on business income, 26: 147-8 
tax rental agreements, 1947, Quebec 

not in. 26: 53 
tax-sharing agreement of 1957, 26: 62 
tobacco tax, 31: 5, 7, 13 
toll roads, 30: 74 

water power rentals, 34: 16, 17, 21 
Quebec City: 

business tax, 10: 38 
fiscal year, 14: 21 
Quick succession, 28: 116-17 

Race track companies; corporate taxes, 

27: 8 
Race tracks tax, 31: 33-47 

agency-collected, 25: 10 

conclusion, 31: 46-7 

description, 31: 33-5 

incidence and justification, 31: 38-40 

rates, 31: 34-5, 41-5 

revenue. 1965-66, and administrative 
body, T25: 1 

yield. 31: 36-7 
Race Tracks Tax Act: 

no provision for appeal, 25: 27 



Railway Fire Charge Act, 33: 6 
Railways: 

corporate taxes, 27: 8, 9, 128, 133 
special assessment for, 13: 60-62 
vacant lands classification, 10: 30, 57 
valuation of property, 10: 19 
problem of, 10: 48-51, 57, 107 
Re Guardian Realty and Toronto, 18: 5n 
Re Ontario Motor League and Toronto, 

18: 5n 
Recommendations, 7 
Recommendations, fiscal effects of, 8: 1- 
54 
concluding comments, 8: 44-54 
direct measurable impact on provincial 

and local finance, 8: 2, 44 
fiscal scene in 1966-67 (hypothetical), 
8: 4-25 
local governments, 8: 4-7 
local government, with increased 

provincial school grants, 8: 23-4 
problem of debt ratio, 8: 13-22 
provincial governments, 1966, 8: 8- 
9, 12-14 
projection, 1968-75, 8: 26-43 
Recreation and community services, 

grants for, 21: 81-9 
Redevelopment and housing grants, 21: 

75-80 
Reform Institutions, Department of: rev- 
enue from sales, 37: 13, T37: 1 
Regional government, suggested scheme, 
23: 46-171 
and Community Enrichment Grants, 

21: 88 
contract municipalities, 23: 27-33 
equalized taxable assessment, 23: 
128 
county regions, 23: 74-120 
criteria: 

balance of interests, 23: 41, 60 
community, 23: 40, 60 
efficiency, 23: 43-4, 60 
financial adequacy, 23: 42, 60 
flowing from access and service, 23: 

39-45 
interregional co-operation, 23: 45, 

60 
reviewing the criteria, 23: 58-61 
facilitate co-ordination of health units, 

38: 56 
financial role of regional government, 
23: 134-45 
assessment, 23: 135-6 
borrowing, 23: 143-5 
non-property revenue, 23: 138-42 
income tax, personal, 23: 140-42 
motor vehicle tax, 23: 138-9 
tax collection, 23: 137 



332 



Regional government, suggested scheme 
— Continued 

functions performed by regions, 23: 57 
and health unit grants, 21: 74 
implementation, 23: 148-54 
instalment tax billing, 14: 44 
justification for, 23: 58-156 
metropolitan regions, 23: 62-9 
and municipal borrowing, 22: 127 
northern Ontario, 23: 52-6, 121-6 
district regions, 23: 54, 121-6 
community and balance criteria, 

23: 126 
taxable assessment, 23: 122-3 
"metropolitan regions, 23: 53, 121, 
124 
operational functions, 23: 124-5 
relationship to economic regions, 23: 

146-7 
southern Ontario, 23: 47-51 
classes of regions 23: 47 
county regions, 23: 50 
metropolitan regions, 23: 48 
urbanizing regions, 23: 49 
geographical features, 23: 51 
and welfare, 21: 52 
urbanizing regions, 23: 70-73 

Regions, county, in suggested scheme of 
regional government, 23: 74-120 
balance criterion, 23: 75 
community criterion, problem of, 23: 

74 
financial criterion, 23: 76-9 
functional responsibilities, 23: 80 

allocation of, 23: 81-2 
operational functions, allocation of, 23: 
83-120 
arterial roads, 23: 84 
concluding points, 23: 117-20 
conservation, 23: 99-100 
co-ordination of protection services, 

23: 101-3 
garbage disposal, 23: 116 
hospital facilities planning, 23: 104 
library services, 23: 110-12 
public health, 23: 85 
public welfare, 23: 86-90 

and the Advisory Committee on 
Child Welfare Report, 1964, 
23: 90 
categories of, 23: 86 
transferring local jurisdiction to 
regional governments, 23: 87 
regional parks and recreation, 23: 

98 
regional planning, 23: 105-9 



Index 

Regions, county, in suggested scheme of 
regional government, 
operational functions, allocation of 
— Continued 

and 1964 amendment to The Sec- 
ondary Schools and Boards of 
Education Acts, 23: 93 
water supply and sewage disposal, 
23: 113-15 

Regions, district, 23: 54, 121-6 

Regions, economic (Ontario Bureau of 
Statistics and Research), and re- 
gional government, 23: 146-7 

Regions, metropolitan, in suggested 
scheme of regional government: 

differences from remaining regions, 23: 
66-9 

disruption of existing county boundar- 
ies, 23: 64-5 

functions discharged, 23: 66-7 

need for, in regional scheme, 23: 62-9 

segregation of, 23: 62-3 

Regions, urbanizing, in suggested scheme 
of regional government, 23: 70-73 

"Registrants", under Motor Vehicle Fuel 
Tax Act, 30: 14 

Remaindermen: 

deferred payment of duty, 28: 178 

duties payable, effect of capital pay- 
ments to life tenant, 28: 201 

interests of, and succession duties, 28: 
83-94, 112 

payment of duties, 28: 187 

Research Foundation Act, property tax 
exemption, 12: 16 

Residential and Farm School Tax Assist- 
ance Grant, 20: 19, 73 

Resource allocation: 

effects of changes in property tax, 9: 
40-41 

effects of corporate income tax, 27: 58 

effect of income tax, 26: 35 

and local autonomy and fiscal responsi- 
bility, 9: 5-7, 19 

Retail sales tax, 29: 1-127 

administrative considerations, 29: 100- 
121 
organization of staff, 29: 100-105 
advantage over selective excise taxes, 

1: 57 
agency-collected, 25: 10 
argument in support of, 29: 2 
audits and tax recoveries, 29: 104-5 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I. 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



333 



Index 



Retail sales tax — Continued 

breadth of tax base as factor in inci- 
dence, 29: 22 
burden: 

borne by consumer, 29: 31 
distribution among taxpayers, 29: 

32-7 
factors relating to incidence, 29: 22 
commissions of real estate agents, 31: 

70 
commission of security dealers and 

brokers, 31: 61 
cost of administering, 29: 43 
and income tax compared: 

ellect on economic growth, 29: 45 
etiects on saving and consumption, 

29: 44 
effects on work incentive, 29: 40 
relationship to business cycle, 29: 
47-8 
economic effects, 29: 24-30, 38-48 
business cycle, relationship to, 29: 

47-8 
economic growth, effect on, 29: 45 
trictional effects, 29: 40-43 
inflation and deflation, 29: 46 
revenue yield, 29: 39 
saving and consumption, effects on, 
29: 44 
and equalization, 2: 28 
equity, 29: 36, 49-50 
exemptions, 29: 49-94 

administrative simplicity, 29: 73-4 
children's clothing, 29: 62, 64 
effect of removal of, 29: 34-5 
equity, 29: 49-50 
food exemption, 29: 53-60 
medicines etc., 29: 61 
producers' goods, 29: 65-7 
pyramiding and double application, 

avoidance of, 29: 65-72 
reduction of regressiveness, 29: 51- 

64 
services. 29: 82-93 
social good, 29: 75-81 

summary of recommendations re- 
garding, 29: 94 
expenditure taxes, comparison of, 29: 
4-10 
single-stage sales tax, 29: 9-10 
turnover tax, 29: 4-6, 42 
value-added tax, 29: 7-8, 42 
fair value, determination of, 29: 110 
gasoline and dicsel fuel, exemption, 30: 

16-21 
general analysis of, 29: 21-48 
gifts, 29: 116 
government enterprises liable for, 36: 

20 
history in Canada, 29: 11-18 
and the hospitals tax. 31: 32 



Retail sales tax — Continued 
incidence, 29: 21-31 
and income tax, compared: 

effect on economic growth, 29: 45 
effects on saving and consumption, 

29: 44 
relationship to business cycle, 29: 
47-8 
insurance premiums, 31: 80-83 
increase in, 8: 14, 16, 18 
interprovincial transactions and im- 
ports, 29: 117-20 
length of period analysed as factor in 

incidence, 29: 22 
local, 19: 22-34 

another grant? 19: 30 
problems, 19: 28-9 
unrelated to needs, 19: 33 
monetary and fiscal policies as factor 

in incidence, 29: 22 
non-resident contractors, 29: 113-14 
as percentage of P.D.P., 6: 49 
projected increase, 8: 33, 34, 36, 37, 

39 
projected revenue from, T6: 7 
rates, 29: 95-9 
differential, 29: 95 
progressive, 29: 96-7 
scope for change, 29: 98-9 
refund, conditions for, 25: 19 
removal of municipal exemptions rec- 

mended — fiscal effects, 8: 5, 8 
rentals, 29: 115 
revenue, 1965-66, and administrative 

body, T25: 1 
and security transfers, 31: 59-61 
as source of provincial revenue, 4: 46, 

47; 29: 19-20 
special collection arrangements, 29: 

111 
storage of goods, 29: 112 
summary and conclusions, 29: 121-6 
superiority over manufacturer's, 1: 61 
supply and demand as factor in inci- 
dence, 29: 22 
tax base. 29: 49-94 

tobacco products, exemption of, 31: 2 
on transient accommodation, 19: 10 
vendors: 

liability of, 29: 109 
remuneration to, 29: 106-8 
should be abolished, 35: 56 

Retail Sales Tax Act, 1: 62; 29: passim 

Revenue, Department of (proposed): and 
mining taxes, 32: 134, 135 

Revenue, government: 

projection, 1966-75, 6: 1-128 



334 



Index 



Revenue legislation, provincial, adminis- 
tration and appeals, 25: 1-41 
administrative responsibility for rev- 
venue raising, 25: 6 
agency-collected taxes, 25: 10-11 
importance of audit, 25: 11 
licensing of agents, 25: 16-17 
appeal procedure, 25: 27-39 

administrative process for, 25: 29-32 
Board of Review, creation of, 25: 

30-32 
costs and time limits, 25: 36-9 
judicial process, 25: 33-5 

need for specialization, 25: 35 
guidelines for, 25: 34 
assessment procedure, 25: 9-15 
"billing" or "self assessing" method, 

recommendations for, 25: 12 
conclusions, 25: 40-41 
directly collected taxes, 25: 12 
information memoranda, publishing of, 

25: 15 
liens, 25: 25-6 
penalties, 25: 22-4 

interest rate, 25: 23 
refunds, 25: 18-21 
interest rate, 25: 21 
recommendation, 25: 20 
responsibility for administration, 25: 
3-8 
Revenue raising, and individual rights, 

25: 6 
Revenue statutes: 

appeal procedure, provisions for, 25: 

27 
and civil rights, 25: 41 
essential elements in administration, 

25:5 
fifteen major (1965-66), 25: 3, T25: 1 
need for consistent policy in, 25: 40-41 
those not assigned to Treasury Board, 
recommendation for, 25: 8 

Richman, Peggy Brewer; see Musgrave, 
Richard A. 

Rinfret, C. J., in Sun Life v. City of 
Montreal, 11: 44n 

Roach, Hon. Mr., 38: 58n, 60, 61 

Road grants, from Province to munici- 
palities, 21: 9-35 

Rodd, Stephen, 11: 192 

Royal Agricultural Winter Fair, exempt 
from Hospitals Tax Act, 31: 15 

Royal Commission on Banking and 
Finance, 3: 43 
on securities market, 22: 147 



Royal Commission on Dominion-Provin- 
cial Relations (Rowell Sirois Com- 
mission), 2: 22; 26: 3n 

on federal-provincial responsibilities, 
2: 14 

on regional inequalities of income, 2: 7 

Royal Commission on Health Services 
(Hall Commission), 38: 2 

on federal grants for public health, 
research and training, 38: 47, 48 

and federal operating grants, 38: 36, 
40 

health service structure, 38: 24 

merging of federal hospital construc- 
tion grants, 38: 29 

and out-patient services, expenditure 
on, 38:41 

regional planning, 38: 56 

on regional planning and co-ordination 
of hospital facilities, 23: 104 

Royal Commission on Metropolitan 
Toronto: 
on creation of a smaller "Metro", 

23:72 
and road grants, 21: 21 
Royal Commission on Taxation (Carter 

Commission), 27: 79, 99 
Royal Ontario Nickel Commission, 32: 
88, 89 
on mining acreage tax, 32: 147, 148, 
150 

Royalties: 

fishing and trapping, 34: 26-7 
on natural gas wells, 34: 8, 9 
on mines, distinguished from tax, 32: 
38 

Ryerson, Egerton, 10: 16 

Saint John, New Brunswick, turnover 
tax, 11: 145-6 

St. John Ambulance Association, prop- 
erty tax exemption, 12: 105 

St. Lawrence Parks Commission Act, 
property tax exemption, 12: 16 
revenue from sales, 37: 14 
St. Marie v. St. Marie, 12: 130n 

Sales and rentals, provincial departmental 
revenues from, 37: 13-18, T37: 1 

Sales tax: 

retail: see Retail sales tax 
single-stage, 29: 9-10 
specific — unjustifiable, 19: 34 

Sanatoria, tuberculosis, conversion to 
general use. 38: 33, 40 



Chapter numbers are in bold face: paragraph numbers in light face. T= 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



Table. 



335 



Index 



Sanatoria for Consumptives Act, property 
tax exemption, 12: 15 

Sanders, Thomas H., Effects of Taxation 
on Executives, 26: 13 

Saskatchewan: 

administration of justice, responsibility 

for, 9: 91 
amusements tax, 31: 22 
business tax, mandatory levy of uni- 
form appHcation, 11: 147 
corporate income tax, 27: 2 
federal hospital operating grants, com- 
pared with per-capita income, 
38: 37 
forest revenue: 

Crown dues, 33: 12 
tenure charges, 1964, 33: 10, 11 
home-owner grants, 11: 83 
income tax, personal: 
adoption, 26: 3, 48 
difficulties of higher provincial rates, 

26: 145, 146 
1962 rates, 26: 72 
interprovincial movements of persons, 

26: 138 
mineral production, value, 1966, T32: 5 
mining lands taxes, T32: 9; 32: 144, 

145 
mining tax: 

base, 32: 25-31 passim 
rates and basic exemption, 32: 32, 33 
type of, 32: 24 
motor vehicle fuel, tax rate on, 30: 7 
motor vehicle licensing reciprocity with 

Ontario, 30: 60 
motor vehicle registration fees, 1964, 

T30:4 
municipal revenue derived from per- 
mits and licences, 17: 7 
poll tax, use of, 16: 3, 5 
retail sales tax, 29: 13 
revenue from municipal utilities, 17: 50 
revenue from public enterprises, 36: 

1, 5 
Royal Commission on Taxation: 
on publicly owned utility, 36: 10 
and reassessment procedure, 13: 130 
state of assessing, 13:27, 116 
sales tax — production machinery, 29: 

67 
succession duty, adoption of, 28: 48 
surtax, reduction of, 26: 155 
tobacco tax, T31: 1 

welfare: introduction of mothers' 
allowances, 21: 37 

School boards: 

allocation of federal grants-in-lieu, 12: 
77, 85 



School boards: — Continued 

allocation of provincial payments-in- 

lieu, 12: 44-7 
allocation of spending, 20: 4, 5 
capital borrowing through O.E.C.A.C., 

22: 136 
continuation schools, 20: 9 
debt: 

increase since 1939, 4: 56 
post-war trends, 4: 61-5 
ratios, 4: 57 
elementary — grants, 20: 15 
expenditure: 

gross, trends in, 4: 30 
net: 

rate of change, 4: 27 
real, 4: 28 

real per capita, 4: 29 
projection, 6: 28-30 
function of, 20: 3 

grants from Province: see Grants, pro- 
vincial, to local governments 
independent or dependent? 20: 77 
licence rates for commercial vehicles, 

30:41 
and mining profits tax, 12: 175, 176 
and municipal assessment, 20: 12, 13, 

14 
numbers, public and separate, 1966, 

20: 8 
and overlapping municipal boundaries, 

13: 138 
peculiar functions, 2: 116-17 
peculiar position, 2: 114 
relations with Province, 2: 114-31 
reliance on property tax, 8: 10-11 
requisitioning, problem of, 2: 123 
revenue: 
gross: 

breakdown of, 4: 52 
since 1939, 4:43 
net, rate of increase, 4: 45 
secondary — grants, 20: 16, 17 
separate: 

borrowing, 22: 110 
capital, 22: 28 

should be through municipality, 
22: 144 
corporation tax adjustment grant, 
20: 28-30 

improving the structure of, 20: 
52-9 
see also Local government; School 
finance 

School boundaries, and the Province, 2: 
131 

School districts, high, in two or more 
municipalities, assessment problem 
of, 13: 138 



336 



Index 



School finance, 20: 1-87 
cost control, 20: 85 
equity, 20: 86 

financing minimum standards, 20: 4 
functional sharing, 20: 3 
local autonomy, 20: 84 
Ontario Foundation Tax Plan, 20: 

22-59 
Ontario school system: 

continuation schools, decline of, 

20:9 
distinguishing features, 20: 1-9 
district high school boards, multi- 
plication of, 20: 9 
.elementary schools, 20: 8 
organization of, 20: 8-9 
secondary schools, 20: 9 
and the property tax, 20: 72-87 

requisitioning of school taxes, 20: 

75-9 
the role of, 20: 80-81 
provincial grants, historical develop- 
ment, 20: 10-21 
contribution to school finance, 20: 

20-21 
equalization, 20: 12-19 passim 
shifts in the level and proportion of, 

20:21 
see also Grants, provincial, to local 
governments 
separate schools, constitutional status 

of, 20: 6-7 
special status of school expenditure, 

20:5 
stimulation grants. 20: 60-66 

incorporated in Foundation Tax Plan 
or abolished, 20: 63-6 
vocational education grants, 20: 67-71 
see also Ontario Foundation Tax Plan 

School tax assistance grant, 11: 80 

Schools, and retail sales tax exemptions, 
29: 76, 78 

Schools Administration Act, property tax 
exemptions, 12: 15 

Schools, private, property tax exemption, 
12: 113-14, 118 

Scott, A. D., on grants in federal coun- 
tries, 2: 49n. 

Secondary Schools and Boards of Educa- 
tion Act, 20: 9 
amendment to, 1964, 23: 93 

Security transfer tax, 31: 48-61 
agency-collected, 25: 10 
description, 31: 48-54 
exemptions, 31: 50 



Security transfer tax — Continued 
incidence, 31: 55-6 
justification, 31: 57 
rates, 31: 48 
revenue, 1965-66, and administrative 

body, T25: 1 
yield, 31:54 

Security Transfer Tax Act: no provision 
for appeal, 25: 27 

Select Committee of the Legislature, 
1903: alternative to personal prop- 
erty tax, 10: 41, 44-6 

Select Committee on Mining, 1966: 
on acreage tax, 32: 150, 152 
on Crown leases, 32: 155, 156 

Select Committee on The Municipal Act 
and Related Acts (Beckett Com- 
mittee), 10: 89, 90, 101; 23: 57, 
146 

on change of fiscal year, 14: 20 

and delineation of suitable regional 
boundaries, 23: 64-5 

on direct election of representatives at 
all levels of government, 23: 150 

and flat-rate business tax, 11: 153-4 

on the method of municipal finance, 
10:96 

recommendations on regional govern- 
ment, 23: 13-14 

and tax arrears certificate registration, 
14:82 

Select Committee on Taxation and Ex- 
emptions (1878), 10: 31-2 

Separate Schools: 

constitutional status of, 20: 6-7 

Tiny Separate School Trustees v. The 

King, 20: 7n 
see also School boards 

Separate Schools Act of 1863, 2: 14; 13: 
37, 38; 20: 7 
assessors, appointment of, 13: 39 

Service fees: 

provincial government departments, 37: 
4-12, T37: 1 

Services, proposal to include in retail 
sales tax, 29: 82-93 

Sheppard, D. H., Federal-Provincial Tax 
Collection Arrangements, 26: 17 In 

Sheridan Park Corporation, 36: 4 
Shoup, Carl, 28: 12 
Shoup Mission, 28: 12 



Chapter numbers are in bold face; paragraph numbers in light face. T^ 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



= Table. 



337 



Index 



Simons, Henry C, Personal Income Taxa- 
tion, 26: 8n 

Single Tax Association, 10: 64 

Site-value taxation, 10: 70; 11: 8-15 

Situs, law of: 

conflict between federal and provincial, 

28:67-71 
and Ontario succession duties on non- 

Ontarians, 28: 209 
and succession duties, 28: 65, 67 

Sleeping, parlour and dining car com- 
panies, corporation taxes, 27: 8, 
131, 133 

Smith, Adam, 1: 26, 60 

Smith, Russell D., on The Northern Rail- 
way: Its Origins and Construction, 
39: 28n 

Social policy, and tax principles, 1: 67-72 

Solicitor-client privilege and Corporations 
Tax Act, 27: 142 

Special Committee on Corporation Taxa- 
tion, 26: 186 

Spouses: 

as business partners, present income 

tax treatment, 26: 181 
proposed income tax treatment, 26: 
181-3 
Star Transfer Ltd., 36: 4 

Statute Labour Act: 

authorization of poll tax, 16: 1 
property tax exemption, 12: 16 

Stock Yards Act, property tax exemption, 
12: 16 

Students' supplies: 

sales tax exemption, 29: 80 

Succession Duties Act (Canada), tax 
credit for Ontario duties, 26: 57 

Succession duty, 28: 1 

administrative considerations, 28: 170- 

209 
"aggregate value", calculation of, 28: 

52-3, 119 
annuities, small, exemption of, 28: 130 
annuities and pensions: 

duties by instalments, 28: 97 
valuation of, 28: 96 
assessment, 28: 199-205 
appeals, 28: 204 

notice should be issued, 28: 199-200, 
203, 204 
assets held in safety deposit box, 28: 

180-84 
beneficiaries, classes of, 28: 56, 129 



Succession duty — Continued 
calculation of tax, 28: 118-51 
aggregate value, 28: 119 
dutiable value, 28: 120 
charitable donations and bequests, 
anomaly produced by, 28: 124-6 
community of property, 28: 81-2 
consent to transfer, 28: 185-6 
constitutional limitations, and The 

Estate Tax Act, 28: 67 
deductions, exemptions, and calcula- 
tion of tax, 28: 118-51 
charitable donations and bequests, 

28: 124-7 
expenses of estate, 28: 122-3 
family and dependants, treatment of, 
28: 128-51 

classes of beneficiaries, 28: 129 
dependant's allowance, 28: 131 
dependant's reduction, 28: 132 
preferential tax treatment pro- 
posed, 28: 133-46 
small annuities, 28: 130 
gift tax, 28: 151 

liabilities of the deceased, 28: 121 
description of present Act, 28: 51-7 
dispositions: 

and gift tax, 28: 107, 109 
valuation of, 28: 1 10 
"dutiable value", 28: 52, 120 
duties paid from residue of estate, 28: 

202 
vs. estate taxes, 28: 40-46 
and the BNA Act, 28: 44 
difference between, 28: 40-41 
even small estates should be taxable, 

28: 149-50 
exemptions, 28: 54 
family businesses, preservation of, 28: 

189-96 
family and dependants, proposed 
preferential tax treatment of, 28: 
134-46 
calculation of duty, 28: 147 
children, 28: 139-41 
children infirm of body or mind, 28: 

142 
grandchildren, 28: 144 
orphan child, under 25, 28: 143 
parents claim to insured portion of 
exemption of dependent children, 
28: 145 
widow, 28: 137-8 
federal cash payment, 1964, 26: 75 
federal government should vacate field, 

8: 50 
foreign estates, 28: 206-9 
gift tax, exemptions proposed, 28: 151 
importance of complementary gift tax, 
28: 214 



338 



Succession duty — Continued 
information returns, 28: 170 
interest in expectancy, 28: 92-4 

settling of duties, 28: 93-4 
joint property, 28: 74-80 
life interests and interests of remainder- 
men, 28: 83-94 
deferred payment of duties, 28: 85, 

86-7 
duty by instalments, 28: 85, 88-90 
lump-sum payment of duties, 28: 91 
method of payment, 28: 177-8 
no rate increases proposed, 8: 18 
payment of duties, 28: 171-9 
as percentage of P.D.P., 6: 49 
postponement of payment, 28: 179, 

195-6 
preferential treatment of dependants, 

justification of, 28: 134 
the present Ontario duty, 28: 47-57 

history, 28: 47-50 
private woodlots, 28: 197-8 
projected adjustment (1971-72), 8: 36, 

37 
projected revenue from, T6: 7 
property passing on death, 28: 72-3 
rate of tax, 28: 152-6 

Ontario structure, 28: 152-4 
compared with Quebec and British 
Columbia, 28: 155 
rate structure, proposed, 28: 157-69 
compared with Canada rates, and 

Ontario-Canada rates, 28: 167 
effect of, 28: 167-8 
lowest rate, 28: 160 
marginal rates, 28: 158 
maximum rate, 28: 161 
proportional or progressive? 28: 

157-8 
schedule of basic rates, 28: 162-6 
recommended increases, 8: 49 
relief from burdensome duties, 28: 179 
revenue, 1965-66, and administrative 

body, T25: 1 
security for duty, 28: 187-8 
small bequests and dispositions, 28: 

148 
as source of revenue, 28: 58-60 
tax base for, 28: 61-117 

agreements for sale and purchase, 

28: 104 
annuities and pensions, 28: 95-7 
and the BNA Act, 28: 61 
conflict between federal and pro- 
vincial bases, 28: 67-71 



Index 

Succession duty, 

tax base for — Continued 
constitutional limitations 
law of situs, 28: 65 
law of domicile, 28: 63 
dispositions, 28: 105-10 
employers of the deceased, payments 

from, 28: 98-9 
life insurance, 28: 100-102 
property passing for partial or full 

consideration, 28: 103 
quick succession, 28: 116-17 
standard of value, 28: 111 
summary of, 28: 66 
valuation date, 28: 112-15 
Succession Duty Act (Ontario): 
appeal procedure, 25: 27 
need for rewriting, 28: 51, 57 
Sun Life v. City of Montreal, 11: 44n, 

50n 
Supplementary Revenue Act, 1899, 27: 

6, 9 
Supplementary Revenue Act, 1907, 32: 3 

mines profits tax, 10: 71 
Sweden, annual wealth tax, 28: 9 
Switzerland, capital gains, 26: 193 

Tax abatements, federal, to provinces, 26: 

66-74, 111-18 
additional required, 8:49, 51-4; 26: 

155 
alternatives, 8: 53 
for health service programs, 38: 24, 29, 

30, 35, 42 
higher for Quebec — implications for 

foreign tax credit, 26: 165 
and provincial tax rates, 27: 91 
rates, 1962-66, 26: 158 

Tax credits, interprovincial: 

advantage over present allocation sys- 
tem, 26: 147-9 
disadvantages, 26: 150-52 
Tax sale arrangements, 14: 74-8 

termination proposed by Beckett Com- 
mittee, 10: 90; 14:82 
Taxation: 

ad valorem tax, defined, 25: 10 

and constitutional democracy, 1: 3-20 

and economic policy, 1: 16-20 
departures from benefit and ability-to- 
pay principles, 9: 54-5 
direct, defined, 25: 9 
direct and indirect, distinction between, 

30: 28 
equity in, 1: 20-50 



Chapter numbers are in bold face; paragraph numbers in light face. T= Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



339 



Index 



Taxation: — Continued 
and fees, 1: 27 
of government entities, 2: 60-66, 109- 

13 
government finance, the Committee's 
piiilosophy of, 1: 1-72 
constitutional democracy and society, 

1: 12-15 
constitutionalism and individual 

rights, 1: 7-11 
democracy and the "common good" 
defined, 1: 5-6 
incidence: 

assumptions regarding, 5: App. 

by family money-income class, 1961, 

T5:2 
forward-shifted taxes, percentage 
borne by Ontario residents, 5: 14 
method of estimating, 5: 9-17 
as percentage of adjusted broad in- 
come, T5: 6 
"progressive" and "regressive" rates 

defined, 5: 30 
shifting to non-residents, 5: 11, 13-15 
on income, consumption or wealth, 1: 

36-9 
joint occupancy of tax fields, 2: 32-40 
maintenance of balance in face of in- 
creases, 8: 47-8 
as a major component of government 

fiscal operation, 3: 5 
as means of attaining economic ob- 
jectives, 1: 18 
progressivity, and law of diminishing 

marginal utility, 1: 41-7 
rates of tax by income classes (Ontario), 

5: 30-31, 33 
specific tax, defined, 25: 10 
tax system, principles of: 
adequacy, 1: 52 
balance, 1: 55-6 
certainty, 1: 60-62 
conflicts of, 1: 66 
convenience, 1: 64 
economy of collection and com- 
pliance, 1: 65 
elasticity, 1: 54 
equity, 1: 21-50 
flexibility, 1: 53 
neutrality, 1: 57-9 
simplicity, 1: 63 
and social policy, 1: 67-72 
see also Revenue legislation, provincial; 
Revenue statutes; and specific 
taxes 

Tax Reform League, and single tax flirta- 
tion, 10: 64 

Tax Structure Committee, 26: 76-7 



Technical and Vocational Training Assis- 
tance Act, 1960, 20: 67 

Technical Training Program, federal 
abatement for, 26: 114, 115 

Telegraph and telephone companies: cor- 
porate taxes, 27: 8, 9, 129, 133 
gross receipts or mileage tax proposed, 

10:51 
special assessment for, 13: 47-9 

Telegraph and telephone services, retail 
sales tax on, 29: 82 

Telephone Act; capital levies (special), 
initiating works financed by, 15: 4, 
30-31 

Thompson, Lawrence E., see Butters, J. 
Keith 

Tile Drainage Act: capital levies (special), 
initiating works financed by, 15: 4, 
27-9 

Tiny Separate School Trustees v. the 
King, 20: 7n 

Tobacco tax, 31: 2-13 
agency-collected, 25: 10 
comparison with other provinces and 

states, 31: 5-7 
conclusion, 31: 13 
description, 31: 2-4 
federal tax increases, 1951-53, 31: 6 
incidence, 31: 8-9 
justification, 31: 10-12 
projected increase, (1971-72), 8: 36, 37 
or retail sales tax, 29: 81 
revenue, 1965-66, and administrative 

body, T25: 1 
and smuggling, 31: 6 
social policy, 1: 67, 68 
yield, expected, 1967-68, 31: 2 

Tobacco Tax Act, 31: 4 

Tocqueville, Alexis de, on municipal in- 
stitutions, 23: 25 

Toronto, City of: 

income tax assessment, 26: 46, 47 
partial, graded exemption of dwelling 
units, 10: 67, 70; 11: 95, 97; 12: 4 
personal property tax, 10: 39 
tax exemption of improvements, 10: 65 

Toronto, Metropolitan, Municipality of: 
capital items financed from revenue, 

22: 100 
and the Community Enrichment Grant, 

21: 89 
debentures, 22: 142-3 
debentures for subway bought by 

Province, 22: 134 



340 



Index 



Toronto, Metropolitan, Municipality of: 
— Continued 
an experiment, 23: 11 
grant-making power, 12: 138 
local income tax, estimated yield, 19: 

18 
pooled borrowing operations, 23: 144, 

145 
as prototype of regional government, 

23: 11-12, 151, 154 
road grants to, 21: 16, 17, 21 
three-year council term, and capital 

debt, 22: 89, 102 

Toronto General Burying Grounds v 
■ Scarborough, 12: 130n 

Toronto Stock Exchange, as collector of 
security transfer tax, 31: 53 

Toronto Transit Commission, 17: 35 

Tourism and Information, Department 
of: museum grants, 21: 82 

Touzel, Bessie, on welfare services in Peel 
County, 23: 16n 

Transfer fees: 

liquor licence, 35: 50-52 
motor vehicle, 30: 57, 59 

Transfer payments: 

complicate reporting of government 
finance, 4: 23 

distinguished from government expen- 
diture on goods and services, 5: 19 

federal, to Ontario, 4: 49 

Transport, Department of: 

as collector of motor vehicle permit 

and licence revenues, 32: 132 
revenue from permits, licences, fees 

and fines, 30: 34 
Vehicle Inspection Branch, 30: 53n 

Transportation, estimated spending on, 
Ontario, 1963, 39: 8 

Transportation and communications 
properties: 
business tax on, 11: 165-74 
case for exemption, 11: 171-2 
special assessment for, 13: 50-53 
valuation, problem of, 11: 167-8, 173 

Transportation tax: 

an alternative source of provincial 

revenue, 39: 2, 3-23 
conclusions, 39: 21-3 
constitutional considerations, 39: 17-20 
description, 39: 3-7 
economic considerations, 39: 15-16 



Transportation tax. — Continued 
history of, in Canada, 39: 4-5 
in other countries, 39: 6-7 
potential yield, 39: 8-10 
shifting and incidence, 39: 11-14 
freight and express charges, 39: 14 
passenger travel, 39: 12-13 

Treasury Department, proposed Board of 
Review within, 25: 30 

Trees Act, 12: 15, 150, 152 

Trust companies, corporate taxes on, 
27:8 

Turnover tax, 29: 4-6 
criticism of, 29: 5 
defined, 29: 4 

Unemployment: government programs, 
21: 40-43 

Unemployment assistance, federal abate- 
ment for, 26: 114, 115 

Unemployment Assistance Act, 21: 42 

Union of Ontario Municipalities, and 
single tax flirtation, 10: 65 

United Kingdom: 

assessment of farm property, 13: 20 
and capital gains, 26: 191, 193, 194, 

197 
death taxes, 28: 47 
differential tax treatment by class of 

taxpayer, 9: 70 
electricity and gas boards subject to 

income tax, 36: 21 
farm properties: 

assessment of, 13: 20 
taxation of, 11: 178 
Local Government Act (1958), 21: 101 
Report of the Committee of Inquiry 

into the Impact of Rates on 

Households, on instalment tax 

billing, 14: 41n 
Royal Commission on Local Taxation, 

9:90 
Royal Commission on the Taxation of 

Profits and Income, 26: 11; 27: 73 
schools dependent on municipal coun- 
cil, 20: 77 
and single-stage sales tax, 29: 9 
study of price and income elasticity of 

demand for liquor, 35: 77-81 

passim 
implications for Ontario, 35: 82-3 
succession duty: 

basic exemption, 28: 133 



Chapter numbers are in bold face; paragraph numbers in light face. T= 
Vol. I, 1-8; Vol. 11, 9-23; Vol. Ill, 24-40 



: Table. 



341 



Index 



United Kingdom: 

succession duty: — Continued 
maximum rate of tax, 28: 161 
private woodlot, death tax on, 

28: 198 
rate of tax, compared with Canada 

and U.S., 28: 156 
ruhngs on property passing on death, 
28:72 
valuation of property, 13: 117 

United States: 
Advisory Commission on Inter-Govern- 
mental Relations, 13: 135 
and assessment, 13: 8 
on local non-property taxes, 11: 143 
assessment: 

farm property, 13: 20 

at a specified percentage of value, 

11:67 
state operation of function, 13: 117 
and betting at Ontario tracks, 31: 42 
capital gains, 26: 192, 193, 197, 199 
Commission on Money and Credit, 

26: 16 
concentration of Canadian trade with, 
and corporate income tax levels, 
27:66 
corporate financing, 27: 61 
death taxes, adoption of, 28: 47 
differential tax treatment by class of 

taxpayer, 9: 70 
estimated yield of pool on sporting 

events, 39: 37 
hotel and motel rooms tax, 19: 5, 7 
land transfer tax, 31: 62 
liquor stores: 

government and private, revenue 

compared, 35: 62 
private, summary financial statement, 
35:60 
local income taxes, 19: 13, 17 
local sales taxes, 19: 22, 23, 34 
lotteries in, 39: 27 
motor vehicle revenues, in relation to 

road costs, 30: 4n 
municipal licensing of motor vehicles, 

30:80 
municipal taxation, base for, 11: 3 
property tax differentials, and the loca- 
tion of business and people, 9: 45 
referendum, extensive use of, 22: 124 
retail sales tax exemptions, 29: 50 
and single-stage sales tax, 29: 9 
study of price and income elasticity of 
demand for liquor, 35: 79-81 
implications for Ontario, 35: 82-3 



United States: — Continued 
succession duty: 

basic exemption and deductions, 

28: 133 
dispositions, three-year period prior 

to death, 28: 107 
rate of tax, compared with UK and 

Canada, 28: 156 
valuation date, 28: 115 
toll roads, 30: 74 
transportation tax in, 39: 6, 7 

Universities and colleges, property tax 
exemption, 12: 108-12, 118 

University Affairs, Department of, 
12: 109, 110, 112 
no incidental revenue, 37: 2 
Student Aid Branch, 36: 7 

University of Toronto: 

debt guaranteed by Province, 36: 22 
loans from Province, 36: 8 

User fees and charges, municipal: 
description, 17: 25-7 
justifiable level of, 17: 28-30 
summary of, 17: 30 

Utilities: 

municipal, special assessment for, 
13: 65-8 

private enterprises with special fran- 
chises, 10: 47 

special assessment for, 13: 50-53 

valuation of property, problem of, 
10:48-51 

Utility companies: 

corporate income tax, 27: 28 
corporate tax transferred to provinces, 
27: 103-4 

Value-added tax: 
criticism of, 29: 8 
defined, 29: 7 

Veterans Housing Act, 1945, property tax 
exemption, 12: 16 

Vineberg, Solomon, 10: 37n, 39n 
on business assessment, 10: 46 
Provincial and Local Taxation in Can- 
ada, 26: 41 n 

Walker, Mabel, on lotteries, 39: 26n 
Wartime Housing Act, property tax ex- 
emption, 12: 16 
Water power rentals, 34: 12-24 

agreements, 34: 13-14 

average revenue per kw.h., 34: 21 

conclusion, 34: 24 

economic considerations, 34: 18-23 

systems of other provinces, 34: 16-17 



342 



Index 



Wealth, taxation of, 1: 37-9 

Wealth tax: 

accessions tax, 28: 12-17 

annual net wealth tax, 28: 6-10 

death taxes, 28: 18-23 

gift tax, 28: 1 1 

justification, 28: 2-4 

opposition to, 28: 4 

as source of provincial revenue, 4: 46 

types of, 28: 6-23 

see also Property tax; Succession duty 

Welfare: 

grants from Province to municipality, 

■ 21: 36-61 
local administration, problem of, 
21: 47-52 

Welfare measures, and drop in self- 
employment, 4: 10 

Wells, H. G., on administrative areas, 
23:31 

West Germany: 

exports and direct (corporate) tax, 27: 

63 
transportation tax, 39: 6 
wealth tax, annual, 28: 9 

White, Sir Thomas, on personal and cor- 
porate income tax, 26: 4 

Windsor: personal property tax, 10: 39 

Wine: 

Ontario prices compared with other 

provinces, 35: 35 
special position of Ontario wines, 

35:35 
tax on Canadian, 35: 38 

Wineries, fees for, 35: 37 



Wineries' own retail stores: 

percentage of total sales of alcoholic 

beverages, 35: 29 
sales and control of alcoholic beverages 
— off-premises consumption, 
35: 13, 19 
Winnipeg: personal property tax replaced 

by business tax, 10: 38 

Winter works projects, municipal: grants 

from senior levels of government, 

21:90 

Withholding taxes, non-resident, 27: 106 

provinces barred from imposing during 

term of fiscal agreement, 26: 85 
provinces should share in yield, 8: 50; 
26: 129-30 
Woodlots, private, and succession duties, 

28: 197-8 
Workmen's Compensation Act, 38: 59 
assessment procedure, 38: 59-61 
investment securities, 38: 62 
medical and hospital care facilities, 

38: 57-62 
missing from Public Accounts, 24: 8 
health services, financial support for, 
38: 19 

Young Men's Christian Association, prop- 
erty tax exemption, 12: 17, 105 

Young Women's Christian Association, 
property tax exemption, 12: 17, 
105 

Youth Allowances Act, federal tax abate- 
ment for, 26: 113 

Yukon: 

mineral production, value, 1966, T32: 

5 
no federal tax abatement, 26: 116 



Chapter numbers are in bold face; paragraph numbers in light face. T=Table. 
Vol. I, 1-8; Vol. II, 9-23; Vol. Ill, 24-40 



343 



164133 



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