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THE (
COIN/ir
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
0
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
0
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
0
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
0
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
0
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
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Uj
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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
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\
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117
The Ontario Setting
MILLIONS OF DOLLARS
1 1
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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
100.0
3.8
4.2
.4
7.0
100.0
3.4
4.0
.3
5.6
100.0
3.5
4.1
.3
5.4
100.0
3.4
4.5
.7
5.3
100.0
2.7
5.2
.3
6.0
100.0
3.0
5.3
.4
6.3
100.0
2.7
5.6
.4
6.4
100.0
2.7
6.1
1.2
6.7
100.0
2.6
6.8
1.1
6.1
100.0
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
The Ontario Setting
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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
Chapter 4: Appendix
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133
The Ontario Setting
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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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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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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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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. revenue 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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Projection of Expenditure, Revenue and Debt
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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
Dote Due
DEC 5
1976
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