Media Releases

Institute calls on government to focus on growth, not just cuts

May 2, 2013

New research by the Institute for Competitiveness & Prosperity explores how Ontario can improve the efficiency and effectiveness of its revenue generation and spending while tackling debt

TORONTO, ON – Gov­ern­ment plays a key role in boost­ing the pros­per­i­ty and com­pet­i­tive­ness of the province, espe­cial­ly in times of eco­nom­ic hard­ship. The task of how to improve the Ontario government’s effi­cien­cy has become a wide­spread top­ic of debate. While most observers have looked at cost-cut­ting mea­sures and admin­is­tra­tive inef­fi­cien­cies with­in the gov­ern­ment, a cen­tral con­cern is miss­ing from the debate: how to get Ontario back on a path of strong growth. In its lat­est Work­ing Paper, Mak­ing sense of pub­lic dol­lars: Ontario gov­ern­ment rev­enue, spend­ing and debt, the Insti­tute for Com­pet­i­tive­ness & Pros­per­i­ty looks at how Ontario’s fis­cal pol­i­cy can be used as a tool for rebuild­ing and enhanc­ing the province’s eco­nom­ic strengths.

The Insti­tute ana­lyzed trends in Ontario’s rev­enue gen­er­a­tion and spend­ing going back to 1989 and found that over­all, the province has a num­ber of sur­pris­ing strengths. The Ontario gov­ern­ment spends less per capi­ta and as a per­cent­age of GDP than all oth­er Cana­di­an provinces. The gov­ern­ment has also reformed its tax struc­ture by low­er­ing cap­i­tal and cor­po­rate tax­es and intro­duc­ing the HST, mak­ing the sys­tem more effi­cient. How­ev­er, Ontario faces a num­ber of chal­lenges that pose a poten­tial risk to the sus­tain­abil­i­ty of the pub­lic ser­vice. The long­stand­ing deficit and grow­ing debt are a press­ing con­cern as the cost of ser­vic­ing debt has esca­lat­ed to become the third-largest gov­ern­ment expense after health care and edu­ca­tion.

The Insti­tute found that a pos­si­bly more prob­lem­at­ic issue, though, is that Ontario is not spend­ing in the right areas to pro­mote eco­nom­ic com­pet­i­tive­ness and growth. Its spend­ing on edu­ca­tion and infrastructure—the two areas most linked to pro­duc­tiv­i­ty and eco­nom­ic growth—are sig­nif­i­cant­ly low­er than that in oth­er provinces. This means Ontario is not spend­ing enough on invest­ments in future pros­per­i­ty.

Ontario also needs to improve on the rev­enue side. Changes to the tax sys­tem can be made to encour­age inno­va­tion, invest­ment and busi­ness growth. Ontario also fails to cap­ture the full rev­enue its due through user fees, the Equal­iza­tion sys­tem, and a com­pli­cat­ed sys­tem that elic­its aggres­sive tax plan­ning.

Ontario needs to focus on what will restore eco­nom­ic growth. The Insti­tute believes most of the government’s fis­cal prob­lems can be solved by cre­at­ing sus­tain­able and effi­cient rev­enue streams while spend­ing to pro­mote pros­per­i­ty. The via­bil­i­ty of Ontario’s pub­lic ser­vices and pro­grams depends on strong eco­nom­ic foun­da­tions. Re-ori­ent­ing the bud­get towards this goal will ease the government’s fis­cal bur­den and make the province more pros­per­ous and com­pet­i­tive for years to come.

“The best gov­ern­ment is not a big or small one, but a smart one,” said Roger Mar­tin, Dean of the Uni­ver­si­ty of Toronto’s Rot­man School of Man­age­ment and Chair­man of the Insti­tute for Com­pet­i­tive­ness & Pros­per­i­ty. “The gov­ern­ment needs to apply inno­v­a­tive pol­i­cy­mak­ing to all facets of the pub­lic sec­tor, so that Ontar­i­ans can ben­e­fit from strong eco­nom­ic growth and sound pub­lic ser­vices for the future.”

Tasks for Ontario

  • Sup­port a com­pet­i­tive busi­ness envi­ron­ment while ensur­ing the tax sys­tem is fair and equi­table.
  • Bal­ance cur­rent con­sump­tion needs with invest­ment in future pros­per­i­ty.
  • Mon­i­tor and con­trol pub­lic debt.

Ontario’s chal­lenges

  • The Ontario econ­o­my is expect­ed to grow at a mod­est rate of 1.8 to 2.0 per­cent annu­al­ly in the com­ing years, putting down­ward pres­sure on pub­lic finances.
  • Ontario’s pop­u­la­tion is rapid­ly aging, increas­ing cur­rent and future health care expens­es for the gov­ern­ment.
  • Many busi­ness­es are moti­vat­ed to stay small and stag­nant through dif­fer­en­tial tax treat­ment for small busi­ness­es and select indus­tries.
  • Tax rates on cap­i­tal gains and cor­po­ra­tions have been sig­nif­i­cant­ly reduced, but con­tin­ue to dis­cour­age busi­ness invest­ment and growth.
  • Ontario under­in­vests in edu­ca­tion and infra­struc­ture rel­a­tive to oth­er provinces, putting its future pros­per­i­ty at risk.
  • Ontario’s deficit and debt-to-GDP ratio sharply increased dur­ing the 2009 reces­sion, prompt­ing the gov­ern­ment to imple­ment an aggres­sive deficit-reduc­tion plan.

Rec­om­men­da­tion high­lights

  • Pri­or­i­tize Ontario’s future pros­per­i­ty by increas­ing invest­ment in edu­ca­tion to match per capi­ta spend­ing lev­els in oth­er provinces.
  • Con­trol the deficit and debt-to-GDP ratio to stop the rise in inter­est pay­ments, but also focus on using debt for pro­duc­tive ends. Debt should be used to invest in what is need­ed for eco­nom­ic growth.
  • Phase out the small busi­ness mar­gin­al tax rate by grad­u­al­ly increas­ing it for cor­po­rate incomes up to $500,000 so that it merges with the gen­er­al cor­po­rate tax rate. This will reduce the incen­tives for busi­ness­es to stay small.
  • Adopt the Nordic Dual Income Tax sys­tem to reduce tax­es on cap­i­tal gains, there­by encour­ag­ing sav­ings and invest­ment.
  • Reward inno­va­tion by adopt­ing a patent box on cor­po­rate tax returns so that com­pa­nies can be taxed at a low­er rate on patent­ed prod­ucts.
  • Find new rev­enue tools for trans­porta­tion con­struc­tion in the Toron­to region and expand infra­struc­ture invest­ment across the province to boost trade and eco­nom­ic growth.

The Insti­tute for Com­pet­i­tive­ness & Pros­per­i­ty is an inde­pen­dent not-for-prof­it orga­ni­za­tion estab­lished in 2001 to serve as the research arm of Ontario’s Task Force on Com­pet­i­tive­ness, Pro­duc­tiv­i­ty and Eco­nom­ic Progress. The Insti­tute is sup­port­ed by the Ontario Min­istry of Eco­nom­ic Devel­op­ment and Inno­va­tion. Work­ing Papers pub­lished by the Insti­tute are pri­mar­i­ly intend­ed to inform the work of the Task Force. In addi­tion, they are designed to raise pub­lic aware­ness and stim­u­late debate on a range of issues relat­ed to com­pet­i­tive­ness and pros­per­i­ty.

The com­plete report can be down­loaded direct­ly from


For more infor­ma­tion, con­tact:

Jami­son Steeve
Exec­u­tive Direc­tor
Insti­tute for Com­pet­i­tive­ness & Pros­per­i­ty
Voice 416.946.7585
Fol­low the Insti­tute on Twit­ter @Institute_ICP

Ken McGuf­fin
Man­ag­er, Media Rela­tions
Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
Voice 416.946.3818
Fol­low Rot­man on Twit­ter @rotmanschool
Watch Rot­man on You Tube