Ontario’s Income and Property Taxes

To put some figures on yesterday’s commentary about the social-service download to municipalities and low provincial-income taxes, I checked the latest Equalization tables (which are publicly available from Finance Canada).

In 2005/06, Ontario collected $22 billion of personal-income taxes. At national-average rates – an average dragged down by low-tax Alberta and by Ontario itself – Ontario’s income-tax base would have yielded $25 billion. In other words, Ontario could have uploaded most of the download ($3 billion) a couple of years ago by edging provincial-income taxes up to national-average rates.

The Equalization figures also reflect a consequence of the download. Ontario municipalities collected $20 of property taxes, although Ontario’s property-tax base would have yielded only $18 billion at national-average rates. (However, there is some controversy about how the Equalization formula measures property-tax bases.)

Income taxes are progressive because the rate is higher for higher incomes. At best, property taxes are simply proportional because everyone pays the same mill rate, assuming that landlords pass property taxes onto tenants through higher rents. To the extent that people spend proportionally less on housing as income rises, property taxes are regressive.

Through the download, Premier Harris opted for lower income taxes, higher property taxes and fewer public services. A future Premier could choose to raise provincial income taxes and reverse the download, allowing municipalities to provide more services and perhaps reduce property taxes.