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Did Harris' Tax Cuts Really Increase Revenues?
27/05/2004

Last week, Paul Martin blamed the McGuinty budget on the aftermath of Mike Harris, saying he cut taxes "prematurely". This was also meant to be a warning about what might happen if we vote for Stephen Harper.

There was a response -- which I first saw on Le Blog de Polyscopique, and have since seen elsewhere, including in Coyne's writing -- that amounts to saying, "hey, look at the numbers -- Ontario's revenues actually increased as a percentage of GDP during the Harris years... and when you just look at own-source revenues (i.e., not transfered from the feds), the result is even better."

The suggestion was meant to be that Harris' tax cuts actually increased tax revenues... so shame on Martin, and don't worry about a thing.

However, I found that there was something suspicious about this. It doesn't seem to fit with what we've experienced. And, it would seem to me that no matter how much you believe in supply-side economics, there doesn't seem to be any way to explain how a tax cut can produce growth of revenues as a percentage of GDP. How can that possibly happen?

The sources for the numbers used in these calculations would appear to be:

  • Here, for the Ontario government revenues and expenses
  • Here, for federal government revenues (scroll down for GDP %)
  • Here, for federal expenses (again scroll down for GDP %)

I've been thinking a little bit about what could be wrong here, and I have a couple thoughts.

One, is that the Harris Conservatives made quite a bit of cash by selling off assets, such as Highway 407. This could explain part of the increase in revenues without supporting the argument that Coyne and others have made against Martin.

Two, is that the Harris Conservatives restructured the way education is funded in Ontario. School boards used to collect their own funds through property taxes, but Mike Harris changed that. There is now an education property tax that is paid to the province of Ontario, which would look like a big increase in revenues. Obviously, this does not support the pro-Harris people.

Additionally, when I began my research into this, I started with the province's public accounts annual report. I found this statement:

Between 1993-94 and 2002-03, taxation revenues, the largest component of revenues, grew by 4.8 per cent a year on average while nominal economic growth averaged 5.6 per cent a year.

Note that this would include the bump in tax revenues caused by the education restructuring, along with any other major changes the Harris-Eves team made.

I have a job to do, so I can't continue this right now. It certainly looks like it is not a closed case, that's for sure. What we need to see is a table showing income, sales, and education tax revenues for the province, from the 90s through today.

UPDATE: See also here


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