Finance Committee on April 27th, 2010

[John McKay, Liberal, Scarborough—Guildwood, ON]

At one level it may be a superficial error, but on the other hand you say that the amendment affects the calculation of a separate payment to Ontario for 2010-2011 only and does not have an impact on the CHT cash for any other province. So you've isolated it from other provinces, but it certainly seems to have some impact for Ontario. Can you elaborate on that? I'm not sure I understand it.

[Tom McGirr]

The amount for Ontario is being calculated as if this reference has been corrected, so it's not affecting the actual payment itself to Ontario. It is for 2010-2011, by the way. I just checked my notes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Since Ontario is about to enter into this hallowed status of a receiving province, could you respond with a bit more elaboration on what needed to be corrected, and how, or not, this impacts on Ontario's receipt of funding?

The second question has to do with HST. It's anticipated to be in position in Ontario on July 1. How will the transfers between governments, if at all, be affected by HST?

[Tom McGirr]

On your first question, last year in the Budget Implementation Act a change was made to the Canada health transfer that provided a separate payment to Ontario, so that it would be treated under the Canada health transfer like any other receiving province. That legislation spelled out how that payment was to be calculated in 2010-2011. I think the amount for 2009-2010 was set out as a specific amount.

Since that time, we looked at the way we legislated it and said this little change has to be made to make it appropriate. As I said, the payment itself to Ontario has been calculated exactly the way it's intended to be calculated, and all this change in the cross-reference is doing is making sure that we have the legislative...

[John McKay, Liberal, Scarborough—Guildwood, ON]

Has the Government of Ontario signed off on that? Do they agree with your position?

[Tom McGirr]

The Government of Ontario hasn't said anything one way or the other, to my knowledge.

[John McKay, Liberal, Scarborough—Guildwood, ON]

You know, if it goes in column B or column A, it may have no impact whatsoever. On the other hand, putting it in column A or column B may have either an impact on the current payment, or have a precedence value. I'm not familiar enough to know what the mistake was and what the correction is to know whether there is in fact, as you say, no impact. I would have thought that for a correction of some significance you would at least have had some exchange of correspondence with the Province of Ontario.

[Tom McGirr]

Ontario certainly hasn't expressed any concerns about what we're doing. They're certainly aware of what we're doing, and they have not expressed any concerns at all.

[John McKay, Liberal, Scarborough—Guildwood, ON]

On the HST...?

[Tom McGirr]

Let me return to the second part of your question, the harmonized sales tax in Ontario.

We measure fiscal capacity based upon the average tax and taxation practices of provinces. The fact that Ontario is moving from a retail sales tax to the harmonized sales tax will certainly be reflected in our measure of fiscal capacity. As to what impact that will have on transfers, I'm not in a position to be able to pass that along to you.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Again, going to the theory of measuring fiscal capacity, moving, effectively, a tax from some combination of 8% plus, plus, plus to a harmonized 13% should in theory have some impact on fiscal capacity. The question is whether it's negative or positive.

[Tom McGirr]

Only to the extent that the 13% rate in Ontario comprises the 8% rate that's provincial and the 5% federal rate. Certainly the 5% federal rate does not factor into fiscal capacity.

[John McKay, Liberal, Scarborough—Guildwood, ON]

But it will tax things that have not been taxed before, and it will give credits to things that didn't receive credits before.

[Tom McGirr]

Absolutely.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Therefore the question is how will HST affect fiscal capacity and the measurement for transfers?

[Tom McGirr]

The formula itself is going to automatically start taking into account this new taxing practice. Now you have to remember that the equalization formula is based upon a three-year moving average of data that's lagged two years behind, so that the change that Ontario is going to be making in 2010-11 will only first be seen in terms of equalization payments in 2012-13.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Well, it may be a delayed impact. I don't dispute that it will be delayed, but I just don't know what it's going to be. With the greatest respect, Mr. McGirr, you're not telling us what it is, how that impact is going to...

[Tom McGirr]

I don't have that information for you, though.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Does anybody in the department have that?

[Tom McGirr]

I don't think we've looked at that particular question at this point in time.

[John McKay, Liberal, Scarborough—Guildwood, ON]

You haven't looked at the question?

[Tom McGirr]

Not yet.

[John McKay, Liberal, Scarborough—Guildwood, ON]

This is probably the most significant tax reform undertaken in Ontario in years. I would have thought that somebody somewhere, someplace, somehow has looked at this as it would impact on transfers.

[Tom McGirr]

The impact on transfers is going to be a matter of course, of the way the formula works. There are provincial taxation changes all the time. If you look at changes in personal income taxes, those automatically would be reflected in different fiscal capacities.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Presumably somebody models it and measures it, and says this is good or this is bad, or this is up but this is down.