Province With Highest Income Tax Rate

February 17, 2012 by staff 

Province With Highest Income Tax Rate, “There are only hard answers and difficult solutions.” So said Don Drummond and his three fellow commissioners about reforming Ontario’s health-care system. They could have used the same words for the entire government of Ontario.

Ontario’s problem is not that it has big government, per se. If you want to see that, on a per capita basis, head to Alberta or Quebec. As the commission correctly noted, “Ontario runs one of the lowest-cost provincial governments in Canada relative to its GDP and has done so for decades.”

Ontario is at or near the bottom in funding universities. The health-care system is not the most expensive in Canada; the welfare rates are not the most generous. It doesn’t offer $7-a-day daycare, as in Quebec.

No, Ontario’s problem is that the size of its government doesn’t fit its revenues, and hasn’t for a long time. Those revenues have been hit by the slow, steady erosion of Ontario’s competitive position, in the face of which governments kept adding spending for which there were insufficient revenues.

As a result, like the frog in boiling water, the province’s fiscal situation slowly weakened. Over the past quarter of a century, Ontario’s debt ratio more than doubled to 35 per cent from 14 per cent. Ontario now finds itself lumped in with the three Maritime provinces; unless it changes course, it will find itself level with Quebec’s 50-per-cent ratio.

For most of the past decade, Ontario’s growth rate lagged behind the rest of Canada. From being an economic motor for the country, capable of sharing its surplus, Ontario became a drag, incapable of sharing but still required to do so by the perversity of various federal-provincial programs.

Worse, Canada entered into a form of the dreaded “Dutch disease,” whereby the currency soars on the back of high commodity prices, thereby diluting the economy’s competitive position. Ontario has suffered from the Canadian version of “Dutch disease”: High oil prices and large oil exports keep the currency high, causing competitive problems elsewhere.

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