Ontario 2018 Third Quarter Income Tax Revenues $1.3 Billion Below Forecast

The Toronto Star had a good article with the headline: "Ontario dips into reserves to cover increased costs of free tuition and college strike." 

There is a lot of interesting tidbits about Ontario government finances in the third quarter, ending December 1st. What I found most interesting was this:

"The revenues from personal income taxes totalled $33.3 billion, $1.7 billion lower than forecast." 

That seems somewhat strange to me, considering that employment growth has been relatively strong in Ontario this year. That's a 3.9% miss, which isn't insignificant. Possibly the jobs created, or Ontario's jobs overall have been part-time or low paying when the provincial taxes paid aren't much for low earners versus high earners. Maybe this had something to do with it: 

"Corporations tax revenue was almost $1.6 billion higher than expected at $15.4 billion."

Possibly high earners with marginal tax rates well above 50% in Ontario still turning to private corporations?

Lower housing sales in the third quarter likely contributed to lower land transfer taxes:

"Revenues came in $115 million higher, with drops in personal income taxes and land transfer taxes offset by higher revenues from corporation taxes and the Ontario Lottery and Gaming Corporation."

With total sales in Ontario really down in January, that has to be a drag on Ontario GDP, even well beyond the lower land transfer taxes. Certainly realtor incomes will be way down.

New York Times Article "The Downward Ramp" and Ontario

There's a good New York Times article called "The Downward Ramp" about a study about negative happenings in the US employment market, especially for college graduates. The whole article is good, but I was interested in these two particular paragraphs:

"This possibility has been explored from various angles by Robert Gordon, an economist at Northwestern; Lawrence Summers, the former secretary of the Treasury, now at Harvard; and Erik Brynjolfsson and Andrew McAfee at M.I.T. who wrote “The Second Machine Age.”

Gordon’s prognosis is perhaps the bleakest: “The future of American economic growth is dismal, and policy solutions are elusive.”"

One of the themes of this blog has been that Ontario's GDP growth per person (related to productivity growth) has been dismal since the Mike Harris years and that a lot of Ontario's economic growth has just been from an increasing population.

Considering that if the US is struggling with the same problems, that's not good news for Ontario. First Ontario still depends a lot on US economic strength for its economy. Second, if anything Ontario is probably doing worse with regards to productivity growth than the US, as government policies during the Liberal era have focused on increasing the contribution of the provincial government to the overall economy and our manufacturing portion of the economy (often a source of productivity gains) has basically collapsed (partly due to high electricity prices engineered by the Ontario government although most is due to factors the government can't control like 9/11 and global outsourcing). Hiring more teachers per pupil is obviously bad for productivity and there's not a lot of evidence that more teachers per pupil has improved student performance considering the most recent PISA results (actually judging by PISA results it appears to make them worse).

I particularly like the quote “The future of American economic growth is dismal, and policy solutions are elusive.” To me that describes what has been happening in Ontario. Economic growth has been dismal and the Liberal government has been flailing around trying to deal with this reality and has tried everything from "green energy" to funding MaRS, which are ultimately peddled by modern day snake oil salesmen (i.e. Richard Florida) trying to get some money out of a fading economic power desperate for a magic bullet.

The safer assumption is that these policies will not work and Ontario's GDP growth per capita will be weak. Compounding the problem will be people voting with their feet to move to the greener economic pastures of Alberta, driving down economic growth from population growth. Taking the advice of Public Enemy, don't believe the Ontario finance department's hype of Ontario's growth over 2.5% in the next couple of years.

RIM's Tanking's Effect on the Ontario Economy

Certainly everyone has heard that about RIM's bad first quarter 2012 results. I'm not going to go over them although I will point out that I was predicting they were going to suck in April. People shouldn't have been surprised. Here's another tip, this quarter's results, ending today won't be good either, but we won't know precisely until the end of September. The final nail in the coffin was the delay in the BB10 operating system. Certainly RIM spending billions buying back shares looks particularly half-witted now.

RIM compared to the entire Ontario economy is obviously small, however considering Ontario under Dalton McGuinty has basically become a public sector based economy (like France, but without the multinationals partially owned by the state) it was an important part of the private sector economy in Ontario. Especially considering its importance to exports and the fact that RIM isn't like a hair dresser in that it doesn't have to be in Ontario. Beyond auto parts and in a sense banking services and mining, Ontario's exports have been moribund the past few years. This won't be good for Ontario's economy or tax revenues.

Fortunately for Hamilton, the effects of RIM imploding is minimal, apart from some locals living in Hamilton and working for RIM. KW is a different story. Sure there's a lot of high tech startups in Waterloo, but the majority of those will implode or stay small. Plus they don't pay remarkably well and are very engineer heavy and light everything else in terms of employment. Can the KW economy absorb all the soon to be former RIM employees? Sure the good people will find jobs but the dead weight that every big company builds up will have trouble. Expect a lot of vacant office space in KW.