The
Economic Freedom
Network

Provincial Economic Freedom in Canada 1981-1998

by Faisal Arman, Dexter Samida, and Michael Walker

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Economic Freedom Analysis of the Provinces

Ontario

Ontario, the second most economically free province in Canada, has consistently rated high in the index of provincial economic freedom. This province has been the second freest province throughout the period of measurement, except in 1985 and 1989 when it temporarily moved up to first place. Improvements in its ranking occurred in 1985 to 1989. After 1989, economic freedom in Ontario dropped drastically but recently this trend has reversed and economic freedom is on the rise again.

Ontario made improvements in economic freedom from 1985 to 1989, increasing its rating from 6.2 to 6.7. This was the consequence of improvements in its top marginal tax rate, Interprovincial Trade, and in the annual minimum wage as a ratio of per-capita GDP. While this province remained the second freest province after 1989, economic freedom declined because of several factors. First, government consumption as a percentage of GDP increased from 16.3 percent in 1989 to 19.7 percent in 1993. In 1993, Ontario had the lowest government consumption followed by Alberta, where the government consumed 19.9 percent of the provincial economy. Second, transfers and subsidies as a percentage of GDP also increased from 3.9 percent to 5.6 percent in the same time period. In 1993, Ontario had the third smallest transfer and subsidy sector, behind Nova Scotia (5.2 percent) and Alberta (5.5 percent). Third, the government increased its top marginal tax rate from 47.2 percent in 1989 to 50.7 percent in 1993, and to 53.3 percent in 1994. Between 1989 and 1993, the Ontario government increased the marginal tax rate at the second-highest rate in Canada, following British Columbia; between 1993 and 1994, it again increased the marginal tax rate at the second-highest rate, following Nova Scotia. The Ontario government reduced the rate in 1996 to 52.9 percent and reduced it further in 1997 to 51.6 percent. This province also lost ground from 1993 through 1995 due to minimum wage legislation that increased the annual minimum wage as a ratio of per-capita GDP.

While Ontario has made improvements, it still ranks low for the components Takings and Discriminatory Taxation and Regulation of the Labour Market. Economic freedom appears to be a priority for the government of Ontario and positive steps have been taken. If this province were able to match the economic freedom in Alberta, per-capita GDP could increase between $5,500 to $6,100--a powerful incentive for further changes.

Ontario:Ranking for Components of the Index of Provincial Economic Freedom

	1981	1985	1989	1993	1994	1995	1998 (est.)
I.Government Operations and Regulations	2	2	1	3	3	2	2
II.Takings and Discriminatory Taxation	2	1	2	2	4	5	5
III.Interprovincial Trade	(tie) 5	5	(tie) 5	(tie) 5	(tie) 5	(tie) 5	5
IV.Regulation of the Labour Market	(tie) 2	(tie) 2	(tie) 1	(tie) 2	(tie) 5	(tie) 5	(tie) 5

	IPEF	Ranking
1981	6.4	2
1985	6.2	1
1989	6.7	1
1993	5.4	2
1994	5.1	2
1995	5.4	2
1998	5.4	2
			IPEF (1998 est.):		5.4	Trend:	Recovering

Components of Economic Freedom
			1981	1985	1989	1993	1994	1995	1998 est.
I. Government Operations and Regulations			8.1	7.6	8.1	6.0	6.2	6.8	6.8

(a) Consumption Expenditures (% of GDP)			9.0	9.0	9.0	7.0	8.0	8.0	8.0
(b) Government Enterprises and Guarantees			8.0	6.0	8.0	6.0	6.0	6.0	6.0
(c) Price Controls			6.0	6.0	6.0	6.0	6.0	6.0	6.0
(d) Regulatory Effort			9.0	9.0	9.0	5.0	5.0	7.0	7.0

II. Takings and Discriminatory Taxation			6.0	5.7	6.3	5.3	4.6	4.9	4.9

(a) Transfers and Subsidies (% of GDP)			10.0	9.0	9.0	7.0	7.0	8.0	8.0
(b) Top Marginal Tax Rate and Threshold			4.0	3.0	7.0	5.0	2.0	2.0	2.0
(c) Direct Corporate Taxes (% of profits)			6.0	7.0	5.0	5.0	6.0	6.0	6.0
(d) Provincial Sales Tax			4.0	4.0	4.0	4.0	4.0	4.0	4.0

III. Interprovincial Trade			4.0	4.5	4.0	4.0	4.0	4.0	4.0

(a) Occupational Licensing			4.0	4.0	4.0	4.0	4.0	4.0	4.0
(b) Marketing Boards			4.0	5.0	4.0	4.0	4.0	4.0	4.0

IV. Regulation of the Labour Market			7.0	8.0	9.0	7.0	6.0	6.0	6.0

(a) Minimum Wage Legislation			7.0	8.0	9.0	7.0	6.0	6.0	6.0

Economic Freedom Rating			6.4	6.2	6.7	5.4	5.1	5.4	5.4
Ranking of Province			2	1	1	2	2	2	2

Components of Economic Freedom

I. Government Operations and Regulation
	1981	1985	1989	1993	1994	1995	1996	1997
(a) Consumption Expenditures (% of GDP)	17.0	17.4	16.3	19.7	19.1	18.8	17.8	—
(b) Government Enterprises & Guarantees	23.1	25.5	22.5	28.3	28.5	—	—	—
(c) Price Controls	Price controls are often applied in energy markets; marketing boards often influence prices of agricultural products; controls are also present in a few other areas, but most prices are determined by market forces
(d) Regulatory Effort	0.203	—	0.193	—	—	0.286	0.245	—

II. Takings and Discriminatory Taxation
(a) Transfers and Subsidies (% of GDP)	3.3	3.5	3.9	5.6	5.3	5.0	—	—
(b) Top Marginal Tax Rate and	50.3	52.0	47.2	50.7	53.3	53.3	52.9	51.6
Threshold at Which It Applies	$53,377	$62,161	$84,917	$82,908	$63,396	$63,438	$63,438	$63,409
(c) Direct Corporate Taxes (% of profits)	30%	28%	30%	31%	29%	30%	30%	30%
(d) Provincial Sales Tax	7.0	7.0	8.0	8.0	8.0	8.0	8.0	8.0

III. Interprovincial Trade
(a) Occupational Licensing	39.0	—	—	—	—	—	—	45.0
(b) Marketing Boards	33.4	30.9	33.1	33.4	35.4	33.2	34.5	—

IV. Regulation of the Labour Market
(a) Minimum Wage Legislation	47.8	40.2	36.7	47.5	48.7	48.4	47.7	—

Click Here to View Key to Areas and Components of the Index and the Weights Assigned to Each

Ontario:Recent Economic Indicators
Population 1996 (in thousands):11,252 Average annual rate of change 1985–1990:1.7 percent
Real per-capita GDP 1996:$22,138 Average rate of economic growth 1985–1990:1.5 percent; 1991–1996:0.0 percent

	1981	1982	1983	1984	1985	1986	1987	1988	1989	1990	1991	1992	1993	1994	1995	1996
Annual change (%) in population		0	1	1	1	2	2	2	3	2	1	2	2	1	1	1
Annual change (%) in real GDP		-3.3	6.8	8.7	4.1	5.1	4.5	5.9	3.3	-2.4	-3.2	1.0	1.2	4.6	3.5	1.3
Annual change (%) in real GDP (average of other provinces)		-3.3	2.2	4.3	4.8	2.5	4.0	4.3	1.8	1.5	-0.9	0.7	3.0	3.8	1.5	1.6
Annual change (%) in real per-capita GDP		-4.5	5.4	7.1	2.7	3.5	2.2	3.8	0.6	-4.2	-4.4	-0.7	-0.4	3.5	2.1	-0.1
Annual change (%) in real per-capita GDP (average of other provinces)		-3.0	2.5	3.5	3.5	1.8	2.8	2.5	1.5	0.9	-1.2	-0.4	1.8	2.7	0.9
Ratio of business investment to GDP (%)	18	16	15	15	16	18	19	20	20	18	16	15	14	14	13	14
General government budget deficit () or surplus (+) (% of GDP)	-1	-2	-2	-1	-1	0	0	0	0	-1	-3	-5	-4	-2	-2
Unemployment rate (%)	6.6	9.7	10.4	9.1	8.1	7	6.1	5	5.1	6.3	9.6	10.9	10.6	9.6	8.7	9

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