While not much is happening at the centre of the universe (read: the big TO), an August 14th news release from Queen's Park catches one's attention. Entitled The Ontario Example: Cutting Taxes to Create Jobs, the government forwards a convincing argument as to the positive effects of Ontario's 35 per cent (so far) personal income tax cut.

Since Harris and his Tories came to power in 1995, 745,000 net new jobs have been created in Ontario. Employment has grown by 14.5 per cent in Ontario compared to an average of 9.1 per cent for all other provinces. Ontario's real GDP growth is up 22.7 per cent over the last five years with an annual rate of 4.4 per cent (highest in the country). Finally, Ontario's urban area housing starts, according to the government "have soared by 139.3 per cent -- far exceeding the 10.5 per cent increase in other provinces."

Above and beyond the government propaganda, the CTF did its own number crunching. From 1994 to 1999, Ontario's personal income tax rate dropped from 58.5 per cent of federal tax payable to 39.5 per cent. In other words, a tax cut of 32.5 per cent.

During this same period, personal income tax revenues increased by 18.6 per cent from $14.758 billion to $17.505 billion. So tax cuts resulted in increased revenues, not a decrease as many prophets of doom had predicted. Moreover, the increased purchasing power of Ontario families (as a result of lower taxes) manifested itself in a 31.6 per cent increase in retail sales over the past five years. As a result, retail sales tax collections (PST) jumped 41% from $9.09 billion to $12.784 billion over the last half-decade.

Of course, a booming North American economy and the auto-pact would have bolstered Ontario's economic performance regardless of Ontario's tax cuts, but not to the magnitude seen in the past five years. The experience of other provinces where taxes have remained high is extremely instructive. For example, provincial personal taxes in BC, Saskatchewan and Manitoba were reduced by 5.71 per cent, 4 per cent and 6.73 per cent respectively between 1994 and 1999.

Consequently, total provincial revenues increased by 11.1 per cent, 10.4 per cent and 16.4 per cent, again, respectively for BC, Saskatchewan and Manitoba. Meanwhile, in Canada's two lowest tax jurisdictions, Alberta and Ontario, total revenues increased by 39 and 35.7 per cent respectively.

The message is clear. Cutting income taxes is one of the quickest routes to fostering economic growth in any jurisdiction. The increased purchasing power afforded to families finds its way back into the public treasury through the new jobs created by economic expansion, hence, more workers paying taxes and all taxpayers increasing consumption and thus augmenting the provincial sales tax take. Think of it as a self-reinforcing virtuous circle if you will.

But with good news comes some bad. While the Ontario government has done well on the tax front, it should pay attention to a disturbing trend in the structure of its revenue (read: tax) intake. Five years ago, 10.3 per cent of Ontario's $49.45 billion tax take was derived from other sources such as gambling, alcohol sales and various fines and user fees. By 1999, this figure had jumped by 61%. Over 16.6 per cent or $10.39 billion of Ontario's total $62.47 billion revenue haul came from "other sources."

These "other source" revenues can be extremely volatile in the long-term and with demands for health care and education funding destined to skyrocket, Ontario's political masters should look to stem their reliance on these revenues while simultaneously striving to further cut costs through expenditure reductions and privatization. Only time will tell if Ontario's Tories can rise to this fiscal imperative.