Ontario Premier Doug Ford makes an announcement in Toronto on May 24.Christopher Katsarov/The Canadian Press
Ben Eisen is a senior fellow and Jake Fuss is director of fiscal studies at the Fraser Institute.
Premier Doug Ford plans to send a onetime tax rebate to all Ontarians in an effort to “stimulate the economy.” While the amount remains unclear, media reports suggest it will be at least $200 per person to be distributed in early 2025. Mr. Ford is expected to make the announcement during the provincial government’s fall economic statement this week.
It’s easy to see why this idea holds political appeal. Who doesn’t like a cheque in the mail? However, Ontarians shouldn’t be fooled into thinking this onetime payment is good policy or that it represents a meaningful commitment to let Ontarians keep more of their hard-earned money.
If the Ford government is serious about that, it should reduce personal income taxes rather than float gimmicky rebates.
During a recent speech, Premier Ford said if you “put money into people’s pockets” they will spend it on something like dinner or home renovations. But according to decades of research, for most people that isn’t true. Most people make economic decisions based on their expected income flow over the long term, not based on small short-term fluctuations.
Economists going back to Milton Friedman have argued that people are as likely to save a small onetime windfall as they are to spend it. A permanent tax cut may induce families to spend more knowing they can count on continuing additional income, but a onetime rebate doesn’t have the same effect.
Another problem with onetime rebates – as opposed to tax cuts – is that they don’t improve the economic incentives facing Ontarians. If a government reduces income tax rates it provides a stronger incentive for individuals to work more and make investments because they get to keep more of the next dollar that they earn. By influencing behaviour in these ways, permanent tax cuts help encourage economic growth, which creates more economic opportunity for workers across the income spectrum.
A rebate creates none of these effects. Individuals receive the lump sum no matter what they do, so the policy does nothing to change behaviour or help meaningfully drive economic growth.
Finally, Premier Ford’s desire to “put money into people’s pockets” has an echo of past promises. In 2021, with an eye on a pending provincial election, he promised to reduce taxes to “put more money into people’s pockets” because “the worst place you can hand your money over is to the government.” But after nearly two terms in office, the Ford government hasn’t made good on these commitments to reduce taxes on workers and businesses.
The top combined (provincial and federal) personal tax rate in Ontario remains at 53.53 per cent, exactly the same as when Premier Ford took office in 2018, while the business income tax rate also is the same at 11.5 per cent. The government’s new rebate will do nothing to reduce the tax burden on Ontarians. Despite Premier Ford’s rhetoric, Ontario has remained a high-tax jurisdiction during his time in office.
Many Ontarians will be happy to receive a onetime rebate of $200. However, if the Ford government wants to get serious about encouraging economic growth and making Ontario a better place to live, work and invest, it should enact substantial and permanent tax relief instead of relying on gimmicks to disguise its high-tax approach to governance.