Fraser Forum
Fraser Institute/Cato Institute
Fiscal
Performance
Index
T
by Joel Emes
he Fiscal Performance Index measures the performance of the Canadian provinces and the US states with 15
variables that reflect changes in spending, changes in government revenue,
and changes in the structure of taxation.
The purpose of the Index is to provide
Canadians with information about how
their own provincial government taxes
and spends their money relative to how
other North American jurisdictions
spend and tax.
The method of constructing the index is
taken from a US study, conducted by
Joel Emes is Senior Research Economist at
The Fraser Institute. He is co-author of
Tax Facts 10 and Tax Facts 11, and
Canada’s All Government Debt (1996,
1998 and 1999 editions). He is also the
primary researcher for Tax Freedom Day
and the Institute’s province-to-province
fiscal comparison, the Budget Performance
Index. He received his M.A. in Economics
from Simon Fraser University.
the Cato Institute, of the fiscal performance of 47 American governors. The fiscal performance index consists of two
sub-indices. The first sub-index examines to what extent the governments
have controlled spending during their
term of office. The second sub-index
looks at how tax rates and revenues have
changed over the same period.
Fiscal performance
ranking
Massachusetts out-performed all the
provinces and the 46 other states that
were ranked on the Fiscal Performance
Index to end up in top place for 2001.
Table 1 gives the fiscal performance
ranking, from highest score to lowest, as
well as the spending sub-index, and tax
rate and revenue sub-index scores.
Fourth place on the spending sub-index,
and eighth place on the tax rate and
revenue sub-index gave Ontario the
highest provincial ranking and third
place overall. Third place on the spend-
ing sub-index, and twentieth place on
the tax rate and revenue sub-index gave
Alberta the second highest provincial
ranking and ninth place overall. On the
other end of the spectrum, British
Columbia has the distinction of holding
the 32nd spot on the spending subindex and the second-to-last spot on the
tax rate and revenue sub-index, giving it
the worst fiscal performance among the
provinces and the third worst fiscal performance in North America. Manitoba,
Nova Scotia, and New Brunswick could
not be ranked because recent elections
in these provinces resulted in changes of
government and, therefore, not enough
data are available to include them in the
index. Ontario, Alberta, Quebec, Newfoundland and Labrador, Prince
Edward Island and Saskatchewan
received scores of over 50 out of 100 in
the overall index (50 is a passing score).
Only British Columbia failed.
Spending ranking
The provinces that have had the most
success in eliminating and reversing
large deficits (Alberta, Ontario, and Saskatchewan) performed the best on the
spending index. In general, the provinces performed well on this index; six
of the seven that could be ranked are in
the top half of the spending sub-index;
the exception is British Columbia. This
is due to the general spending restraint
in Canada in the 1990s, and the fact that
states have been more likely to use surpluses to increase spending rather than
return excess revenue to taxpayers.
Roughly one quarter of US state governors recommended budget increases of
more than 7 percent for fiscal 2000, and
more than half proposed increasing
spending by more than 5 percent. For
the past three years, state spending has
grown more than twice as fast as US
federal spending. Table 2 provides the
provincial background information for
March 2001
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Fraser Forum
the spending scores. The background
information for the spending scores for
the states is included in the CATO Institute report.
Tax rate and revenue
ranking
The provinces did not perform as well
on the tax rate and revenue ranking as
they did on the spending ranking
because the US states were more likely
to have no change or a decrease in tax
rates than were the provinces. Also, in
general, the states had larger decreases,
or smaller increases, than the provinces
on the revenue variables. Table 3 provides
the provincial background information
for the tax rate and revenue scores. The
background information for the tax
rates and revenue scores for the states is
included in the CATO Institute report.
Methodology
The Fiscal Performance Index is part of
The Fraser Institute’s on-going program
of assessing the tax and expenditure
behaviour of governments in Canada.
The Cato Institute study has provided
the methodology for constructing the
index which consists of two sub-indices:
spending, and tax rates and revenues.
All variables, unless otherwise noted,
measure from the year that the government was first elected. The person identified as premier is the one in power at
the time the index was compiled. Since
state governments cannot run deficits,
provincial deficit amounts are added to
provincial revenues to force budget balance to provide a fair, cross-border
comparison.
The Fraser Institute Spending SubIndex is composed of 4 variables:
2 |
March 2001
Table 1: Fiscal Performance Among the Provinces and States
Rank
Premier/
Governor
Jurisdiction
Fiscal
Performance
Index
Score
Spending
Score
Tax Rate
&
Revenue
Score
1
Cellucci
Massachusetts
75.1
84.8
73.0
2
Guinn
Nevada
72.4
92.9
67.6
3
Harris
Ontario
69.4
83.7
64.0
4
Bush
Texas
69.2
66.0
71.1
5
Cayetano
Hawaii
68.9
67.9
69.2
6
Rowland
Connecticut
68.0
55.5
72.3
7
Johnson
New Mexico
67.0
57.8
70.2
8
Owens
Colorado
66.8
72.5
65.6
9
Klein
Alberta
66.1
84.4
59.2
10
Bush
Florida
65.6
73.9
63.6
11
Locke
Washington
64.4
78.5
61.1
12
Pataki
New York
63.7
68.4
62.0
13
Ventura
Minnesota
61.3
56.1
62.4
14
Janklow
South Dakota
59.9
63.5
60.2
15
Ridge
Pennsylvania
59.9
52.8
62.6
16
Schafer
North Dakota
59.7
60.5
59.7
17
Patton
Kentucky
59.6
55.3
61.7
18
Engler
Michigan
59.2
70.9
55.9
19
O’Bannon
Indiana
58.6
49.5
61.7
20
Thompson
Wisconsin
58.0
52.7
62.5
21
Keating
Oklahoma
57.9
56.4
58.4
22
Graves
Kansas
57.8
65.0
56.8
23
Almond
Rhode Island
57.6
55.3
58.5
24
Bouchard
Quebec
57.1
64.9
54.3
25
Johanns
Nebraska
57.0
78.1
52.0
26
Underwood
West
Virginia
56.9
61.5
56.3
27
Whitman
New Jersey
56.9
58.4
56.7
28
Huckabee
Arkansas
56.7
45.8
60.0
29
Barnes
Georgia
55.5
82.4
49.2
Fraser Forum
Table 1: Fiscal Performance Among the Provinces and States
Rank
Premier/
Governor
Jurisdiction
Fiscal
Performance
Index
Score
Spending
Score
Tax Rate
&
Revenue
Score
• average annual change in real per
capita spending through 1997/98
• average annual change in spending
per $1,000 of personal income
through 1997/98
• average annual change in real per
capita spending through 1999/00
30
Hodges
South Carolina
55.0
44.1
57.5
31
King
Maine
54.7
51.4
56.3
32
Kempthorne
Idaho
54.7
58.6
53.8
33
Grimes
Newfoundland
and Labrador
53.8
62.9
50.6
34
Dean
Vermont
52.9
62.2
51.8
35
Foster
Louisiana
52.9
67.0
47.7
36
Gilmore
Virginia
52.3
32.9
56.3
37
Geringer
Wyoming
52.2
60.2
50.3
38
Hunt
North Carolina
52.1
48.7
53.7
39
Binns
Prince Edward
Island
52.1
64.5
47.3
40
Carper
Delaware
51.3
37.3
56.7
41
Shaheen
New Hampshire
51.1
61.8
46.0
42
Racicot
Montana
51.1
57.0
50.8
nue per $1,000 personal income
through 2000/01
43
Taft
Ohio
50.8
43.4
52.6
• average annual change in real per
44
Ryan
Illinois
50.7
48.6
51.2
45
Romanow
Saskatchewan
50.4
72.4
42.3
46
Hull
Arizona
50.2
55.2
49.0
47
Siegelman
Alabama
49.6
52.3
49.0
48
Leavitt
Utah
49.3
45.4
51.7
49
Glendening
Maryland
48.1
52.3
48.4
50
Sundquist
Tennessee
48.1
60.2
43.5
51
Vilsack
Iowa
45.1
47.1
44.6
52
Dosanjh
British
Columbia
44.7
56.3
40.8
53
Davis
California
41.5
1.5
50.0
54
Kitzhaber
Oregon
27.1
12.3
32.0
• average annual change in spending
per $1,000 of personal income from
1997/98 through 1999/00
The Fraser Institute Tax and Revenue
Sub-Index is composed of 11 variables:
• average annual change in real per
capita tax revenue through 1997/98
• average annual change in tax revenue per $1,000 personal income
through 1997/98
• average annual tax changes as a percent of the prior year’s spending
through 2000/01
• average annual change in tax reve-
capita revenue from 1997/98
through 1999/00
• change in top personal income tax
rate through 2000/01 (state and provincial portion only)
• change in top corporate income tax
rate through 2000/01
• 2000/01 combined top income tax
rates (personal plus corporate) (1/2
weight)
• change in sales tax rate through
2000/01
• change in gas tax rate through
Note: Manitoba, Nova Scotia, and New Brunswick could not be ranked because not enough
data are available due to recent elections.
Sources: Cato Institute; Statistics Canada; Canadian Tax Foundation; provincial public accounts, budgets, and updates; calculations by the author.
2000/01
• change in cigarette taxes through
2000/01
Each variable is standardized such that
the lowest score is zero and the highest
score is 100. The variables are then
March 2001
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Fraser Forum
Table 2: Provincial Spending Scores
Premier
Date
government
elected
Rank
(out
of
54)
Score
Klein (AB)
Average annual change
in real per
capita spending through
1997/98 (%)
Average annual change
in spending
per $1,000 of
personal
income
through
1997/98 (%)
Dec. ‘92
3
84.4
(4.01)
(4.65)
(2.44)
(0.87)
Harris (ON)
June ‘95
4
83.7
(3.37)
(3.65)
(1.89)
(2.59)
Romanow (SK)
Nov. ‘91
10
72.4
(2.60)
(2.28)
(1.83)
0.66
Bouchard (QC)
Sept. ‘94
17
64.9
(0.42)
(1.39)
0.21
(0.70)
Binns (PE)
Nov. ‘96
18
64.5
(1.64)
(0.65)
0.72
(0.74)
Grimes (NF)
May ‘89
20
62.9
0.07
(0.85)
0.65
(1.14)
Dosanjh (BC)
Oct. ‘91
32
56.3
0.84
1.94
0.56
(1.31)
Average annual change
in real per
capita spending through
1999/00 (%)
Average annual change
in spending
per $1,000 of
personal
income from
1997/98
through
1999/00 (%)
Note: Manitoba, Nova Scotia, and New Brunswick could not be ranked because not enough data are available due to recent elections.
Sources: Statistics Canada; provincial public accounts, budgets, and updates; calculations by the author.
assigned a weight and summed across
their respective categories. All variables
are given a weight of one except for
“2000/01 combined top income tax
rates (personal plus corporate)” which
has a weight of one-half. This is done to
maintain consistency with the US study.
The index showing state-provincial fiscal performance is a weighted average of
the spending and the tax rate and revenue sub-indices.
Quebec’s variables, where appropriate,
have been adjusted to factor out the federal tax abatement. Specifically, the
value of the abatement is subtracted
from provincial revenues and expenditures. The tax point value of the abatement is removed from Quebec’s
2000/01 combined top income tax rates
(personal plus corporate) variable and
its change in top personal income tax
rate variable. These changes have been
made to ensure Quebec’s data are consistent with that from the other prov-
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March 2001
inces. Failing to make this adjustment
would penalize Quebec for choosing to
take on taxing responsibility and spending authority for programs for which
the federal government has responsibility in the rest of the country.
Limitations of the study
The focus of the Fiscal Performance
Index ranking is on state-provincial
comparisons because there are several
limitations in the methodology that
make the state-provincial comparisons
more valuable than province-toprovince ones. The main limitations
with the province-to-province comparisons are that debts are not considered,
local government spending is not incorporated, and that only the changes and
not the absolute level of the spending
and revenue variables are used. The possible implications of these limitations
for the province-to-province rankings
are briefly discussed below. These limitations exist because there is less information available for the states, and to
use different definitions for the provinces than the states would bias the
results. The Fraser Institute also publishes a province-to-province only comparison, the Budget Performance Index,
that deals with these limitations. Thus,
for purely Canadian comparisons, the
Budget Performance Index is best; for
Canada-US comparisons, the Fiscal Performance Index is more appropriate.
• Debts are excluded because, for the
most part, states are not allowed to
accumulate debt. Including debt
measures would likely decrease the
scores of all provinces, although less
so for low-debt provinces like
Alberta and British Columbia, and
more so for high-debt provinces like
Prince Edward Island and Newfoundland and Labrador.
32.0
• Most of the variables measure flows
Note: Manitoba, Nova Scotia, and New Brunswick could not be ranked because not enough data are available due to recent elections.
Sources: Statistics Canada; Canadian Tax Foundation; provincial public accounts, budgets, and updates; calculations by the author.
1.0
2.17
Oct. ’91
Dosanjh (BC)
53
40.8
1.05
3.51
1.38
(0.63)
4.45
1.50
37.4
0.26
38.4
(1.0)
4.44
Nov. ’91
Romanow
(SK)
52
42.3
4.08
2.07
(0.99)
0.85
0.30
2.00
36.3
5.00
18.5
0.0
5.13
Nov. ’96
Binns (PE)
48
47.3
4.07
2.18
(0.42)
0.99
(0.64)
1.00
34.3
1.00
114.4
(4.0)
(0.20)
May ’89
Grimes (NF)
40
50.6
0.74
1.15
(0.52)
1.20
2.09
(2.50)
33.8
5.80
55.6
(0.5)
(0.73)
Sept. ’94
Bouchard
(QC)
31
54.3
0.24
1.64
(0.84)
0.70
(1.69)
0.21
36.4
0.00
0.0
0.0
(2.06)
Dec. ’92
Klein (AB)
20
59.2
(1.39)
1.12
(0.20)
1.21
(1.65)
0.00
28.8
0.00
20.0
0.00
0.0
32.3
(1.89)
June ’95
Harris (ON)
8
64.0
(1.61)
1.95
(2.36)
(0.03)
(4.46)
(0.58)
Change
in sales
tax rate
through
2000/01
(%
point)
2000/01
combined
top
income
tax rates
(personal
plus corporate)
(1/2
weight)
(%)
Change
in top
corporate income
tax rate
through
2000/01
(%
point)
Change
in top
personal
income
tax rate
through
2000/01
(state
and provincial
portion
only) (%
point)
Average
annual
change
in real
per
capita
revenue
from
1997/98
through
1999/00
(%)
Average
annual
change
in tax
revenue
per
$1,000
personal
income
through
2000/01
(%)
Average
annual
tax
changes
as a
percent
of the
prior
year’s
spending
through
2000/01
(%)
Average
annual
change
in tax
revenue
per
$1,000
personal
income
through
1997/98
(%)
Average
annual
change
in real
per
capita
tax
revenue
through
1997/98
(%)
Score
Rank
(out of
54)
Date
government
elected
Premier
Table 3: Provincial Tax Rate and Revenue Scores
Change
in gas
tax rate
through
2000/01
(cents/
litre)
Change
in
cigarette
taxes
through
2000/01
(cents/
pack)
Fraser Forum
and ignore stocks. Stocks should be
taken into account so that, for
example, a province that already has
low spending is not penalized for not
making further cuts. Adding stock
measures would likely have an
adverse effect on the scores of
higher-spending provinces such as
Newfoundland and Quebec, and a
positive effect on the scores of
lower-spending provinces such as
Alberta and Ontario.
• Local-provincial consolidated
spending and revenue figures may
provide a more accurate picture of
the relative fiscal performance of the
provinces than provincial only data
because of the different levels of
spending and taxing responsibility
held by the local governments. Consolidated data was not used in this
study because of a lack of comparable
US data. Quebec and British Columbia have a high level of consolidated
spending per capita. Therefore, these
provinces’ scores would probably
fall if consolidated data were used,
whereas Prince Edward Island,
which has a relatively low level of
consolidated spending per capita,
would likely see its score rise.
Sources
The data for this study come from Stephen Moore and Stephen Slivinski (2001),
A Fiscal Policy Report Card on America’s
Governors: 2000 (Washington, D.C.: The
CATO Institute, February 12) (Available
on the Cato web site at www. cato.org);
Statistics Canada, Public Institutions
Division, Financial Management System;
Canadian Tax Foundation, Finances of
the Nation (various issues), The Nation’s
Finances (various issues); provincial
public accounts, budgets and updates;
and calculations by the author. &
March 2001
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