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Ontario’s Long-Term Report on
the Economy
Highlights
Ministry of Finance
January 2010
Purpose of the Report
• This is the second long-range assessment of the economy
prepared by the McGuinty government
• Ontario’s Long-Term Report on the Economy:
• Informs and inspires public debate about the long-term issues facing Ontario
• Supports the public debate with reliable information and relevant analysis
• Advances the principles of transparency in decision-making and
accountability with Ontarians.
1
Overview
•
Ontario’s Long-Term Report on the Economy highlights the long-term challenges
and opportunities the province faces over the next 20 years
•
While Ontario is projected to see healthy population growth of 28 per cent to
2030, key challenges include aging and slowing growth in the working-age
population:
• Seniors will account for 21.9 per cent of Ontario’s population by 2030, up from
13.7 per cent today – this is expected to increase demand for health care
• Working-age population (15–64) expected to increase by 13.5 per cent to 2030,
about half the growth seen over the previous two decades
•
Expanding productive capacity, increased tax competitiveness and global
and domestic demand are expected to result in average real GDP growth of
2.6 per cent in Ontario from 2010 to 2030, comparable to the past, despite
slower growth of working-age population.
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The Report’s Contents
Chapter 1: Demographic Trends and Projections
Chapter 2: Long-Term Ontario Economic Projection
Chapter 3: Long-Term Sustainability of Ontario Public Services
Chapter 4: Modernizing Ontario’s Tax System for Jobs and Growth
Chapter 5: Addressing Ontario’s Infrastructure Gap
Chapter 6: Towards a Prosperous and Sustainable Future
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Chapter 1: Demographic Trends and Projections
• Five key demographic trends are projected over the next 20 years:
• Population growth will be healthy but the pace will moderate
• Immigration will continue to drive population growth
• Seniors will represent a much higher proportion of the population
• Working-age population growth will slow
• Large urban centres will continue to experience the fastest rates of population growth.
• Far-reaching implications of the demographic outlook:
• Slowing labour force growth may restrain future economic growth
• Increased labour force participation and workplace flexibility will need to be encouraged to mitigate
the impact of baby boomers retiring
• Population growth and aging will increase pressure on government spending, notably health care
• Regional differences in population growth and age structure will require targeted policy responses
• Population aging will affect the composition of personal income and spending, potentially affecting
government revenues
• As the population ages, Canada’s retirement income system faces important challenges.
4
Annual Rate of Population Growth in Ontario
Population Growth Rate (Per Cent)
3.0
Historical
Projected
2.5
2.0
1.5
1.0
0.5
0.0
1971–72
1981–82
1991–92
2001–02
2011–12
Sources: Statistics Canada, 1971–2009, and Ontario Ministry of Finance projections (Fall 2009).
2021–22
2029–30
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Contribution of Natural Increase and Net Migration to
Ontario’s Population Growth
Number of People
300,000
Historical
Projected
250,000
200,000
150,000
Net Migration*
100,000
50,000
Natural Increase
0
1971–72
1981–82
1991–92
2001–02
2011–12
2021–22
2029–30
*Net Migration is the difference between the number of people entering and the number of people leaving the province both from other
countries and other provinces. Immigration is the largest component.
Sources: Statistics Canada, 1971–2009, and Ontario Ministry of Finance projections (Fall 2009).
6
Pace of Growth of Broad Population Age Groups
in Ontario
Growth Rate (Per Cent)
5
Historical
4
Projected
65 years and over
3
2
1
15 to 64 years
0
(1)
0 to 14 years
(2)
(3)
1971–72
1981–82
1991–92
2001–02
2011–12
Sources: Statistics Canada, 1971–2009, and Ontario Ministry of Finance projections (Fall 2009).
2021–22
2029–30
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Chapter 2: Long-Term Ontario Economic Projection
• Provides a projection of Ontario’s macroeconomic growth from 2010–2030.
Expanding productive capacity, increased tax competitiveness and global
and domestic demand are expected to result in average real GDP growth of
2.6 per cent from 2010 to 2030, a pace comparable to the past despite slower
labour force growth and increased global competition
• Chapter also discusses:
• Fundamental determinants of long-term capacity — the supply of labour,
the stock of capital and productivity
• Key external factors that affect economic performance — performance of the
economy in other jurisdictions, commodity prices, the Canadian dollar
exchange rate and interest rates
• Risks to the economic projection
• The perspective of other jurisdictions on long-term economic growth.
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Capital Stock Offsets Slower Labour Growth
Ontario Real GDP Growth
Average Annual Growth (Per Cent)
3.0
2.5
2.0
1.5
2.6% (Historical)
Capital Stock
0.7
Labour Supply
0.9
2.6% (Projected)
Capital Stock
0.9
Labour Supply
0.7
1.0
0.5
Productivity
1.0
Productivity
1.0
1982–2009
2010–2030
0.0
Sources: Ontario Ministry of Finance and Statistics Canada.
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Ontario Real GDP Growth
Average Annual Growth (Per Cent)
5
Historical
Projected
4
3.1
3
2.6
2.6
2.4
2.3
2020–24
2025–30
2
1
0
1982–2009
2010–14
2015–19
Sources: Ontario Ministry of Finance and Statistics Canada.
10
Ontario Real Export Shares
Per Cent of Total Exports
80
Historical
70
Projected
60
Export Share to U.S.
50
40
Export Share to
Rest of Canada
30
20
Export Share to Rest of World
10
0
1990
1995
2000
2005
2010
Sources: Ontario Ministry of Finance and Statistics Canada.
2015
2020
2025
2030
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Chapter 3: Long-Term Sustainability of Public Services
•
The economic and demographic projections in previous chapters have implications for the
demand for public services in Ontario
•
A doubling of the senior population by 2030 expected to increase demand for health care.
Other factors that will drive the demand for and cost of health care services include changes
in population health status, patients’ expectations, inflation, technology and medical practice
•
Education spending will reflect the increasing number of elementary and secondary
school-aged children over the next 20 years. Differences in growth among regions will
mean both rise and fall of enrolment at the local level
•
Emphasis on lifelong learning and services for underrepresented groups, including new
immigrants, expected to raise demand for training services
•
The impact of an aging population on economic growth expected to slow revenue growth,
particularly as it lowers growth of the taxation revenue base — mitigated somewhat by
increasing withdrawals from savings by seniors. Federal transfers also expected to respond
to growing provincial demand for services due to demographic and economic factors
•
The McGuinty government will ensure the province returns to a firm and sustainable fiscal
footing. Treasury Board/Management Board of Cabinet conducting an expenditure review
and the government will deliver its plan in 2010 Budget.
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Per-Capita Ontario Government Health Spending,
by Age Group, 2007
Per-Capita Provincial Government Health Spending, by Age Group, Ontario, 2007, Current Dollars
Age Group
Spending Per Person
($)1
Share of Population, 2007
Actual (Per Cent)
Share of Population, 2030
Projection (Per Cent)
<1
9,188.0
1.1
1.1
1–4
1,292.6
4.4
4.3
5–14
1,047.6
12.0
11.2
15–44
1,706.3
42.8
37.3
45–64
2,823.6
26.5
24.2
10,330.7
13.2
21.9
65–74
6,883.1
6.9
11.7
75–84
11,843.7
4.7
7.4
85+
20,702.4
1.6
2.8
Total
3,127.0
100.0
100.0
65+
Weighted average.
Sources: Canadian Institute for Health Information, Statistics Canada and Ontario Ministry of Finance population projections (Fall 2009).
1
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Elementary, Secondary and Postsecondary
Source Population, 1989 to 2030 — Ontario
Number of People
2,000,000
Historical
1,750,000
Projected
Aged 4 to 13
1,500,000
1,250,000
Aged 18 to 24
1,000,000
750,000
Aged 14 to 17
500,000
1989
1995
2001
2007
2013
2019
Sources: Statistics Canada, 1989–2009, and Ontario Ministry of Finance projections (Fall 2009).
2025
2030
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Chapter 4: Modernizing Ontario’s Tax System for
Jobs and Growth
• The comprehensive tax package announced in the 2009 Budget creates a more modern tax system
that will better support long-term economic growth, create more jobs, raise incomes and help sustain
the public services Ontarians rely on
• The comprehensive tax package:
• Replaces the Retail Sales Tax with a value added tax that is combined with the federal Goods and Services
Tax (GST) to create a 13 per cent Harmonized Sales Tax (HST) starting July 1, 2010; and
• Provides $15 billion in temporary and permanent tax relief to people and businesses over three years
• Tax measures in the package make Ontario significantly more attractive for new business
investment and allow businesses to improve their competitiveness by lowering their prices
• The comprehensive tax package, together with other recent tax changes, will cut Ontario’s marginal effective
tax rate (METR) on new business investment in half, making Ontario a highly attractive location for
businesses to invest and create jobs
• A study by accounting firm KPMG also shows that the comprehensive tax package significantly improves
Ontario’s tax competitiveness
• A recent study by Professor Jack Mintz estimates that within 10 years the comprehensive tax
package, together with other recent tax changes, will provide large benefits for Ontario — $47 billion
in new business investment, 591,000 net new jobs and higher annual incomes of up to 8.8 per cent.
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Cutting Ontario’s METR on
New Business Investment in Half*
Per Cent
35
30
25
32.8
Ontario Sales Tax
U.S. average (2012)
Ontario Capital Tax
Ontario CIT
10.4
20
2.6
15
8.2
Federal CIT
OECD average (2012)
18.6
1.0
17.3
1.1
16.2
6.8
6.5
6.5
11.6
10.8
9.7
9.7
2009
2010
2013
2018
10
5
0
Note: * Includes the Ontario Corporate Income Tax (CIT) rate cuts and Harmonized Sales Tax announced in the 2009 Budget, the phase-out
of Ontario’s Capital Tax by July 1, 2010, and the reduction in the general federal CIT rate to 15 per cent by 2012.
Sources: Ontario Ministry of Finance and Finance Canada.
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Impact of 2009 Budget on
Ontario’s Tax Competitiveness, All Industries
Total Tax Index
2009
1
2011
2
98.6 98.6
100
80
82.4 73.3
77.5 77.2
75.7 75.8
71.9 71.4
60
59.6 59.2
65 58.8
Calgary
Vancouver
40
20
0
Ontario
3
Montreal
Winnipeg
U.S. Average
4
Monterrey,
Mexico
Note: The total tax burden for each city, over a 10-year period from business start-up, is expressed as an index with the
average for all U.S. cities in KPMG’s Competitive Alternatives 2008 set at 100.
1 Reflects tax measures in effect or announced prior to the date of the 2009 Ontario Budget.
2 Reflects tax measures announced prior to August 1, 2009 that are expected to be in effect in 2011 and subsequent years.
3 Average for Ontario cities included in the study.
4 Average for U.S. cities included in the study.
Sources: KPMG and Ontario Ministry of Finance.
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Chapter 5: Addressing Ontario’s Infrastructure Gap
• Improving public infrastructure can boost Ontario’s productivity,
encourage investment, lower business costs and improve
travel times
• Growing urban populations, an expanding economy and climate
change will increase the demand for infrastructure
• Chapter outlines the Province’s response to these infrastructure
challenges:
• $32.5 billion infrastructure stimulus investments over two years in all key
sectors and the $30 billion ReNew Ontario completed in 2008–09 are laying
a foundation for future productivity and economic growth
• Greening energy and infrastructure will support the transition to a
low-carbon future, a key to sustaining Ontario’s long-term prosperity.
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Per-Capita Change in Ontario’s
Public Infrastructure
Annual Average by Decade (Constant $2002 Prices)
350
300
250
200
150
100
50
0
(50)
(100)
1950s
1960s
1970s
1980s
Sources: Statistics Canada and Ontario Ministry of Energy and Infrastructure.
1990s
2000s
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Ontario Infrastructure Growth Outpaces
that of the Rest of Canada*
(Index: 2002=100, Constant $2002 Prices)
120
115
110
Ontario
Rest of Canada
105
100
95
90
2002
2003
2004
2005
2006
*Data reflect the change in per-capita net public capital stock.
Sources: Statistics Canada and Ontario Ministry of Energy and Infrastructure.
2007
2008
20
Chapter 6: Towards a Prosperous and Sustainable Future
• Job creation and output growth are increasingly driven by the service sector
• Greening the economy and promoting the transition to a low-carbon future are
central to Ontario’s long-term prosperity and sustainability
• The McGuinty government is preparing Ontario to confront the challenges of
the coming decades and to seize opportunities emerging in the new economy.
Key government policies and programs focus on:
• Modernizing Ontario’s tax system
• Reducing regulatory barriers to innovation and economic growth
• Addressing the infrastructure gap
• Investing in knowledge and skills
• Ensuring environmental sustainability
• Fostering innovation and a knowledge-based economy
• Partnering with both emerging and established industries for economic growth
and diversity.
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Share of Employment by Industry, Ontario
Per Cent of Total Employment
Manufacturing
100
90
80
70
60
50
40
30
20
10
0
Other Goods-Producing Industries*
Private-Sector Services
20
48
Broader Public-Sector Services**
23
54
10
9
21
1988
Note: Numbers may not add due to rounding.
*Includes agriculture, resources, utility and construction.
**Includes education, health and public administration (federal, provincial and local).
Sources: Statistics Canada (Labour Force Survey) and Ontario Ministry of Finance.
13
2008
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Conclusion
Ontario’s Long-Term Report on the Economy highlights the challenges
and opportunities the province may face over the next
20 years, while outlining measures the government is taking to
prepare the province to grasp opportunities emerging in the
new economy.
The McGuinty government’s initiatives for improving overall
productivity and future economic growth include modernizing the
tax system, ensuring environmental sustainability, investing in
infrastructure and key services such as health care and education,
while continuing to be prudent with its fiscal management.
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