Foreword
In the past year, the recession has had a significant impact on the global economy on a scale that was unforeseen by anyone. Many jurisdictions are facing sharp declines in revenues and increasing expenses as people turn to governments for support. The significant deterioration of the global economy and the tightening of credit have undermined business and consumer confidence. Ontario is not immune to these broader forces: jobs have been lost, businesses have closed and government revenues have declined dramatically. Virtually every government around the world has had to update its economic and fiscal forecasts to reflect these unanticipated economic challenges.
Over the past six years, the McGuinty government has laid the foundation for economic success by investing in health care, education, infrastructure, the environment and proposing tax cuts for Ontario families and businesses. Throughout its term, the government has been committed to the priorities that are most important to Ontarians and their families.
To be able to continue investing in key priorities while managing down the deficit, the government, in concert with Ontarians, must focus its priorities and make strategic, difficult choices. In the coming months, the government will undertake a review of service delivery so that every dollar is spent even more effectively. The Ontario Treasury Board will begin this review: it will be charged with providing a plan to return the Province to a sustainable and firmer fiscal footing, while protecting key services. Building on expenditure management initiatives in the 2008 Economic Outlook and Fiscal Review, the 2010 Budget will provide an update on Treasury Board’s progress.
Using the most recent information available at October 15, 2009, the 2009 Ontario Economic Outlook and Fiscal Review updates the economic assumptions from the 2009 Ontario Budget. The impact of these changes is applied to the government’s revenue and expenditure projections, which revise the anticipated financial results for the current fiscal year.
When the economic crisis hit, the McGuinty government took critical steps to support Ontarians. Chapter I: Confronting the Challenge describes the government’s actions to mitigate the impacts of the downturn on Ontario families at the first signs of the economic slowdown. The Province launched significant investments in infrastructure and the auto sector to help preserve and protect jobs. To help unemployed workers, the government established a number of retraining programs such as Second Career and made improvements to Employment Ontario. The government also sought to help out families most affected by the downturn by taking steps to reduce poverty. Green energy initiatives were launched to encourage green jobs. Tax changes to encourage the entertainment and creative sectors to create jobs were proposed. All of these initiatives were designed to help protect and sustain jobs in the short term and create a better foundation for the economy in the long term.
As outlined in the 2009 Budget, the McGuinty government is also positioning the economy for future growth and job creation by modernizing the tax system. It proposed the Harmonized Sales Tax (HST) that, when implemented, would increase competitiveness and business investment. As well, the government proposed permanent income tax cuts for Ontario individuals, families and businesses. The combined HST and Corporate Income Tax (CIT) cuts, together with other tax cuts, would reduce the tax paid on income earned from new investment by half — a significant incentive for new business investment and job creation in Ontario.
Chapter II: Ontario’s Economic Performance and Outlook outlines the recent performance of the economy and provides projections for future growth and challenges. Like governments everywhere — Canada, the United States, Great Britain, British Columbia and Alberta — Ontario is facing economic and fiscal challenges. It appears that the grip of the economic crisis is starting to loosen and the economy is showing signs of stabilization. Financial markets have strengthened and equity markets and housing sales have risen. It will be some time, however, before unemployment rates decline and gross domestic product (GDP) returns to previous levels. Ontario’s economic core is sound: strong publicly funded health care and education systems, a highly skilled workforce and growing industries in key sectors. These factors will provide the foundation for a return to growth. Data tables on the Ontario economy are available at www.fin.gov.on.ca/en/budget/fallstatement/2009/ecotables.html
In recent months, the impact of the global crisis has had a substantial impact on Ontario’s revenues. As outlined in the Public Accounts of Ontario 2008–2009, Corporate Tax revenues fell by 48.1 per cent — an unprecedented amount. Government revenue tends to trail economic performance. Whether economic performance is up or down, it takes some time for that change to be reflected in revenues. The Province’s fiscal situation has been substantially altered since the 2009 Budget. As in other jurisdictions, the government now projects a higher deficit: $24.7 billion for 2009–10.
Ontario, along with many other jurisdictions around the world, is running a deficit in order to sustain its core priorities: job creation, health care, education and the establishment of a stronger economy after the recession. At the same time, the government is committed to eliminating this deficit while focusing on its priorities. Chapter III: Fiscal Outlook provides an update on the Province’s finances.
As a result of falling revenues, combined with increased investments in infrastructure, in the auto sector and in other long-term initiatives to help return Ontario to economic growth, public borrowing has increased. Chapter IV: Borrowing and Debt Management details the Province’s borrowing and debt activities.
Chapter V: Creating a More Competitive and Modern Tax System provides further details about the McGuinty government’s proposed comprehensive tax package, originally announced in the 2009 Budget.
The McGuinty government is positioning the province for long-term growth. Chapter VI: How to Participate in the 2010 Pre-Budget Consultations invites individuals, organizations and other partners to present their views on how to manage Ontario’s finances and protect public services in uncertain economic times.
