: 2010 Ontario Economic Outlook and Fiscal Review

Foreword

Ontario’s economy is emerging from the global recession. However, Ontario families are still feeling pinched financially. Many are anxious and uncertain about their ability to make ends meet.

In addition to the lingering impacts of the global recession, Ontarians are feeling the effects of the costs associated with rebuilding and modernizing the province. Over previous decades of neglect, Ontario’s electricity system was left to crumble, its schools and hospitals left to age, its tax system left uncompetitive and its retirement income system left dormant.

Over the past seven years, Ontarians have been working together to repair the neglect and rebuild the province. Since 2003, Ontario’s schools, colleges, universities, hospitals, roads and bridges have been significantly improved.

The government has also modernized Ontario’s tax system, made major investments in the electricity system and introduced pension reform. While these measures will improve the economy and help secure Ontarians’ future over the longer term, families are struggling right now with higher costs and concerns about their retirement. They need some help today.

The 2010 Ontario Economic Outlook and Fiscal Review introduces measures to help hard-working Ontario families and businesses. The government is taking action to help Ontarians who are feeling the pinch of the rising cost of living, especially increasing electricity prices. The 2010 Ontario Economic Outlook and Fiscal Review also outlines the Open Ontario plan to create new jobs, boost long-term economic growth and protect the progress Ontarians have made in their schools and hospitals. It updates Ontario’s economic outlook and the government’s prudent and responsible plan to reduce borrowing, cut spending and eliminate the deficit caused by the global recession.

Much has been accomplished, and more remains to be done. The government will continue to work with Ontarians to build on the progress they have made together.

Helping Ontario Families

Chapter 1: Section A of the 2010 Ontario Economic Outlook and Fiscal ReviewHelping Ontario Families — describes how the government is proposing to provide relief on electricity costs. It also outlines legislation the government will introduce to protect investors and how the government is consulting with Ontarians on securing their retirement future. This section also provides an update on the government’s investments in schools, colleges, universities, roads, public transit, skills training and key economic sectors.

Ontario Clean Energy Benefit

The people of Ontario need and deserve a clean, modern and reliable electricity system with stable prices to power their homes and businesses. For a decade, Ontario made little investment in new supply and transmission infrastructure. By 2003, Ontarians did not even know if the lights would stay on.

The previous government’s reliance on five coal plants meant that about 25 per cent of Ontario’s electricity came from dirty coal. There was no plan for conservation, and no plan for supply to keep up with demand. Energy infrastructure was under stress and in decline. The electricity system lost a net 1,800 megawatts (MW) of power capacity — the equivalent of Niagara Falls running dry. Ontario had to import U.S. coal-generated electricity just to keep the lights on, and even had to set up emergency generators due to fears of brownouts. A brief experiment in market deregulation in 2002 saw spot-market energy prices spike an average of approximately 30 per cent over seven months. That prompted the government of the day to freeze rates at an artificially low level.

Since taking office, the McGuinty government has made the long-overdue investments in electricity system infrastructure that were needed to make sure the lights go on and stay on. In addition, the government is creating a clean, modern, reliable energy system that is attracting new investment and creating jobs. New manufacturing facilities directly related to Ontario’s clean energy plan are emerging and employing Ontarians in places like Sarnia, Guelph and Windsor. These new plants will both serve Ontario’s market and export their goods.

The government is phasing out coal-fired generation and replacing it with cleaner generation, which is improving the quality of the air Ontarians breathe and will reduce health care costs. Shutting down all coal generation is equivalent to taking seven million cars off the road.

New investments in Ontario’s electricity system must continue, in order to ensure the province has a clean, modern, reliable system that includes a significant proportion of renewables and creates jobs. Based on Ministry of Energy projections from the forthcoming Long-Term Energy Plan, prices over the next 20 years are expected to increase by about 3.5 per cent per year.

Over the next five years, however, residential electricity prices are expected to rise by 46 per cent, which is an average annual rate of about 7.9 per cent. This increase will be due to two factors: upgrading and modernizing Ontario’s existing generation, transmission and distribution (44 per cent); and the investment in new clean renewable energy generation (56 per cent). Once these investments have been made, price increases are expected to moderate.

Ontario families and businesses are now paying the true cost of electricity. Rising electricity prices are having a significant impact on consumers, who are asking for help with the cost of clean, modern energy. Every little bit of assistance helps during lean times, and several measures are in place or proposed to help families cope with rising electricity costs.

The McGuinty government is taking further action to help mitigate the costs of clean, modern energy for Ontario families. It is proposing direct relief through a new Ontario Clean Energy Benefit (OCEB). For eligible residential, farm and small business consumers, the OCEB would provide a benefit equal to 10 per cent of the total cost of electricity on their bills including tax. Due to the length of time required to amend electricity bills, these price adjustments would appear no later than May 2011, and they would be retroactive to January 1, 2011.

Ontario’s Tax Plan for Jobs and Growth

Ontarians deserve more, and higher-paying, jobs. Through Ontario’s Tax Plan for Jobs and Growth, the McGuinty government has modernized the tax system to create the best possible climate to attract investment and encourage businesses to create Ontario jobs in the new global economy. These changes will help create almost 600,000 jobs within 10 years.

Ontario’s Tax Plan for Jobs and Growth also cut income taxes for 93 per cent of income tax payers and enhanced sales and property tax credits for low- to middle-income families and individuals.

Tax relief for Ontario families makes their lives a little easier. The McGuinty government is providing eligible Ontario residents with three Sales Tax Transition Benefit payments totalling up to $300 for single people and up to $1,000 for families and single parents. The first payment was made in June 2010 and the second and third payments will be made in December 2010 and June 2011.

MANAGING RESPONSIBLY

Before the global recession, growth in spending on programs and services by the McGuinty government did not exceed growth in revenues. The government eliminated the $5.5 billion fiscal deficit it inherited and posted three consecutive balanced budgets.

When the global recession occurred, Ontario was hit harder than other provinces due to its manufacturing and forestry sectors. Government revenues declined steeply.

During the recession, the McGuinty government chose to lessen the impact on Ontarians through short-term stimulus investments to help create and preserve jobs. According to a March 2010 report by the Conference Board of Canada, Ontario’s increased infrastructure spending preserved about 70,000 jobs in the province in 2009 and added almost a full percentage point to Ontario economic growth that year.

The government also made a decision to protect education, health care and other crucial public services. As a result, Ontario, like many other jurisdictions in Canada and around the world, has a fiscal deficit.

Taxpayers want to know that the government is using their money wisely. Chapter 1: Section B, Managing Responsibly, outlines the measures the government is taking to manage spending, reduce costs and pay off debt.

Examples of the government’s measures to manage spending include cutting the prices of most generic drugs under the Ontario Public Drug Program in half and restraining compensation in the Ontario Public Service and broader public sector.

Modernizing Ontario’s Electronic Land Registration System

The government’s fiscal situation is much like that of Ontario households, which often need to carry more debt to make ends meet during difficult economic times. Managing responsibly — for households and governments — means striking the right balance among necessary investments, managing spending and paying off debt.

The government has negotiated the principal terms of a proposed agreement to renew its long-standing business partnership with Teranet Inc. by extending Teranet’s exclusive licences to provide electronic land registration and writs services in Ontario. Unlike transactions by the previous government, such as the sale of Highway 407, this proposed agreement contains significant protection for consumers. For example, it would continue Provincial control over fees for statutory land registration and writs services. Under the proposed agreement, all Teranet fees for these services would be frozen for five years. After that, certain fees would be increased to equalize fees for searches done in land registration offices with those done remotely. Certain fees would increase by only half of the inflation rate, meaning they would decline in real terms over time.

The government would use the $1 billion payment from this proposed agreement to reduce Ontario’s debt. Using this payment to reduce debt is the responsible thing to do. One clear benefit of this debt reduction is that it would decrease Ontario’s ongoing borrowing requirements and would save up to $50 million in annual interest costs, or $250 million over five years. Additionally, under this proposed agreement, Ontario would receive annual royalty payments, beginning in 2017. These royalties are expected to be $50 million in 2017–18 and to grow in future years.

Economic and fiscal Outlook

Chapter 2: Ontario’s Economic Outlook provides an update on the state of Ontario’s recovering economy. While key economic indicators have improved from lows during the recession, Ontario’s families and businesses are still feeling the effects of the global financial and economic crisis. Despite the severity of the recession’s impact on employment, 75 per cent of the jobs lost have been recovered.

While economic forecasts for 2010 have improved compared to those in the 2010 Budget, they have weakened for subsequent years, largely due to weaker U.S. growth. The Ministry of Finance is projecting real gross domestic product (GDP) growth of 3.2 per cent in 2010, 2.2 per cent in 2011, 2.5 per cent in 2012 and 2.7 per cent in 2013. Data tables on the Ontario economy are available at www.fin.gov.on.ca/en/budget/fallstatement/2010/ecotables.html

Ontario’s 2009–10 deficit was $19.3 billion. By continuing its prudent approach to fiscal management, the government is on track for a deficit of $18.7 billion in 2010–11, which is almost 25 per cent lower than the $24.7 billion deficit projected a year ago for 2009–10. The government has laid out a realistic and responsible plan to cut the deficit in half within five years of its highest point and to eliminate it in eight years. Chapter 3: Fiscal Outlook provides additional details on Ontario’s finances.

The total funding requirement for the Province’s 2010–11 fiscal year has decreased by $2 billion since the 2010 Budget, due to the $1 billion decrease in the provincial deficit and the anticipated $1 billion payment to the Province from the proposed Teranet agreement. Ontario’s interest on debt expenses is $246 million lower than projected in the 2010 Budget. Chapter 4: Borrowing and Debt Management summarizes Ontario’s borrowing and debt activity.

Tax and Pension Modernization for Ontarians

Chapter 5: Tax and Pension Modernization provides details of Ontario’s Tax Plan for Jobs and Growth, including measures to support people and businesses. Ontario is providing several tax credits that put money back into the pockets of those who need it most. It also describes the government’s actions to improve retirement income security.

Participating in the 2011 Pre-Budget Consultations

The McGuinty government encourages individuals, organizations and other partners to share their views on Ontario’s economy and finances. Chapter 6: How to Participate in the 2011 Pre-Budget Consultations invites Ontarians to suggest what more the government can do to create jobs and improve services for people, while eliminating the deficit.