Solid growth in Ontario's economy will continue in 2000 and 2001, resulting in healthy job gains and a falling unemployment rate.
"Ontario, which led all of the other provinces in terms of economic growth in 1999, will grow at a stellar rate...in 2000."
TD Bank, March 2000
|Real GDP Growth (per cent)||4.3||5.7||4.6||3.1|
|Employment (thousands)||5,490||5,688||Up to 5,887||Up to 6,064|
|Unemployment Rate (per cent)||7.2||6.3||5.5 - 6.0||5.0 - 5.5|
|CPI Inflation (per cent)||0.9||1.9||2.5||2.0|
|Provincial Revenue ($ billions)||55.8||62.5||62.1||63.4|
Sources: Statistics Canada and Ontario Ministry of Finance. Revenues are on a fiscal-year basis.
ONTARIO'S STRONG ECONOMIC RECORD
Job Creation Booming
Consumer Confidence Strengthening
Housing Momentum Building
Investment Spending Buoyant
Export Growth Continues
The economy grew faster in 1999 than the 1999 Budget projection of 3.7 per cent. With real Gross Domestic Product (GDP) growth of 5.7 per cent, Ontario's economic performance surpassed that in the rest of Canada, the United States and all of the other G-7 major industrial countries.
The strong forward momentum of the Ontario economy in 1999 has carried into 2000. Real GDP is projected to grow by 4.6 per cent in 2000 and by 3.1 per cent in 2001. Growth is expected to be broadly based, with household spending, business investment and exports all making a contribution. In keeping with Ontario's policy of prudent forecasting, these projections are marginally below the current private-sector consensus.
|Ontario Real GDP Growth|
|Private-sector survey average||4.7||3.2|
Note: The private-sector average is based on eight recent forecasts.
Sources: Ontario Ministry of Finance and Ontario Finance Survey of Forecasts (April 2000).
The cautious economic projection is, as in previous Budgets, supplemented by a reserve, as part of prudent budgeting practices. A $1 billion reserve has been included in the 2000-01 fiscal plan to protect the balanced budget against unexpected and adverse changes in the economic and fiscal outlook.
Tax cuts create jobs. Government policies of lower taxes, reduced regulation and sound fiscal management have laid a solid foundation for strong growth and job creation. Ontario is on track to surpass the Government's ambitious goal of 725,000 new jobs by the end of 2000 and is well positioned to reach the Government's new target of 825,000 jobs over the following five years.
Despite strong growth, Ontario's CPI inflation is expected to remain in check, averaging 2.5 per cent in 2000 and 2.0 per cent in 2001. This is well within the Bank of Canada's target range.
Personal tax cuts and high and rising consumer confidence have led to robust growth in consumer spending. This pattern will continue in 2000 and will contribute to solid gains in real output and employment.
"With after-tax household incomes...outpacing inflation and solid growth in profits, consumer and business confidence are on a strong upswing."
Scotiabank, February 2000
"Ontario's home markets will remain among Canada's top performers."
Canada Mortgage and Housing Corporation, February 2000
The residential construction sector is expected to remain brisk in 2000, supported by strong job gains, rising incomes and population growth.
New technologies, which are lowering costs and transforming the way we do business, require new capital goods and software. Ontario firms are rapidly upgrading their capital stock with modern, highly productive machinery, equipment and structures. These investments are leading to dynamic job creation, rising productivity and stronger output growth. Healthy investment growth over the past few years has been instrumental in enhancing Ontario's competitive position in the international economy.
Corporate profits rose by 22.3 per cent in 1999, significantly stronger than expected. As a result, Corporations Tax revenue exceeded the 1999 Budget projection by $776 million.
The real value of Ontario business investment in machinery and equipment rose by 80 per cent between 1995 and 1999. Real investment in commercial and industrial construction rose by 19 per cent over the same period.
Ontario export industries recorded another banner year in 1999, with real exports up 10.7 per cent. Ontario's real exports are projected to remain strong in 2000 and 2001 with continued U.S. growth and rising demand in Europe and Asia.
Strong growth in exports has been accompanied by rising imports. In large part this reflects the increasing integration of the North American economy. A significant consequence of this trend is the increasing import content of manufactured exports. This matches the experience of the Canadian auto industry, which has benefited from free trade with the United States since 1965. It has long been completely integrated on a North American basis, with the import content of exports exceeding 50 per cent.
Ontario's tax cuts have fuelled robust growth in domestic demand and substantially increased government revenues. This performance was well above forecasts. Taxation revenue in 1999-00 was $3.1 billion above the 1998-99 level. Tax revenues are expected to continue to grow in 2000-01 as a result of continuing strong growth in the Ontario economy.
Total revenue in 2000-01 is projected to be slightly below the 1999-00 level due to the inclusion in 1999-00 revenue of $1,580 million for the net proceeds from the sale of Highway 407.
|Personal Income Tax||17,190||17,505||17,530|
|Retail Sales Tax||11,651||12,784||13,400|
|Income from Government Enterprises
|Total Revenue Excluding Highway 407 Sale||55,786||60,892||62,060|
Driven by continued gains in employment, incomes, consumer spending and corporate profits, tax revenue is forecast to increase by over $1.1 billion in 2000-01.
The Ontario economy is poised for continued vigorous growth in 2000. Robust domestic demand assisted by solid export growth is underpinning future growth. Strong job creation is continuing; the unemployment rate is declining. The private-sector consensus projects real GDP growth of 4.7 per cent in 2000 and a further 3.2 per cent in 2001. This is, once again, faster than economic growth in the rest of Canada or any of the other G-7 major industrial countries.
By reducing tax rates and eliminating obstacles to market-led growth, the Ontario Government has established a framework for a strong economy that generates the revenues needed to pay for valued public services and infrastructure. Provincial tax revenues are projected to grow by over $1.1 billion in 2000-01.
The following tables and charts provide further details about the Ontario Ministry of Finance economic and revenue projections.
|Real Gross Domestic Product||4.3||5.7||4.6||3.1|
|Machinery and equipment||10.6||11.8||8.6||5.3|
|Nominal Gross Domestic Product||4.3||7.1||6.5||4.7|
|Other Economic Indicators|
|Housing starts (000s)||53.8||67.2||73.0||70.0|
|Ontario Consumer Price Index||0.9||1.9||2.5||2.0|
|Employment*||3.3||3.6||3.0 – 3.5||2.5 – 3.0|
|Unemployment rate * (per cent)||7.2||6.3||5.5 – 6.0||5.0 – 5.5|
* Based on Labour Force Survey.
Sources: Statistics Canada and Ontario Ministry of Finance.
For prudent planning purposes, the interest rate on three-month Government of Canada treasury bills is assumed to be 50 to 60 basis points higher than the average private-sector forecast. Interest rates on 10-year Government of Canada bonds are assumed to be 20 basis points higher than the average private-sector forecast.
|3-month Government of Canada treasury bills|
|Private-sector survey average||4.7||5.2||5.7||5.7|
|10-year Government of Canada bondsa|
|Private-sector survey average||5.6||6.2||6.3||6.3|
Sources: Bank of Canada, Ontario Ministry of Finance and Ontario Finance Financial Market Survey (April 2000).
The following table shows the sensitivity of the fiscal balance to the direct impact of lower interest rates on public debt interest and the impact of stronger economic growth on revenues and expenditures.
|100 Basis Points Lower Canadian Interest Rates||80|
|1 Percentage Point Higher Real GDP Growth||565|
Note: These responses would hold "on average" and could vary significantly depending on the
composition of change in income and expenditures.
Source: Ontario Ministry of Finance.
|Personal Income Tax||16,357||16,293||17,190||17,505||17,530|
|Retail Sales Tax||9,964||10,843||11,651||12,784||13,400|
|Employer Health Tax||2,772||2,851||2,882||3,125||3,320|
|Land Transfer Tax||452||565||470||570||580|
|Mining Profits Tax||54||40||23||53||55|
|Race Tracks Tax||46||4||6||5||5|
|Preferred Share Dividends Tax||73||60||50||35||40|
|Government of Canada|
|Canada Health and Social Transfer||4,814||3,970||3,553||3,767||3,548|
|Increase in CHST Allocation||-||-||-||190||552|
|Indian Welfare Services||128||87||155||112||114|
|Employability Assistance for People with Disabilities||65||53||71||66||66|
|Canada-Ontario Infrastructure Works||142||116||71||25||-|
|Income from Government Enterprises|
|Ontario Lottery and Gaming Corporation*||1,248||1,485||1,764||1,811||1,695|
|Liquor Control Board of Ontario||701||745||809||844||915|
|Ontario Hydro Successor Companies||-||-||-||820||795|
|Vehicle and Driver Registration Fees||816||820||890||923||920|
|Other Fees and Licences||560||548||661||637||670|
|Liquor Licence Revenue||520||506||519||528||530|
|Sales and Rentals||543||582||640||2,339||790|
|Fines and Penalties||157||174||50||40||35|
|Local Services Realignment - Reimbursement of Expenditure||-||519||2,109||1,665||1,572|
|Total Revenue Excluding Highway 407 Sale||49,450||52,518||55,786||60,892||62,060|
*Effective April 1, 2000, the Ontario Lottery Corporation and Ontario Casino Corporation merged to form the Ontario Lottery
and Gaming Corporation.
Source: Ontario Ministry of Finance.