2011 Ontario Economic Outlook and Fiscal Review

Chapter I: Creating Ontario Jobs in an Uncertain Global Economy

Highlights

Jobs and the Economy

  • A proposed Healthy Homes Renovation Tax Credit that would support $800 million of economic activity and 10,500 jobs.
  • With more than 150 trades and occupations, Ontario supports the largest apprenticeship system in Canada.

Building Ontario’s Clean Energy Future

  • The government is promoting job creation across the province through investments in clean and green energy. The Green Energy and Green Economy Act, 2009, has helped create over 20,000 jobs to date and is on track to create 50,000 jobs.

Tax Plan for Jobs and Growth

  • Ontario real machinery and equipment investment spending has risen by over 22 per cent, or $9.0 billion, since July 2010, following the implementation of the Tax Plan for Jobs and Growth. New business investment means new jobs.
  • Since the Harmonized Sales Tax was introduced, Ontario has created 63,100 jobs.

Auto Sector

  • Restructuring of this important sector continues as Ontario strengthens its competitiveness and position as the number one province or state in North America in vehicle assembly.
  • Ontario is investing in hybrid and electric vehicle technology to secure Ontario’s position and jobs for the future.

Infrastructure

  • In June of this year, the government released Building Together, the Province’s long-term infrastructure plan. Through this plan, the government will continue investing in infrastructure, creating and preserving more than 300,000 jobs over the next three years.

Financial Services

  • Ontario’s sound and competitive financial services sector is supporting economic growth, employing around 360,000 people.

Promoting Mining and Economic Development in Ontario’s North

  • Ontario’s Ring of Fire promises to be a major mining and development opportunity. The government is working with Aboriginal communities and stakeholders to help usher in a new era of sustainable economic development and growth in Ontario’s north.
  • Employment in northern Ontario’s mining sector increased by over 1,500 jobs between 2010 and 2011.

Preparing Ontarians for Jobs

  • Full-day kindergarten is helping Ontario’s children get the best possible start in their education. At full implementation, in 2014, 247,000 children and their families will benefit from the program.
  • More students are achieving the provincial standards in provincewide tests — 69 per cent in 2010–11, compared to 54 per cent in 2002–03. Since 2003–04, the high school graduation rate has increased from 68 per cent to 81 per cent.
  • About 200,000 more students are currently enrolled in postsecondary education or learning a trade than in 2002–03. The government is creating another 60,000 postsecondary spaces over the next five years.
  • Employment Ontario is serving over one million people a year with career counselling, training and help in looking for a new job. The Second Career program has helped more than 50,000 laid-off workers train for new careers since 2008.

Increasing Access to Care and Preventing Illness

  • The government has invested $1.5 billion to provide more surgeries, more MRI and CT scans, improve patient flow and publicly track results, and that has improved wait times. Ontario now has the shortest wait times in Canada for key surgical procedures.
  • There are nearly 2,900 more doctors practising in the province and over 12,000 nursing positions have been created since 2003, which means about 1.3 million more Ontarians now have access to a family doctor.

Overview

We live in uncertain times. Ontarians are watching the economic crisis unfold around the world. Growth in the global economy is modest. Pressures on the U.S. economy are significant and persistent, including a depressed housing market, stubbornly high unemployment and political paralysis.

This turmoil is taking place against the backdrop of globalization and increasing competition from emerging economies. These trends put pressure on the ability of Ontario’s economy to create jobs. They also put pressure on governments to meet fiscal targets while protecting public services such as schools and hospitals.

In spite of global economic uncertainty, Ontario has experienced moderate economic growth for most of the last two years. In many ways, Ontario has recovered from the recent global recession. Since the low point of the recession in May 2009, employment in Ontario has increased by almost 267,000 net new jobs, equal to nearly half of all the new jobs created in Canada. The vast majority of net job gains over the past two years are among employees who receive above-average wages. The Province’s unemployment rate has fallen from a peak of 9.4 per cent during the recession to 8.1 per cent recently.

Ontario and Canada have fared better than many other places for a variety of reasons. The financial system is well regulated and supervised. Ontario, the federal government and other provinces had strong fiscal positions when the downturn began. This allowed both levels of governments to lessen the impact of the recession by stimulating economic growth and protecting and creating jobs.

Chart 1: Projections for Global Real GDP Growth

Ontario’s Performance Affected by Global Developments

Around the world, economies are increasingly dependent on each other. Economic performance in Ontario depends on global markets and is vulnerable to uncertainty elsewhere. Ontario’s exporters rely on strong U.S. demand. The U.S. economy is experiencing weak growth, which lowers the amount of manufactured goods that Ontario exports. The tragic earthquake and tsunami in Japan in March of this year created economic shocks that caused Ontario’s economic output to decline in the second quarter of 2011, in large part because of disruptions to the supply of auto parts. While most signs point to renewed growth in the third quarter, in times like these it is more important than ever to have a serious plan for the future that reflects current economic circumstances.

Changes in the Economy

Ontario’s economy has enjoyed success for several decades. Economic strength was driven largely by three key factors:

  • the strength of the U.S. economy;
  • the lower value of the Canadian dollar; and
  • cheap oil.

Given changes in the global economy, those factors cannot be relied on anymore. The structure of the global economy — and Ontario’s economy — has changed and is continuing to change.

Much of the world is entering an era of more modest economic growth. That means the Province must now focus, more than ever, on managing spending growth. Financial and economic developments in Europe are a stark lesson in the importance of a serious and sustainable fiscal plan. From 2007 through 2009, the interest rates on Spanish and Italian government bonds were similar to those paid by Ontario. By early November of this year, those countries pay from 2.4 to 3.2 percentage points higher on 10-year government bonds. That means more tax dollars are going to service debt instead of protecting schools and hospitals. Disciplined fiscal management will keep this from happening in Ontario.

Chart 2: 10-Year Government Bond Yields

Ontario’s finances must be put on a long-term, sustainable path. The government remains committed to achieving the targets outlined in its balanced budget plan while protecting health care and education. Past experience has shown that deep, arbitrary, across-the-board cuts do not work. They do not deliver true fiscal sustainability and they would unravel the progress Ontarians have made in improving schools and hospitals and preparing Ontario for the economy of tomorrow.

The 2011 Budget outlined a plan to hold average annual growth in program expense to 1.4 per cent until the budget is balanced in 2017–18. Given the continuing slow rate of growth expected in both the global and Ontario economies, the Commission on the Reform of Ontario’s Public Services is expected to recommend that the target for spending growth should be one per cent. The government will consider this and other advice as it prepares for the 2012 Budget.

The McGuinty government will build on its track record of innovative reforms to education, health care, taxes and the electricity system. The government will focus more than ever on getting the best value and the best outcomes in everything the Ontario public sector does. Building on reforms already introduced, including in health care and in the 2011 Budget, overlap and duplication will be eliminated, new forms of service delivery will be introduced and the government will ensure the value of public assets is maximized.

Meeting the challenge requires a government that is innovative and open to change. Just because a particular department is delivering a program today does not mean it should deliver that program tomorrow. Government must pursue innovation, open up the provision of government services to new forms of competition and pursue new partnerships within the public, private and voluntary sectors.

As part of meeting the needs of Ontarians in innovative ways, the government is proposing a new Healthy Homes Renovation Tax Credit, effective October 1, 2011. This tax credit would make it easier and safer for seniors to stay in their own or their families’ homes by helping with the costs of renovations such as walk-in bathtubs or wheelchair ramps. The tax credit, worth up to $1,500 per year, would support about $800 million in home renovation activity and around 10,500 jobs throughout the Ontario economy annually.

The Healthy Homes Renovation Tax Credit would help seniors stay healthy and live with dignity and independence in the comfort of their own homes. It costs taxpayers more to provide care in a long-term care home than to a senior who lives in their own home or that of a family member. In addition, supporting seniors living at home frees up health resources for those patients occupying costly beds in hospitals but who would be best cared for in a long-term care home.

Building Ontario’s Clean Energy Future

When this government took office in 2003, it inherited an electricity system with no long-term plan. There was not enough generation to meet demand reliably. Transmission lines were aging and some assets were in poor condition. Ontario relied heavily on coal, which causes pollution. For years, health experts have been urging governments to shut down coal plants because doing so would drastically improve air quality and public health — and save money on hospital visits.

Ontario is on track to phase out coal-fired electricity by 2014. The government has already shut down eight coal-fired units and is fast-tracking the closure of two more units by the end of 2011. It is also exploring accelerating the closure of the remaining six units at Lambton and Nanticoke.

Through the Green Energy and Green Economy Act, 2009 (GEA), Ontario is promoting private-sector investments to create a new generation of clean energy jobs, while protecting the environment. The GEA has helped create over 20,000 jobs to date and is on track to create 50,000 jobs.

Since 2009, more than 30 businesses have announced they are setting up or expanding plants in Ontario to manufacture parts for the solar and wind industries. More than 2,000 mid-size and large-scale renewable energy projects have been announced under the Feed-in Tariff program, representing more than $16 billion in private-sector investment.

With the changes Ontarians have made together, Ontario now has a cleaner and reliable electricity system that is creating jobs and making Ontario a world leader in clean energy. These investments have been absolutely necessary — and they are increasing costs.

To help with this transition to a clean, reliable system, the McGuinty government introduced the Ontario Clean Energy Benefit, which reduces monthly electricity bills for most residential and small business consumers by 10 per cent.

The Tax Plan for Jobs and Growth

In 2009, the government announced the Tax Plan for Jobs and Growth, which is transforming the Province’s tax system to make Ontario’s economy more competitive. This plan has cut income taxes for people and has cut the marginal effective tax rate on new business investment almost in half.

Forbes Takes Note of Ontario’s Tax Changes

“Canada ranks No. 1 in our annual look at the Best Countries for Business… Canada moves up from No. 4 in last year’s ranking thanks to its improved tax standing. It ranks ninth overall for tax burden compared to No. 23 in 2010. Credit a reformed tax structure with a Harmonized Sales Tax introduced in Ontario and British Columbia in 2010. The goal is to make Canadian businesses more competitive. Canada’s tax status also improved thanks to reduced corporate and employee tax rates.”

Kurt Badenhausen, “The Best Countries for Business,” Forbes.com, October 3, 2011.

Despite the ongoing global economic uncertainty, businesses continue to increase investments in the province — and that means job creation.

Ontario real machinery and equipment (M&E) investment spending has risen by over 22 per cent, or $9.0 billion, since July 2010, following the implementation of the Tax Plan for Jobs and Growth. The forecast is for strong, continued growth in M&E investment spending, rising 63 per cent from $37 billion in 2009 to over $60 billion by 2014.

These healthy investments in new machinery and equipment will support stronger growth in productivity over the next several years, lead to job creation and promote a more competitive and prosperous Ontario economy.

Auto Sector

The auto industry continues to be a key sector of Ontario’s economy, with five major vehicle assemblers and more than 400 parts manufacturing plants in communities across the province. Restructuring of this important sector continues as Ontario strengthens its competitiveness and its position as the number one auto assembler and a major parts producer in North America.

Chart 3: Sustained Gains in Business Machinery and Equipement Spending
Chart 4: Ontario Vechicle production (000's)

In 2009, Ontario made about $4.8 billion in total support available to General Motors (GM) and Chrysler Canada Inc. to help maintain Ontario’s share of North American vehicle production in the province and to protect the hundreds of thousands of jobs supported by the automotive sector. Both GM and Chrysler have now repaid the loan portion of Ontario’s investment. Ontario no longer holds any investment in Chrysler and will sell its remaining interest in GM at an appropriate time in the future.

Infrastructure

Modern and efficient public infrastructure is essential to both Ontario’s economic growth and competitiveness, and to Ontarians’ quality of life. Infrastructure investments in Ontario also help support business-sector productivity growth by reducing business costs and travel times while improving public services. In this time of economic uncertainty, investments in infrastructure become even more important. On average, the Province’s infrastructure investments have created or preserved close to 100,000 jobs in each of the past six years.

Financial Services

Ontario’s financial services sector continues to support job creation and a diverse economy. Employment in the sector grew in 2009 despite the global recession, and, while it dipped slightly in 2010, employment growth resumed in 2011, helping to support growth in the rest of the economy.

Toronto is home to the nation’s banks — ranked the soundest in the world over the last four years — and globally successful insurers, investment firms and pension funds. Toronto has now risen to number 10 on the Global Financial Centres Index.

The government is working with the financial services sector to stimulate future growth, while modernizing financial regulation to support globally competitive markets and investor protection. The Province has partnered with the Financial Services Leadership Council and the Toronto Financial Services Alliance to advance the financial services strategy to improve the sector’s competitiveness, create thousands of high-paying jobs and establish the Global Risk Institute in Financial Services.

Table 1
Global Financial Centres Index Ranking: Toronto Enters the Top 10
Year Toronto's Rank
2011 10
2010 12
2009 13
Source: Z/Yen Group Ltd. Annual figures as of September 2011.

Mining and Opportunities in Ontario’s Ring of Fire

The mining sector is a major employer in many areas of northern Ontario as well as Ontario’s second-largest source of merchandise exports, after autos. Employment in northern Ontario’s mining sector (excluding oil and gas) increased by over 1,500 jobs between 2010 and 2011 (year to date).

Ontario’s Ring of Fire, an area of the Far North with potentially large deposits of important minerals such as chromite, nickel, copper and platinum, presents a unique mining and economic development opportunity. The Ring of Fire Coordinator is actively working with industry and residents of northern Ontario to facilitate sustainable development of this resource. A number of companies continue to move forward with advanced planning for mines and infrastructure. At the same time, the government is working directly with First Nations communities to improve community relationships and engage in capacity building.

Producing Results

The McGuinty government was elected in 2003 with a mandate to rebuild schools and hospitals after the previous government had made deep, across-the-board cuts. This government hired nurses and teachers, and invested in infrastructure and public services.

The Province is building the most educated workforce in the world. Ontario’s schools are world leaders at preparing students for their entry into the competitive job market. The government must now focus more than ever on making sure they get the jobs they are prepared for.

At 16.5 per cent, youth unemployment in Ontario is stubbornly high. While other parts of the world have reached much higher levels, the province’s youth are worried about being left behind. Lack of employment opportunities affects their pocketbooks. In turn, this affects families when unemployed young Ontarians may be less willing or able to leave home. This is just one of the reasons why the McGuinty government is focused on jobs and the economy.

Preparing Ontarians for Jobs

Building the best-educated workforce in the world is the most important thing Ontarians can do to generate jobs and prosperity. A well-educated workforce attracts business investment and creates the opportunity for Ontario businesses to find the skilled, knowledgeable people they need to grow.

Implemented in 2010, full-day kindergarten is helping Ontario’s children get the best possible start to their education. Students who achieve early success are more likely to perform well in school and go on to postsecondary education. As of September 2011, nearly 800 Ontario schools are offering the program, benefiting about 50,000 children. The program will be fully implemented in September 2014, benefiting 247,000 children and their families. The government reduced primary class sizes and, by 2008–09, all primary classes had 23 or fewer students. In 2003–04, only 64 per cent of primary classes had 23 or fewer students.

The government is also investing in programs to help students improve their reading, writing and math skills. Education Quality and Accountability Office (EQAO) provincial test scores from the 2010–11 school year show that 69 per cent of Ontario Grade 3 and 6 students are meeting or exceeding the provincial standard in reading, writing and math. This is a 15 percentage point increase from 54 per cent in 2002–03.

Chart 5: Percentage of Grade 3 and 6 Students Achieving Provincial Standard in Reading, Writing and Math
The Economist and McKinsey & Company Cite Ontario’s Education System as One of the Best in the World

“The Canadian province has a high proportion of immigrants, many without English as a first language, yet it now has one of the world’s best-performing schools systems, after bringing in what one of its architects calls ‘reform without rancour.’”

“Reforming Education: The Great Schools Revolution,” The Economist, September 17, 2011.

“Ontario … is among the world’s highest-performing school systems. It consistently achieves top-quartile mathematics scores and top-decile reading scores in PISA*.”

“How the World’s Most Improved School Systems Keep Getting Better,” McKinsey & Company, November 2010.

*Programme for International Student Assessment (PISA).

In today’s competitive global economy, a postsecondary education is more critical than ever. That is why the McGuinty government created 200,000 more postsecondary and apprenticeship spaces. The latest international comparable data (2009) showed 63 per cent of adults aged 25 to 64 in Ontario completed postsecondary education, higher than all Organisation for Economic Co-operation and Development (OECD) countries. University and college enrolment in Ontario has grown by 36 per cent since 2002–03. This year, Ontario had the most first-year undergraduate students confirm entry to university ever. The government is creating another 60,000 postsecondary spaces over the next five years.

Chart 6: More Adults Have Postsecondary Credentials

Through Employment Ontario, the Province supports a variety of employment and training services to help Ontarians find and keep their jobs. Additional investments were made to help workers and communities affected by the recent global recession. One example is the Second Career program that has helped more than 50,000 laid-off workers train for new careers in occupations with demonstrated labour-market prospects.

Ontario has also taken steps to expand and modernize its apprenticeship programs. With more than 150 trades and occupations, Ontario has the largest apprenticeship system in Canada. The establishment of the Ontario College of Trades, an industry-driven governing body, is expected to further modernize the province’s apprenticeship and skilled trades system.

Those with high skills will be needed as the new clean energy sector creates 50,000 jobs, and as the Province’s tax reforms help create almost 600,000 net new jobs by 2020.1

Health Care

The government has built a health care system that provides Ontarians with better access to a family doctor and shorter wait times, while promoting health and preventing illness.

The government focused on reducing wait times, where previously this measurement had never been taken. The 2011 report card by the Wait Time Alliance gave Ontario straight As for the third consecutive year for reducing wait times for hip, knee, cancer, cataract and cardiac surgeries, making it the highest-performing province.

Since 2003, about 1.3 million more Ontarians have access to a family doctor, with nearly 2,900 more doctors practising in the province.

The government has supported the creation of more than 12,000 nursing positions since 2003, and has more than doubled the number of primary health care nurse practitioner education spaces from 75 to 176. The Province also guarantees a full-time job opportunity for every new nursing graduate.

Ontario was the first province to introduce nurse practitioner-led clinics and, by 2011–12, 25 clinics will be operational and helping to improve access to care for more than 40,000 Ontarians.

Since 2005, the government has increased access to doctors and nurses by creating 200 Family Health Teams, including 42 Teams in northern Ontario. Teams are made up of a range of health care professionals who work collaboratively to provide comprehensive primary care to almost three million Ontarians.

Through the Ontario Diabetes Strategy, the Province has expanded diabetes programs and services to improve health care and health outcomes for Ontarians living with the disease or at risk of developing it. Since June 2010, all Ontarians with diabetes who wished to have a primary care provider now have one. Ontario was also the first province to fully fund insulin pumps for children and youth with type 1 diabetes, saving families up to $18,300 per child in the first five years.

Since 2003, Ontario has added five vaccines to its publicly funded vaccine program, saving families about $1,400 per child.

  • 1Jack M. Mintz, “Ontario’s Bold Move to Create Jobs and Growth,” School of Public Policy, University of Calgary, November 2009.