: 2011 Ontario Economic Outlook and Fiscal Review

Foreword

Ontarians are witnessing a time of significant global change, upheaval and uncertainty in countries around the world. The extraordinary challenges facing the global economy require extraordinary efforts from everyone both at home and abroad. These are serious times and they call for a serious plan.

Job loss is hard on families. When an economy shrinks, or grows by less than forecast, real people are affected. Some of Ontario’s families are going through a hard time in today’s economic uncertainty. Building a stronger, more competitive economy is about more than improving forecasts and numbers. It is about helping people get good, high-paying jobs. It is also about building an economy that supports strong schools and hospitals.

Ontario has made tremendous progress over the last eight years in building the world’s best-educated workforce. Working together, Ontarians now need to ensure that workers can get the good, high-paying jobs they deserve. This includes youth who are graduating from Ontario’s world-class education system. That is why the McGuinty government continues its focus on strengthening Ontario’s economy and job creation.  

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 global economic recession, while other places continue to be subjected to much greater volatility. The European economy continues to present new challenges while growth in the United States, Ontario’s largest trading partner, remains vulnerable to setbacks.

Around the world, people are worried about jobs and the global economy. Here in Ontario, the impact on families of the continuing global economic uncertainty remains a concern.

Producing Results

In 2003, Ontario was confronted with deteriorating public services. Today, Ontario is recognized around the world for its high-quality schools and it has the shortest wait times in the country for key surgical procedures. Ontarians have rebuilt the province’s electricity system and turned it into a clean, reliable source of energy that creates jobs.

In 2008, the global economy fell into one of the deepest recessions in generations. The McGuinty government, like many others, followed the advice of the International Monetary Fund (IMF) and invested heavily in stimulus, lessening the impact of the recession on families by protecting jobs.

Ontarians have adapted to the changes that came with reform to the tax system, including the Harmonized Sales Tax. Taxes on new business investment have been cut almost in half over the last two years, making Ontario one of the most competitive places in North America for new investment. Business investment leads to job creation.

Ontarians have worked together to build a strong, stable economic foundation that has helped the province stand up to the challenges presented by the upheaval that is taking place around the world. In 2008, the McGuinty government took action to support those who needed help the most. In today’s economic environment it will continue to make smart investments in encouraging economic growth and job creation.

Jobs and the Economy

Over the last eight months, the global economy has seen a widespread, downward shift in projections for growth. When the 2011 Budget was published, the average private-sector forecast for Ontario’s real GDP growth was 2.6 per cent for the year. More recent projections are forecasting growth of just 2.0 per cent.

As a result of pressures from outside Ontario, the provincial economy continues to face enormous challenges. The era of slower growth in much of the world is expected to continue for an extended period. This means that, for the foreseeable future, modest economic growth will be the new normal here in Ontario, as elsewhere.

Slower Global Economic Growth

The McGuinty government will achieve its goals in the context of the new global economic reality of slower growth. It will strengthen the economy while giving priority to those parts of its plan that best address the immediate needs of Ontario families.

As new challenges present themselves and as the government moves forward to address changing needs and priorities, it is committed to meeting the targets outlined in its balanced budget plan. To ensure those targets are met, any new spending or unforeseen expenditures will come from savings in other areas.

The way governments of all political stripes over the last generation have accumulated debt cannot continue as Ontario faces many years of more modest economic growth.

Lower Rate of Spending Growth

Ontario is confronting the challenge to protect world-class public services and balance the budget in a time of slow economic growth. To meet these goals, the government set a target in the 2011 Budget of holding growth in overall program spending to 1.4 per cent. Given the current global economic uncertainty, 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 the 2012 Budget.

Ontario has had success in meeting this challenge in the very recent past by lowering growth in program spending from about seven per cent to about four per cent last year. There is more work to be done. The government will receive a report in the next few months from the Commission on the Reform of Ontario’s Public Services, chaired by economist Don Drummond, which will make recommendations on ways to transform public services while eliminating the deficit and ensure that Ontario is able to continue supporting strong schools and hospitals.

Strong financial management and a competitive economy are the foundation of quality schools and hospitals, and strong public services contribute to a greater quality of life. Past experience has shown here in Ontario and elsewhere around the world that deep, arbitrary, across-the-board cuts do not work. They do not deliver true fiscal sustainability. They would also unravel the progress Ontarians have made in improving schools and hospitals and preparing Ontario for the economy of tomorrow. It is also perfectly clear that new tax cuts beyond those announced in the Tax Plan for Jobs and Growth are unaffordable, as are demands for large spending increases in today’s economic circumstances.

Meeting the Challenge Through Reform

The McGuinty government has an established record of meeting its targets. The 2011 Budget forecast a deficit of $16.3 billion for 2011–12 and this economic update shows that — at $16.0 billion — the government is projecting it will be slightly ahead of that forecast target, despite the global economic uncertainty and volatility.

Ontario will meet the challenge of lower economic growth through long-term, fundamental reforms to the way government works. The McGuinty government will build on its track record of reforms to education, health care, taxes and the electricity system. The government will focus more than ever on how to get the best value and the best services for Ontario families.

Healthy Homes Renovation Tax Credit

Meeting the challenge of extended, modest economic growth demands a government that is open to change and innovation — the kind of innovation that Ontarians display time and time again. One example is the proposed Healthy Homes Renovation Tax Credit. This credit would help seniors stay in their homes longer and benefit taxpayers by relieving pressures on long-term care home costs. In addition, the tax credit would support jobs and economic activity. To continue to meet fiscal targets, the cost of this program would be offset by savings in other areas.

Conclusion

Over the last several years, Ontarians have made tremendous accomplishments by working together. The McGuinty government will continue to make smart investments that encourage economic growth. It will balance the budget while encouraging job creation and protecting schools and hospitals.