: 2014 Ontario Economic Outlook and Fiscal Review
Foreword

Introduction

The purpose of this Ontario Economic Outlook and Fiscal Review is to update the people of Ontario on the progress their government has made on their behalf since the passage of the 2014 Budget. Normally this is intended to be a mid-year assessment coming about six months after the budget. But with intervening events, most notably the spring election, our budget only passed on July 24, less than four months ago.

With a strong and clear mandate from the people and spurred on by a sense of urgency created by the compressed time frame, the government has since been moving ahead with speed, determination and diligence.

Our purpose is clear: to create opportunity and security for people, and to build Ontario up, while eliminating the deficit in a responsible and balanced way. Our commitment to balancing the budget by 2017–18 will ensure that, over the long term, we can provide the programs and services that Ontarians expect and rely on.

Economic Outlook Improving

The global economic environment remains challenging and contributed to relatively weak growth for Ontario through 2013. However, there are positive signs that Ontario’s economic expansion is gaining momentum this year, supported by a resurgent U.S. economy. Major economic indicators, including real gross domestic product (GDP), exports and household consumption, have posted solid gains since the beginning of 2014. Ontario’s unemployment rate has declined to 6.5 per cent in October, down from 7.5 per cent at the beginning of the year and the lowest rate of unemployment since 2008.

Meeting Fiscal Targets

The Ontario government is working to meet its fiscal targets, despite the challenges of the relatively modest pace of economic growth. Lower economic growth means less-than-expected revenue.

The Province’s total revenue projection for 2014–15 of $118.4 billion is $509 million lower than the 2014 Budget forecast. This largely reflects weak 2013 economic growth and lower-than-expected tax revenues in 2013–14 that carry forward over the medium term.

Yet the government has overachieved on its fiscal targets in spite of a decline in the revenue outlook since the 2010 Budget and is continuing to move forward towards balance. This is happening thanks to sound management of government expenses.

From 2010–­11 through to 2013­–14, growth in program spending was held to an average of 1.2 per cent per year. This growth rate resulted from disciplined action to find efficiencies in the delivery of public services while still making critical investments in the programs and services that people depend on, such as health care and education.

As a result of responsible management, program spending was 16.6 per cent of Ontario’s GDP in 2013–14. In contrast, program spending was 17.9 per cent of Ontario’s GDP in 2009–10. From 2013–14 through to balance in 2017–18, program spending is projected to grow at an average annual rate of 0.8 per cent.

The government supported the economy during the recession and is now taking a responsible and balanced approach to eliminating the deficit. Indeed, Ontario consistently has the lowest per capita program spending among all Canadian provinces.

A Balanced Path to a Balanced Budget

The foundation of a strong economy is a balanced budget. The government is committed to achieving a balanced budget by 2017–18. Balancing the budget is a sign of prudent management that is consistent with this government’s core values.

Simply put, we want to make sure that every dollar counts. Good management of the government’s finances allows us to enact the progressive agenda for action that Ontarians have given us a strong mandate to implement.

Balancing the budget by 2017–18 is a challenge, but we are meeting that challenge by taking a deliberate and thoughtful approach to the tough choices we face.

The key elements of our plan to achieve a balanced budget are:

  • Pursuing program review, renewal and transformation;
  • Managing compensation costs;
  • Ensuring everyone pays their fair share of taxes; and
  • Unlocking the value of provincial assets.

Through these actions, the government is making sure that each and every dollar goes further to achieve value for taxpayers’ hard-earned money. However, should economic conditions persist that result in the Province’s revenue outlook falling further below the 2014 Budget projection, the government will consider other tools, as necessary, to balance the budget by 2017–18. This would be done while continuing to make critical investments in the programs and services that people depend on, such as health and education.

Pursuing Program Review, Renewal and Transformation

The government is committed to transforming and modernizing public services by finding new and smarter ways to deliver the best value for every dollar spent.

The Honourable Deb Matthews, President of the Treasury Board, is leading a careful review of every government program. Government programs will be reviewed through four lenses for relevance, effectiveness, efficiency and sustainability.

A focus on evidence and measurable results is a critical element of the review. The objective is to ensure that sustained funding goes to initiatives that work. Opportunities will be identified to transform and modernize public services so that every dollar goes further to achieve value for taxpayers’ hard-earned money.

In addition to better outcomes, the government is committed to meeting its annual program review savings target of $250 million for 2014–15 and $500 million for each of the next two years, as announced in the 2014 Budget.

Managing Compensation Costs

The government is continuing to take action to control compensation costs. The government introduced Bill 8, the Public Sector and MPP Accountability and Transparency Act, 2014, which, if passed, would authorize it to directly control compensation of senior executives in the broader public sector. The legislation would authorize the government to obtain all compensation-related information and set compensation frameworks — including hard caps.

In August, the government reached a four-year collective agreement with the Association of Management, Administrative and Professional Crown Employees of Ontario (AMAPCEO). The agreement includes a wage freeze in the first two years and a 1.4 per cent wage increase in each of the third and fourth years. The agreement is consistent with the fiscal plan outlined in the 2014 Budget, which includes no new funding for compensation increases. The cost of wage increases in 2016 and 2017 is being offset over the four-year term through changes to benefits and entitlements, making it a net zero agreement. This new agreement follows a two-year deal that included no wage increases in either 2012 or 2013 — totalling four consecutive years without an increase.

Ensuring Everyone Pays their Fair Share of Taxes

Over the past several years, our government has cut many taxes for business to encourage business growth and investment. As a result, Ontario has a lower combined federal–provincial general corporate income tax rate than the combined federal–state tax rate in any of the U.S. states.

An effective tax administration system also requires businesses to pay their fair share of taxes. When businesses do not pay their fair share, provincial revenues are compromised. This has a direct impact on the programs and services Ontarians expect and rely on. Further, when businesses do not pay their fair share of taxes, they disadvantage other businesses that do follow the rules. Often, businesses that do not pay taxes also ignore the rules that protect employees and ensure that products and services are reliable and safe. This activity fosters an underground economy.

The government is taking action against the underground economy by:

  • Launching pilot initiatives to better coordinate and strengthen compliance activities in high-risk sectors;
  • Expanding tax verification for procurements in the broader public sector, Crown corporations, and financial assistance provided to businesses; and
  • Examining additional measures that would enable better information sharing across government ministries, agencies and jurisdictions.

In addition, we are taking further measures to address the supply of contraband tobacco.

Unlocking the Value of Provincial Assets

Unlocking the value of provincial assets is a way to help our economy grow while creating jobs and sustaining government services. It is also a way to create new revenue that can be put towards improving public infrastructure, including transit.

Maintaining provincial ownership of many of these assets remains a priority to deliver key services to the public, while holding on to other assets, such as the Liquor Control Board of Ontario (LCBO) head office lands, may no longer serve a public policy purpose.

The Premier’s Advisory Council on Government Assets has been asked to find ways to increase efficiencies and unlock the full value of Hydro One Inc., Ontario Power Generation and the LCBO, including other aspects of Ontario’s beverage alcohol retail system.

The Council’s findings include opportunities to provide consumers with improved access, enhanced customer service at the LCBO, as well as negotiating with suppliers to achieve higher returns for Ontarians. The Council says Hydro One should retain its core transmission business. Also, the fragmented system of about 70 local electricity distributors should be encouraged to consolidate and bring in private capital to improve the efficiency of the electricity distribution sector.

The government is supportive of the Council’s initial findings and has tasked it to build on its work by entering into a second phase. In this next phase, the Council will broaden its commitment to a collaborative and transparent process and deepen the relationships it has established with all parties, bringing the Council closer to its goal of reaching agreements with the appropriate parties. The Council’s final recommendations will help inform the 2015 Budget.

Our Plan for Building Ontario Up

The government’s agenda for progressive action is supported by our plan:

  • Investing in people’s talents and skills;
  • Building modern infrastructure and transportation networks;
  • Creating a dynamic and supportive environment that allows business to thrive; and
  • Ensuring a strong retirement income system so everyone can afford to retire.

The evidence shows that our plan is working. Ontario’s unemployment rate has declined from a recessionary high of 9.4 per cent in June 2009 to 6.5 per cent in October 2014. Since the recessionary low in June 2009, Ontario has added 551,300 jobs, erasing the 265,800 job loss during the recession. The majority of the jobs added are full time and in the private sector. Employment is now 4.3 per cent or 285,500 above the pre-recession peak.

Investing in People’s Talents and Skills

While Ontario’s economy continues to create jobs, more remains to be done. We will take steps to ensure that Ontarians, particularly young Ontarians, have the skills and training they need for high-paying, rewarding jobs.

To that end, the government is launching new initiatives and enhancing established programs so that high school students reach their full potential. For example, in 2015, the government will launch Experience Ontario, which will allow all high school graduates to gain valuable work experience before they choose their career path.

Our actions continue beyond high school. The Province continues to strengthen postsecondary education through initiatives such as online learning tools that give students the flexibility to control how, when and where they learn.

The government also launched a $295 million Ontario Youth Jobs Strategy in September 2013. A key element of that strategy, the Ontario Youth Employment Fund, has already helped more than 23,000 young people gain work experience and find jobs.

Ontario’s skilled trades are fundamental to ensuring continued economic growth across the province. We are continuing to strengthen the skills training system and have appointed a reviewer for the College of Trades.

Building Modern Infrastructure and Transportation

The Province’s plan for the economy is founded on world-class infrastructure that will enhance the quality of life for Ontarians, support economic growth, increase productivity and meet future demographic needs.

Ontario is planning to invest more than $130 billion in public infrastructure over the next 10 years, including $12.8 billion in 2014–15.

In July, we introduced legislation that, if passed, would require current and future governments to regularly prepare long-term infrastructure plans and further improve the way the Province prioritizes infrastructure needs.

In the 2014 Budget, the government provided details of the Moving Ontario Forward plan to make nearly $29 billion in dedicated funding available over the next 10 years for public transit, highways and other priority infrastructure projects across the province. Moving Ontario Forward is investing $15 billion in transit projects in the Greater Toronto and Hamilton Area and nearly $14 billion in critical infrastructure projects elsewhere in Ontario in a fair, accountable and transparent manner.

It is an ambitious plan that looks beyond the four-year election cycle that can cause government vision to be shortsighted. This government is taking a long-term view. By investing in infrastructure today, we are helping create jobs and grow our economy so we can meet the infrastructure needs of tomorrow.

A Dynamic and Supportive Business Environment

Key initiatives under our plan include:

  • Maintaining a competitive tax environment that encourages business to invest and grow;
  • Building strategic partnerships with business, including investments through the $2.5 billion Jobs and Prosperity Fund;
  • Reducing regulation for business;
  • Growing small businesses in Ontario;
  • Helping business manage electricity costs;
  • Modernizing financial services; and
  • Moving forward with the government’s Going Global Trade Strategy, to encourage Ontario business to expand their exports internationally.

Through these initiatives, the Province will encourage productivity-enhancing investments by business, improve Ontario’s capital markets, and support growth in the key sectors, such as advanced manufacturing.

The government is fostering economic growth in all parts of the province. We have created regional economic development funds like RED — the Rural Economic Development Program. Recently, RED provided support to the Hensall District Co-operative, which processes and markets high-value field crops for over 2,000 farmers. This support created and maintained 14 local jobs and leveraged $4.3 million in private investment.

Premier Kathleen Wynne recently led a trade mission to China that attracted almost $1 billion in new investments by Chinese companies, which will create more than 1,800 jobs across Ontario.

The government is also modernizing and strengthening Ontario’s financial services sector. We are working with other jurisdictions, domestic and global, on new initiatives such as a trading hub in the Chinese currency in Canada, collaborating with the Chinese, federal and British Columbia governments.

We are working, in collaboration with other provinces and territories and the federal government, to establish a Cooperative Capital Markets Regulatory System to help make securities markets safer. We are reviewing the mandates of the Financial Services Commission of Ontario and the Deposit Insurance Corporation of Ontario to ensure there continues to be strong oversight in this sector.

We have already begun a review of the legislative framework for credit unions and caisses populaires led by Laura Albanese, MPP, Parliamentary Assistant to the Minister of Finance.

The government is also undertaking a review of the regulation of financial planning. An expert committee will be appointed to look at more tailored regulation of financial advisers and financial planners.

Ontario’s tourism and culture industries not only create jobs and economic growth, they enhance Ontarians’ quality of life. A key upcoming event in the tourism and culture sector is the commemoration of the 400th anniversary of the Francophone presence in Ontario, scheduled to take place from June to October 2015. On September 25, 2014, the government announced funding of $5.9 million for a wide range of commemorative events for the anniversary. Specific tourism, cultural, educational and legacy projects will be announced in the coming weeks and months. 

Building a Secure Retirement

The Province is committed to a strong and secure retirement income system to help ensure that Ontarians are better able to enjoy their retirement years. As a result, the 2014 Budget announced the government’s new mandatory provincial pension plan — the Ontario Retirement Pension Plan (ORPP). The government intends to implement the ORPP in 2017, coinciding with expected reductions in Employment Insurance premiums.

The ORPP is an integral part of the government’s plan to invest in people and help working Ontarians build a more secure retirement future. The ORPP is being designed to target those most at risk of undersaving, particularly middle-income earners without workplace pension coverage, and will need to effectively balance retirement income security with impact on business.

The Honourable Mitzie Hunter, Associate Minister of Finance responsible for the ORPP, has begun work towards the pension plan’s launch in 2017.

A Strong Ontario within a Strong Canada

When the global economic recession struck in 2009, the federal and Ontario governments worked in concert to ease the worst effects of the downturn. Collaboration is still needed to secure long-term productivity and prosperity and build a strong Ontario within a strong Canada.

Ontario is taking important steps to deliver on its plan and build a strong and sustainable fiscal foundation. It is critical that the federal government avoid further unilateral actions that would negatively impact the people of Ontario, and avoid actions that put the Province’s fiscal plan at risk. The federal government needs to treat Ontario fairly, and support economic growth in the province.

As the federal government is expected to be in a position to realize significant and growing surpluses beginning in 2015–16, it will have an opportunity to invest in partnerships with the Ontario government in a way that will support job creation and economic growth.

Ontario calls on the federal government to reform the transfer payment system to treat Ontarians fairly. In addition, given the fundamental role infrastructure plays in Canada’s economic growth, the Province is calling on the federal government to match Ontario’s investments in the Ring of Fire region, and significantly increase its investments in public infrastructure.

A Fair Society

The government is determined to build a fairer and healthier Ontario. To that end, it has launched a reinvigorated Poverty Reduction Strategy that aims to end chronic homelessness, as well as support and encourage people to find meaningful employment at a fair wage. Allowing people to realize their full potential reduces poverty and makes good economic sense.

The government is taking action to help low-wage workers who struggle to make ends meet, including by raising the minimum wage to $11 per hour, the highest of any province.

Many Ontarians need to own and drive a car to and from work. That is why government reforms are aimed at fighting insurance fraud and abuse in order to make auto insurance more affordable for Ontarians.

As a result of the government’s Auto Insurance Cost and Rate Reduction Strategy, rates declined by more than six per cent on average from August 2013 to August 2014.

Conclusion

Looking forward from now until our next budget in 2015, this government will continue to pursue its mandate for action.

We will continue to invest in people’s skills and talents, build modern infrastructure and transportation networks, create a supportive and dynamic business climate, and strengthen retirement income security for all Ontarians.

These government priorities and our determined efforts to make every dollar count will help support eliminating the deficit by 2017–18.

We will continue to create opportunity and security for people, to build Ontario up, while at the same time eliminating the deficit in a responsible and balanced way.