: Ontario's Long-Term Report on the Economy
Chapter 1: Demographic Trends and Projections

Introduction

Demographic change has a significant impact on Ontario’s long-term economic and fiscal outlook. This chapter highlights demographic trends over the past two decades. It also provides population projections for the next 20 years. Five key trends have been identified:

  1. population growth will be healthy but the pace will moderate;
  2. immigration will account for a predominant and rising share of population growth;
  3. seniors will make up a much larger share of the population;
  4. working-age population growth will slow; and
  5. large urban centres will experience the fastest rate of population growth.

The demographic outlook for Ontario over the next 20 years will have far-reaching economic and fiscal implications:

  • Population aging and slower growth of the working-age group will temper Ontario’s labour-force growth. This may restrain future economic performance if there are no increases in productivity growth.
  • To mitigate the impact of baby boomers retiring, increased participation in the labour force and workplace flexibility will need to be encouraged.
  • Population growth and aging will increase pressure on government spending, notably on health care.
  • Regional differences in population growth and age structure will create challenges for government service delivery and require targeted policy responses.
  • Population aging will affect the composition of personal income and the pattern of personal spending, potentially moderating the growth of government revenues.
  • The wave of baby boomer retirements will test Canada’s retirement income system.

Demographic Trends over the Past Two Decades

Over the past 20 years, Ontario’s demographic trends have created both opportunities and challenges. The key trends over this period have included:

Strong population growth

  • Ontario experienced strong population growth of three million people between 1989 and 2009.
  • Annual population growth averaged 1.3 per cent during this period.
  • Ontario’s share of Canada’s population increased from 37.0 per cent in 1989 to 38.7 per cent in 2009.

Immigration-driven population growth

Net migration (net international plus net interprovincial migration) accounted for 61 per cent of provincial population growth over the last 20 years. Immigration was the key factor. Natural increase (births minus deaths) slowed and was responsible for the remaining 39 per cent.

Continued population aging

An aging population

  • Over the past 20 years, the median age in Ontario rose from 33 years in 1989 to 39 years in 2009, reflecting the aging of the baby boom generation, low fertility rates and increasing life expectancy.
  • Seniors aged 65+ now account for 13.7 per cent of Ontario’s population, or 1.8 million people, up from 1.1 million people and an 11.2 per cent share in 1989.
  • At the same time, falling fertility rates reduced the share of children aged zero to 14 in Ontario’s population, from 20.1 per cent in 1989 to 16.9 per cent in 2009. The number of children rose modestly to 2.2 million, up from 2.0 million in 1989.
  • The core working-age group, aged 15 to 64, now represents 69.4 per cent of the population, or 9.1 million people, an increase from a 68.7 per cent share and 6.9 million people in 1989.

Concentration of population growth in urban areas

Growth in urban centres

  • Since 1989, 62 per cent of Ontario’s population growth occurred in the Greater Toronto Area (GTA), defined as the City of Toronto and the regional municipalities of Halton, Peel, York and Durham.

Increasing demographic diversity

  • About 2.7 million Ontarians identified themselves as belonging to a visible minority group in the 2006 Census, representing 22.8 per cent of the province’s population, up from 13.0 per cent in 1991.
  • Ontario is home to more than half of Canada’s visible minority population.
  • Ontarians reported more than 200 mother tongues in the 2006 Census.

Demographic Outlook over the Next Two Decades

Five key trends of Ontario’s demographic outlook to 2030 are discussed in the following section. The population projections, published in the fall of 2009 and based on the 2006 Census, are the latest from the Ministry of Finance. The assumptions behind the projections reflect past trends in all streams of migration and the continuing evolution of long-term fertility and mortality patterns.

1. Population Growth Healthy but Will Moderate in Long Term

Healthy population growth projected

Over the 2009 to 2030 period, Ontario is projected to see healthy population growth of 28 per cent, a gain of almost 3.7 million people. It is projected that by 2030, Ontario’s population will reach 16.7 million. This population increase is slightly slower than the 29 per cent growth over the previous two decades.

In recent years, the pace of Ontario’s population growth has slowed due to net interprovincial out-migration to the rest of the country and lower-than-average immigration rates to the province. This is largely due to relatively stronger economic growth in the western provinces.

Reflecting a return to historical patterns of interprovincial migration and immigration, the pace of population growth is projected to rise gradually over the next few years, from 1.0 per cent in 2009–10 to 1.2 per cent by 2012–13. Annual population growth is projected to remain stable at about 1.2 per cent until the mid-2020s before slowing to 1.1 per cent by 2030.

Chart 1, bar graph: Annual Rate of Population Growth in Ontario

2. Population Growth Sustained by Immigration

Immigration drives population growth

Net migration (net international plus net interprovincial migration) will continue to drive Ontario’s population growth. Its share of annual population growth is projected to increase from 62 per cent in 2009–10 to 71 per cent by 2029–30.

The largest component of net migration is immigration. Annual immigration as a share of population is projected to rise slightly over the next few years to reach 0.9 per cent of the population by 2012–13 and continue at this rate until 2030. This is slightly lower than Ontario’s average immigration rate of about one per cent annually over the last 20 years.

Chart 2, line graph: Contribution of Natural Increase and Net Migration to Ontario’s Population Growth

The share of population growth coming from natural increase (births minus deaths) will fall due to population aging and low fertility rates. It is projected to drop from 38 per cent in 2009–10 to 29 per cent by 2029–30. Natural increase will rise from 50,000 in 2009–10 to almost 66,000 in 2022–23 before moderating to 54,500 in 2029–30.

3. Population Aging to Accelerate

Aging population most significant trend

The rapid aging of Ontario’s population is the most significant demographic trend projected for Ontario.

The arrival of baby boomers into the 65+ age group begins in 2011. The number of seniors is projected to more than double, increasing from 1.8 million in 2009 to 3.7 million by 2030. Even faster growth is projected for the oldest age group during this period, with the population aged 90+ rising by 147 per cent. By 2030, seniors will account for 21.9 per cent of Ontario’s population, much higher than the current 13.7 per cent share.

The annual pace of growth of the senior population is projected to increase from 2.6 per cent in 2009–10 to about 3.5 per cent from 2013 to 2030.

Chart 3, line graph: Proportion of Population Aged 0–14, 15–64 and 65+ in Ontario

Life expectancy continues to increase

Increasing life expectancy will contribute to the strong growth in the number of seniors. Life expectancy at birth increased from 70.8 years in 1976 to 78.9 years in 2006 for men, and from 78.0 years to 83.2 years for women. By 2030, life expectancy is projected to reach 84.4 years for men and 87.1 years for women.

Population aging will lift Ontario’s median age from 39 years in 2009 to 42 years in 2030.

4. Slower Growth of Core Working-Age Population

Growth in working-age population slows

Since 2001, the pace of growth of Ontario’s core working-age population (aged 15 to 64) has slowed. This trend is projected to continue as baby boomers become seniors.

Over the next 20 years, the working-age population is expected to increase by 13.5 per cent — an average annual increase of 0.6 per cent. This is about half the growth rate of the past two decades. By 2030, Ontario’s working-age population is projected to be 10.3 million and to account for 61.5 per cent of the population, down from 69.4 per cent in 2009.

As discussed above, the senior age group (65+) will grow at a much faster pace than in the past, more than doubling over the next 20 years. The number of children aged zero to 14 will be relatively stable at about 2.3 million over the first decade of the projection, before rising to 2.8 million by 2030. The share of children in the population will fall from 16.9 per cent in 2009 to 16.2 per cent in 2015. By 2030, this share will rise slightly to 16.6 per cent as the children of baby boomers have their own children.

Chart 4, line graph: Pace of Growth of Broad Population Age Groups in Ontario

5. Population Growth Concentrated in Large Urban Centres

Urban regions of the province will continue to experience the fastest population growth rates.

GTA to be home to half Ontario’s population

The GTA is projected to be the fastest-growing region by far, accounting for almost two-thirds of Ontario’s population growth over the next 20 years. The GTA’s population is expected to increase by almost 38 per cent, or 2.3 million people, between 2009 and 2030. Its share of Ontario’s population will rise from 46.7 per cent in 2009 to 50.4 per cent by 2030.

The population of Central Ontario is projected to reach 3.62 million by 2030, an increase of 27 per cent from 2.85 million in 2009. In Eastern Ontario, growth of 19 per cent is projected over the same period, raising the region’s population from 1.70 million in 2009 to 2.03 million in 2030. Southwestern Ontario is projected to be home to 1.83 million people in 2030, a 14 per cent increase from 1.60 million in 2009.

The population of Northern Ontario is projected to be relatively stable to 2030, increasing 0.8 per cent, from 807,100 in 2009 to 813,300. Population growth will vary within the North, with the Northeast projected to see measured growth and the Northwest continuing to experience slow population decline.

Chart 5, map: Population of Ontario Regions, 2009 and 2030

Implications of Ontario’s Demographic Outlook

Ontario’s demographic outlook over the next two decades will have far-reaching economic and fiscal implications. Factors beyond demographics affecting Ontario’s economic future will be further explored in the remainder of this report. Six implications have a strong demographic underpinning.

1. Slowing Labour-Force Growth May Restrain Future Economic Growth

Slowing labour-force growth

Labour-force growth is a key determinant of economic growth. Population aging and the slowing pace of growth in the working-age group could contribute to a slower rate of future real gross domestic product (GDP) growth.

Since participation in the job market is significantly lower for older age groups, population aging will be a factor in slower labour-force growth to 2030. As the large cohorts of baby boomers reach retirement age, the number of people turning 65 is projected to surpass the number entering the working-age group (at age 15) from 2017 until the early 2030s. As a result, the working-age group will grow solely because of net migration during this period. 

Business investment fuels productivity growth

The impact of slower labour-force growth can be countered in part by encouraging faster productivity growth. One of the primary levers of labour productivity growth is business investment. New plants, equipment and technology can enable businesses and workers to produce more and better products. Tax measures recently legislated by the McGuinty government, such as the Harmonized Sales Tax (HST) and cuts to corporate income tax rates beginning July 1, 2010, will substantially reduce the tax burden on new business investment, improving Ontario’s competitiveness. It is estimated that these tax measures, together with other recent tax changes, will increase capital investment in Ontario by $47 billion between 2010 and 2020.1

Tax cuts boost capital investment

While Ontario has put in place a solid foundation for future prosperity, it is critical that governments, employers and workers continue to work together to implement measures that promote ongoing improvements in productivity.

2. Increased Labour-Force Participation and Workplace Flexibility Will Need to Be Encouraged

Increased labour-force participation of older workers, immigrants, women and youth has the potential to partially mitigate the impact of baby boomers retiring as well as the loss of their experience in the workplace.

Policies and workplace initiatives that promote more flexible work arrangements in all segments of the working-age population can help increase labour-force participation. For example, facilitating phased retirements can encourage skilled workers to remain in the workforce longer, either full time or part time. Policies that improve work/family life balance are another example. These initiatives will be particularly important in occupations where the average age of workers is higher or where there are skills shortages, such as in many of the health professions, skilled trades and early learning areas.

The current economic downturn’s effect on private pensions and savings may also change the retirement plans of some older workers in the short term.

Immigration key to labour-force growth

Immigration will be key to continuing growth in the working-age population and enriching the breadth of skills in Ontario’s workforce. Attracting the best and brightest immigrants to Ontario will remain a priority. Helping immigrants integrate smoothly into the labour market and improving recognition of foreign credentials will be important policy considerations for government.

Ontario’s highly skilled labour force is one of the province’s key economic advantages. Government and businesses will need to continue to develop an innovative, flexible workforce to remain competitive in the global economy. This will mean encouraging skills training and continuous learning and building on the knowledge of older workers.

3. Population Growth and Aging Will Increase Pressure on Government Spending, Notably on Health Care

Aging population increases demand for health care

As the provincial population grows by 28 per cent by 2030 and the senior population more than doubles to account for over one in five Ontarians, government spending, particularly on health care, will come under increased pressure.

Average per-capita health spending by the provincial government is about three times higher for seniors than for the population overall. To maintain quality health care for seniors, the government will need to improve how services are delivered, while focusing on ways to control and manage costs.

The government is investing strategically to continue transforming the health care sector to meet the future needs of Ontarians. It is modernizing health infrastructure, improving access to the health care system, shortening wait times, promoting health and preventing illness. Over the past five years, spending on the health sector has grown by an average annual rate of 6.5 per cent and the government now invests 42 cents of every program dollar in the sector.

The health spending challenge and other expenditure pressures associated with population growth and aging highlight the need for government to create a solid foundation for future growth of the economy. This includes strategic investments in education, skills training, infrastructure and the environment as well as tax cuts for people and businesses.

4. Regional Differences in Population Growth and Age Structure Will Require Targeted Government Response

Population growth increases demand for infrastructure

Ontario’s projected population growth of almost 3.7 million people by 2030 will result in significant demand for all types of infrastructure, including transportation, education, health care, power generation, water management and the environment. This is discussed in Chapter 5: Addressing Ontario’s Infrastructure Gap.

Regional differences in the pace of population growth will create challenges for government service delivery.

In communities of the Greater Golden Horseshoe (GGH), which encompasses the GTA and a large part of Central Ontario, population is growing at a rapid pace and the demand for urban infrastructure, especially transit, will be significant. There will be a continuing need for policy responses that help manage this growth.

The Places to Grow Act, 2005 provides a framework to implement the government’s vision for stronger, prosperous communities by better managing growth in Ontario’s regions. This plan will guide decisions on a broad range of issues, including transportation, infrastructure planning, land-use planning, urban form, housing, natural heritage and resource protection.

In some remote and rural communities of the province, long-term population decline is occurring. Government efforts to attract economic development and job opportunities in these regions will remain important. Maintaining a balanced level of government services in such communities will become a key policy issue.

Growth patterns vary by region 

Varying growth patterns of specific age groups in regions will also require different government responses. While the number of children in Ontario is projected to grow overall through to 2030, many regions are projected to see declines in this age group. This means that school enrolment will rise in some regions and fall in others.

Moreover, population aging will not occur at the same pace in all regions. For example, the greatest pressures on health care spending will likely be in suburban municipalities, particularly in the GTA. In suburban areas, the number of seniors is projected to rise much faster than in rural and remote regions where proportions of seniors are already higher than average.

5. Population Aging May Affect Government Revenues

The rapid aging of Ontario’s population will affect the composition of personal income and result in changing patterns of personal consumption expenditures, both of which could influence government taxation revenues.

A retired person generally receives more income from pensions and investments than from employment earnings, which, on average, account for less than 10 per cent of seniors’ income. These different sources of income are subject to different effective tax rates, with pensions and investment earnings potentially generating less tax revenue for government.

One possible mitigating factor is that baby boomers (aged 44 to 63 in 2009) have generally accumulated more assets and investments compared to previous generations. This larger wealth accumulation could support higher levels of spending by seniors.

As people age, their consumption patterns also change, with a generally higher demand for services (such as health care or travel) and less demand for consumer goods (such as new housing or clothing). These changes might also have a negative impact on government tax revenues.

6. The Wave of Baby Boomer Retirements Will Test Canada’s Retirement Income System

Reforming Ontario’s pension system

As baby boomers approach retirement age and growth in the labour force is set to slow, Canada’s retirement income system faces important challenges. The Ontario government is moving forward on reforming its pension system and recently introduced the Pension Benefits Amendment Act, 2009. This is an important part of the McGuinty government’s plan to strengthen and modernize Ontario’s employment pension system. It is part of a multi-stage process that will result in the province’s first major pension reform in over 20 years.

The government is also calling for a national summit on retirement income adequacy as a follow-up to the federal/provincial/territorial meeting in December 2009 where finance ministers agreed to work together on possible solutions.

Earlier, as part of a national effort to review Canada’s retirement income system, the Ontario Ministry of Finance asked pension expert Bob Baldwin to look at elements of the system and its capacity to provide secure retirement incomes for current and future generations of Canadian seniors.

Highlights of Baldwin’s Research Study on the Canadian Retirement Income System,2 released at the December 2009 federal/provincial/territorial finance ministers’ meeting, are summarized below.

Research Study on the Canadian Retirement Income System, by Bob Baldwin

Highlights:

Canada’s retirement income system is made up of three pillars:

  • Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) and provincial programs (e.g., GAINS);
  • Canada and Quebec Pension Plans (C/QPP); and
  • privately administered Employment Pension Plans and Registered
    Retirement Savings Plans (RRSPs).

Seniors in the lower half of the elderly income distribution rely heavily on income from inflation-indexed OAS, GIS and C/QPP, while people with higher incomes rely more on privately administered Employment Pension Plans and RRSPs. Pillars 1 and 2 allow persons with half of the average earnings to replace at least 70 per cent of their pre-retirement income and maintain their standard of living in retirement. For people with higher pre-retirement earnings, pillar 3 is needed to meet this objective.

Canada’s retirement income system is generally effective, providing most senior Canadians with incomes that amount to 80 per cent or more of their pre-retirement earnings. Poverty rates of Canadian seniors are among the lowest of Organisation for Economic Co-operation and Development (OECD) countries and have declined since the 1970s from about 35 per cent to roughly 5 per cent, based on Statistics Canada’s Low Income Measures (LIM). While the latter part of the 20th century was a period of significant improvement in the incomes of older Canadians, separated or widowed women still have notably higher poverty rates. A significant minority of middle- and higher-income seniors also experience a reduction in their incomes to below 60 per cent of pre-retirement earnings.

Looking to the future, there is reason to believe that many of tomorrow’s seniors will be well served by existing arrangements. However, key issues remain. The relative ability of OAS and GIS to prevent poverty and maintain pre-retirement living standards may be limited if real wage growth resumes and benefits remain price indexed. Employment pension plan coverage has declined and the shift from defined benefit to defined contribution coverage raises concerns about the predictability of retirement incomes.

While provincial reviews of the employment pension system, such as the Ontario Expert Commission on Pensions, provide a path for the future of these plans, the question remains as to what governments can or should do to enhance the retirement income system for tomorrow’s seniors. The status quo is an option but it may leave a significant minority of people with moderate to high pre-retirement earnings facing a decline in their standard of living in retirement.

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

2   www.fin.gov.on.ca/en/consultations/pension/dec09report.html

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