: Ontario’s Long-Term Report on the Economy
Chapter 4: Long-Term Fiscal Prospects

INTRODUCTION

This chapter outlines some of the impacts that Ontario’s long-term demographic and economic growth outlook could have on future demand for public services. It discusses these impacts from three perspectives:

  1. The importance of fiscal sustainability for long-term delivery and protection of public services;
  2. Key drivers of demand for public services: health care, education and training, children’s and social services, other government programs, and public infrastructure; and
  3. The implications of fiscal sustainability from an intergovernmental perspective — in particular, the trend of federal fiscal sustainability being achieved at the expense of provinces and territories.

1. Importance of Fiscal Sustainability

Fiscal sustainability is the cornerstone of ensuring Ontarians continue to get the public services they need — now and in the future. Taking steps to secure long-term fiscal sustainability ensures the government will have the resources to pay for these public services and the flexibility to address unexpected new pressures that may arise.

As outlined in the OECD Journal on Budgeting, concerns about fiscal sustainability are not “driven by worries about the current fiscal position of countries,” but rather are about the ability of governments to meet longer-term challenges related to demographics and economic growth.1

While there is ongoing uncertainty about the global economy’s recovery from the 2008–09 recession, the 2013 Budget reiterated the Province’s determination to balance the budget by 2017–18 in a fair and responsible way. Balancing the budget while making new strategic investments will spur growth, create jobs and strengthen public services for the long term.

Ontario government revenues over the long term will largely be determined by the Province’s economic path. Policy that helps put the economy on a stronger growth path would contribute to stronger revenue growth. This would help fund the delivery of public services while ensuring the Province remains on a sustainable fiscal path.

Ontario own-source revenue as a share of nominal gross domestic product (GDP) has trended lower from a high of 15.6 per cent in 1999–2000 to 13.6 per cent in 2012–13. Tax cuts have contributed to this decline.

A modest downward trend is expected to continue over the next 20 years, with the ratio of own-source revenues to nominal GDP edging lower to 12.4 per cent by the end of the long-term projection (see Chart 4.1). The moderate downward trend reflects slower growth in volume-based taxes and non-tax revenue sources.

Fiscal sustainability also depends on governments’ ability to control the level of debt and, consequently, interest on debt expense. As part of its plan to ensure long-term fiscal sustainability, Ontario is committed to reducing its net debt-to-GDP ratio to its pre-recession level of 27 per cent. This will help keep interest on debt at a manageable level and protect future generations from rising interest costs, which could otherwise crowd out spending on government priorities.

2. Demand for Public Services

Ontario’s changing demographics, along with external and internal economic challenges, are expected to put pressure on the demand for public services.

The government is already taking responsible steps to improve the efficiency and effectiveness of public services to ensure they are on a long-term, sustainable footing. For example, it continues to move forward with the recommendations of the Commission on the Reform of Ontario’s Public Services. The Commission provided valuable advice to the Province on how to deliver the most effective and efficient public services possible and achieve a sustainable fiscal balance.

Ontario currently has the lowest program spending per capita among Canadian provinces. The impact of long-term demographic and economic challenges on the demand for public services will vary by sector. Challenges specific to each sector, and the steps the government is taking now to ensure long-term sustainability, are outlined below.

Health Care

The health sector provides Ontarians with programs and services that address their health care needs. Services primarily include emergency medical care; surgical, diagnostic and inpatient services in hospitals; physician and other practitioner services covered by the Ontario Health Insurance Plan (OHIP); seniors’ prescription services through the Ontario Public Drug Programs; nursing and personal support services in long-term care homes; home care services; as well as programs to promote healthy living and prevent illness.

Health care is the Ontario government’s single biggest expense, accounting for over 40 per cent of the Province’s total program spending. Given the size of the sector, the outlook for cost drivers and opportunities to mitigate them are of particular interest.

Cost Drivers

Specific factors that drive the demand for health services include demographics such as aging of the population and population growth, increases in the number of times the health care system is accessed (utilization growth), and inflation.

A key cost driver in health care costs is Ontario’s aging population. Usage of the health care system rises significantly after age 65, with health care expenditures for seniors being about three times higher than the average for the overall population.

Table 4.1 Per-Capita Provincial Government Health Spending, by Age Group, Ontario, 2011, Current Dollars
Age Group Spending Per Person ($)1 Share of Population, 2011
Actual (Per Cent)
Share of Population, 2035
Projection (Per Cent)
<1 10,224 1.1 1.0
1–4 1,434 4.4 4.1
5–14 1,169 11.2 10.7
15–44 1,882 40.8 36.5
45–64 3,234 28.4 24.0
65+ 11,746 14.2 23.8
65–74 7,567 7.6 11.4
75–84 13,593 4.7 8.4
85+ 24,214 1.9 4.0
Total 3,657 100.0 100.0
1 Weighted average.
Sources: Canadian Institute for Health Information, Statistics Canada and Ontario Ministry of Finance population projections (Spring 2013).

In 2011, seniors accounted for 14.2 per cent of the province’s overall population, with approximately 1.9 million Ontarians aged 65 years or older. The number of seniors living in Ontario is projected to nearly double to 4.1 million by 2035. At that time, the share of seniors in Ontario’s population is projected to be 23.8 per cent, up notably from today.

Increased utilization of health care services is also a cost driver of health spending. This is particularly the case for those with complex conditions who frequently require health services. These patients are among the five per cent of patients that account for two-thirds of health care costs.2 They are most often patients with multiple, complex conditions and multiple chronic diseases (e.g., diabetes, heart disease, chronic respiratory illness, cancer); and those with mental illness or addictions.

Inflation is also a key driver of health care expenditure growth, with price changes historically being higher in health care than in the economy as a whole. Costs for services are impacted by inflation primarily through compensation growth as well as the costs associated with new drugs, new high technology procedures and medical equipment.3

Mitigating Cost Pressures

While there are many cost drivers exerting pressure on health spending, there are also opportunities to help control costs to support a sustainable health care system while maintaining the quality of health care in Ontario. These opportunities include promoting healthy lifestyles, increasing patient knowledge, making system design changes, expanding the scope of practice for health care professionals, supporting evidence-based funding decisions and taking advantage of technological improvements.

Programs and services to promote healthy lifestyles and to prevent and manage chronic disease help mitigate the demand for health care services. In addition, individuals taking steps such as healthy eating and regular physical activity, and public education can help prevent illness and avoid costly medical care in the future. These measures can also help reduce the level of obesity, which is associated with many chronic diseases.

People’s knowledge can also play a role in lowering health care costs. For instance, improved knowledge about the effects of smoking has led to lower smoking rates, which improves people’s health and helps avoid costs. Public knowledge of other options for receiving care outside of hospitals can also help reduce costs in the system. In many cases, a person’s first instinct or choice is to go to a hospital’s emergency room (ER) for treatment. This may be due to a lack of knowledge of alternative options for receiving the most appropriate care.

In 2010–11, over 271,000 ER visits were made to Ontario hospitals that could have been made to alternative primary care settings. These trips to the ER are avoidable and these patients could have received optimal care at a lower cost outside the hospital.4 Giving patients access to information and education about other health care services in the community can help alleviate the strain on the more costly emergency departments in hospitals and move care into the community.

System design changes such as better integration of care around the patient can help reduce the reliance on acute care in a hospital, get the primary care provider more involved and bring more care into the community setting. A C.D. Howe Institute report noted that the greater the attachments to one’s primary care group, the lower the overall costs to the health system.5

Another example where better integration of care can improve patient outcomes as well as decrease costs relates to alternate level of care (ALC) patients. Alternate level of care patients are broadly defined as patients who occupy a bed in a hospital although they do not require the intensity of resources/services provided there. One study estimated that every 10 per cent shift of ALC patients from acute care to home care results in about $35 million in savings.6

Another opportunity to help control costs is ensuring that health care professionals such as pharmacists, nurse practitioners and personal support workers are able to use their full scope of practice. This not only increases patients’ access to care, but can also reduce costs in the health care system by shifting some care to lower-cost service providers.7

Evidence-based care supports better use of health care resources by focusing on delivery of care that is known to be effective. Decisions to fund certain tests and procedures should be based on evidence that shows appropriateness of care, cost effectiveness and improvements in patient outcomes. Some of these evidence-based changes were key elements of the 2012 Physician Services Agreement with doctors in Ontario. As well, health quality councils have been established in Ontario to research and document practices, procedures and drugs that are effective and provide the best value per dollar of health care funding.8

For example, in June 2010, the Ontario Health Technology Advisory Committee (OHTAC) found there was insufficient clinical evidence to support the funding of vitamin D testing in low-risk individuals. In December 2010, the government restricted the routine use of vitamin D testing for otherwise healthy people in Ontario. In March 2010, OHTAC also issued guidelines for screening women at high risk of breast cancer and recommended that they be part of an organized screening program that provides coordination and follow-up. In July 2011, the Ontario Breast Screening Program was expanded by creating High Risk Screening Centres that provide referrals for genetic assessment and testing, and offer breast MRI, mammography and diagnostic services for women aged 30 to 69 who are at high risk for breast cancer.

Technological improvements are another area that can help change the way that health care is delivered and thus mitigate the growing cost of health care procedures. Cataract surgery is an example of the benefits of such improvements. The procedure was traditionally completed in hospitals. Through technological advances, cataract surgeries can now be performed in clinics in the community, improving access to service and patient experience, and lowering costs while maintaining high quality care.9

A number of other procedures and processes have also been moving out of the hospital setting and into more cost-effective community clinics including Toronto’s University Health Network (UHN)/General Electric Pathology project, Sunnybrook Health Sciences Centre’s Nurse Practitioner Colonoscopy service, and the Shouldice Hospital for hernia repair in Toronto.10

Education and Training

Demographics Drive Elementary and Secondary School Enrolment

The education sector includes programs and services that support elementary and secondary education. The government provides funds to each of Ontario’s district school boards using a funding formula based on student enrolment and local factors such as the demographic and geographic profile of individual boards.

The number of children enrolled in schools is the most significant cost driver of education in Ontario, and regionally there are significant variations in children’s population growth. While the number of students entering the system is a key cost driver, policy decisions, such as average class sizes, or capital investments in new or existing facilities, can also drive costs.

Enrolment in Ontario elementary and secondary schools is determined primarily by the number of children aged 4 to 17. The number of children in this age group has been declining since 2004 as the large cohorts born in the late 1980s and early 1990s moved out of this age group. From 2014 to 2035, the total number of children in Ontario is expected to rise on average by about 0.9 per cent annually, which is slightly below the overall population growth rate of 1.1 per cent. Further, this group is projected to grow by 21.8 per cent from 2.1 million in 2014 to 2.6 million in 2035 — significantly greater than the 6.5 per cent growth over the previous 21 years.

From 2014 to 2035, the number of elementary school-age children (ages 4 to 13) is projected to rise on average by about 1.0 per cent annually. However, the number of secondary school-age children (ages 14 to 17) is projected to rise on average by only 0.8 per cent annually — a pace below the overall population growth rate of 1.1 per cent. It is expected that the secondary school-age group will decline by about 2.1 per cent from 2014 to 2017 before resuming growth to reach 739,000 by 2035, higher than today’s level of 658,000.

In 2010–11, the Province introduced full-day kindergarten in some Ontario schools. Investments in the program have increased as the program is phased in across Ontario. The program is expected to be fully implemented by September 2014.

From 2014 to 2035, the number of children eligible (ages 4 and 5) for full-day kindergarten is expected to rise on average by about 0.9 per cent annually — a pace slightly below the overall population growth rate of 1.1 per cent. Further, this age group is projected to grow by 21.7 per cent from approximately 293,000 in 2014 to 357,000 in 2035.

Continued Demand for Postsecondary Education and Training

Demand for postsecondary education to meet the needs of a global economy and technological innovation and changes in demographics will continue to drive student enrolment in Ontario. The government continues to work towards meeting its goal of 70 per cent of the Ontario population aged 25 to 64 having a postsecondary education credential by 2020, recognizing that new jobs are increasingly requiring some form of postsecondary education. In 2013, approximately 66 per cent of this age group had a certificate, diploma or degree, up from 56 per cent in 2002.

Changing demographics, particularly in the postsecondary age group (ages 18 to 24), is also a key driver for demand for postsecondary education. Ontario’s population in this age group is projected to decline by approximately 85,100, or 6.4 per cent, between 2014 and 2020. However, beyond 2020, the population in that same age group is expected to increase by 137,700, or 11.2 per cent, by 2035. In the near term, enrolment is projected to grow modestly, driven by higher rates of postsecondary education participation, before a return to more rapid enrolment growth after 2020.

Population growth is expected to continue being concentrated in large urban areas. Some of the regions and communities where strong long-term growth is anticipated are currently insufficiently served by local campuses. The government is supporting capacity expansion of campuses to meet student needs in these areas.

Ontario has made significant investments in the postsecondary education sector; between 2002–03 and 2012–13, annual funding increased by 80 per cent. Over that period, this funding helped support an enrolment increase of more than 160,000 students at Ontario colleges and universities.

In addition, investments in student financial assistance have allowed more than double the number of students to qualify for financial aid. In 2012–13, more than 370,000 students received loans and grants through the Ontario Student Assistance Program (OSAP) and the 30% Off Ontario Tuition grant, an increase of 150 per cent since 2002–03.

Ontario is building a postsecondary education system that is innovative and student-centred, with critical thinking, problem-solving, collaboration and entrepreneurship at the centre of learning. The government is working to ensure that transitions are seamless — whether they are from high school, between educational institutions, or between school and work. For example, the government is supporting partnerships between postsecondary institutions and industry. Projects such as the relocation of Centennial College’s aerospace training programs to Downsview Park in Toronto and a permanent Industry Innovation Centre at Niagara College will help to ensure hands-on learning and training are available to students while also supporting the next generation of manufacturing in the province.

Initiatives are also underway to provide all students with access to the highest-quality postsecondary education in their communities, and to teaching and learning modes that are interactive and engaging.

Evolving demands of employers and rapid technological advancement suggest that there will be ongoing demand for employment and training services. This includes facilitating job matching, enhancing adaptability of workers to technological changes, and ensuring that the skilled workers that growing industries need are available. The government invests more than $1 billion per year in Employment Ontario, which helps Ontarians access a wide range of employment and training services.

Ontario is moving forward with the modernization and government-wide integration of employment and training programs with Employment Ontario. This will ensure simplified and seamless access to programs and services for individuals and employers, and better serve Ontario’s most vulnerable populations, such as social assistance recipients, people with disabilities, Aboriginal people and at-risk youth.

Recent government initiatives targeted to increasing labour market attachment include significant investment in the Ontario Youth Jobs Strategy to provide young people with the opportunity to gain a foothold in the job market; reforms to social assistance that will enhance incentives for labour market attachment; and raising the minimum wage to $11 per hour and proposing legislation to index it to inflation to help ensure that workers receive a decent wage and strengthen their attachment to the job market.

Mitigating Cost Pressures

Changes in labour market demands and in the economy are difficult to predict, but continued investments in the postsecondary education and training sector could relieve future cost pressures on the system while better preparing Ontario students and young people to withstand evolving challenges. These investments position Ontario for increased productivity and economic growth. Ongoing government collaboration with colleges and universities is helping students remain competitive and find jobs. Meanwhile, student support programs and changes to tuition policy are making postsecondary education more affordable for students. Additionally, government supports for youth will facilitate their smooth transition from education to employment.

Children’s and Social Services

Children’s and social services sector programs support people with disabilities, people in temporary financial need, low-income families and children and youth.

Scope of Programs

Ontario has two social assistance programs to help provide last-resort financial and employment assistance to eligible Ontarians. Ontario Works provides temporary financial and employment assistance to people in financial need. The Ontario Disability Support Program helps people with disabilities who are in financial need pay for living expenses, like food and housing. The program also provides employment supports and helps people with disabilities, who can and want to work, prepare for and find a job. Both social assistance programs provide all recipients with prescription drug coverage through the Ontario Drug Benefit. Currently, about 455,000 people receive benefits through Ontario Works and 434,000 people receive benefits through the Ontario Disability Support Program.

Ontario also provides support to people with developmental disabilities and their families. Developmental disabilities are lifelong conditions that affect a person’s intellectual, social, behavioural and/or physical development. The services available in Ontario are delivered through approximately 370 developmental services agencies. The services allow people with developmental disabilities to live, work and participate in a wide range of activities in their communities.

The government also delivers and funds programs and services for children and youth with special needs. It is estimated that in Ontario as many as 235,000 children and youth have special needs. Many of these children and youth will require lifelong services to support their inclusion in their communities. Funding is provided to over 500 transfer payment agencies to deliver an array of programs including autism services, supports for children and youth with developmental disabilities, help for children and youth with mental health problems and the delivery of rehabilitation services. Families can also get support through respite services to help them with the day-to-day care of children with special needs, as well as funding for special services in or outside the family home.

Child protection services are delivered through 46 children’s aid societies that help children and youth who have been, or are at risk of being, abused or neglected grow up in safer, more stable, caring environments. It is estimated that, at any given time in Ontario, 17,000 children and youth are in the care of children’s aid societies, including approximately 7,000 Crown wards.

The Ontario Child Benefit provides support to about one million children in more than 500,000 families. As of 2011, the Ontario Child Benefit has contributed to lifting about 47,000 children out of poverty. The increases in the Ontario Child Benefit maximum annual benefit to $1,210 in July 2013 and $1,310 in July 2014 will together extend the benefit to an additional 90,000 children. The Ontario Child Benefit is financial support that low- and moderate-income families — whether they are working or not — may receive to help provide for their children.

Mental health services for children and youth are delivered through over 260 child and youth mental health and community service agencies and 17 hospital-based outpatient programs.

Demand for Programs

Generally, Ontario Works caseloads reflect changes in labour market conditions. Demand for Ontario Works increases during economic downturns as people who become unemployed require financial supports and other services. Caseloads for Ontario Works have grown following the global economic downturn that started in 2008–09. As Ontario recovers from the global recession, the cyclical component of demand for these services is expected to moderate.

Unemployment, however, is not the only factor to influence Ontario Works caseloads. People with multiple barriers to employment are likely to require social assistance for prolonged or repeated periods. Barriers to employment such as lack of basic work skills and experience, and the lack of stable housing or means of transportation can limit one’s capacity to work regularly.

Ontario Disability Support Program caseload growth is not directly linked to the economy. Most clients in the program cannot work due to substantial mental or physical disabilities. Since 2006–07, the program’s caseload has been growing by about five per cent per year, and will likely continue to increase by an average of four per cent per year in the future. Ontario Disability Support Program caseload growth is being driven by an increase in the diagnosis of mental illness and a rise in the incidence of disability resulting from an aging population.

There has been an increasing demand for services for children with special needs. The reported prevalence of certain specific disorders, such as autism, has increased over time. Children and youth with special needs face many challenges. They are less likely to graduate from high school, complete university, and be employed, and more likely to live in poverty and be involved with the child welfare and youth justice systems.

Approximately 62,000 adults in Ontario have a developmental disability. Demand for services supporting people with developmental disabilities is driven by a number of demographic factors, including general population growth; medical advances that enable individuals with developmental disabilities to live longer; and caregivers, predominantly aging parents, who are no longer able to care for their adult children with developmental disabilities at home. Also, each year, approximately 1,000 children who turn 18 are likely to apply for adult developmental services.

Spending Growth

Spending growth in the sector is driven by investments in the Ontario Child Benefit and ongoing social assistance program growth. Since 2009–10, social sector expenditure has been growing by an average of 4.6 per cent annually. Social assistance growth is driven by a number of factors, including the fact that Ontario Disability Support Program cases are an increasing share of overall social assistance caseloads; growth in the uptake of special benefits such as prescription drugs and the special diet allowance; provincial upload of municipal social assistance costs; and increases in social assistance rates.

Mitigating Cost Pressures

Social program costs are mitigated by efforts to increase accountability in funding arrangements, enhance service integration, implement efficiencies in service delivery and reforms aimed at helping people move into employment, and improve health status.

Social program investments also contribute to economic growth, as many of the supports provided are used to purchase basic household goods and services that are usually purchased locally. Many government benefits are paid directly to individuals and families. For example, the Ontario Child Benefit, an income-tested, non-taxable payment, is provided to low- to moderate-income families to help with the cost of raising children under age 18. The Ontario Child Benefit has played a role in lowering the child poverty rate in Ontario and in reducing the financial barriers to entering the labour force.

Recognizing the need to provide even more opportunities for Ontario’s youth, in the 2013 Budget, the government announced a comprehensive Youth Jobs Strategy and an investment of $295 million over two years to support initiatives that promote employment opportunities, entrepreneurship and innovation for youth in Ontario.

Benefits are also being transformed to increase opportunities for everyone to participate in the workforce. As announced in the 2013 Budget, Ontario Works and Ontario Disability Support Program recipients will be able to keep the first $200 of employment earnings each month before their social assistance benefits are reduced. This change will make it easier for those recipients who face multiple barriers to employment to enter the labour force.

Benefits are also being transformed to help reduce future costs. For example, Healthy Smiles Ontario helps ensure that children from low-income families, who have no access to dental coverage, receive preventive and basic treatment dental services at no cost. These services help prevent cavities and other dental problems that can contribute to diseases later in life.

Recent Changes

A Poverty Reduction Strategy was announced in 2008 and through increases in key supports, such as the Ontario Child Benefit, social assistance and minimum wage, families have more income to meet their basic needs. As a result, the actual child poverty rate decreased in Ontario from 15.2 per cent in 2008 to 13.6 per cent in 2011.

To build on the Province’s commitment to lift children out of poverty, the government increased the maximum annual per-child Ontario Child Benefit from $1,100 to $1,210 in July 2013, and will further increase it to $1,310 in July 2014.

Ontario is taking steps to help low-income workers by raising the minimum wage to $11 per hour effective June 1, 2014. As well, the government has proposed that future adjustments to the minimum wage be tied to Ontario’s Consumer Price Index (CPI), beginning in 2015. This would bring predictability and transparency to the setting of the minimum wage.

The 2013 Budget announced initial steps to implement key recommendations from the 2012 report by the Commission for the Review of Social Assistance in Ontario to help social assistance recipients move into jobs, keep more of what they earn, and improve their financial security.

Other Government Programs

The government invests in economic development, justice and other government programs to encourage growth and productivity, keep communities safe, support environmental stewardship and sustainable development, and ensure government services are delivered efficiently and responsively.

Some sector programs are demand-driven and deliver more services during times of economic downturn, while others are mandated by statutory or regulatory requirements. For example, Ministry of Labour enforcement staff protect vulnerable workers by enforcing the Occupational Health and Safety Act and the Employment Standards Act, 2000. In December 2013, Ontario introduced Bill 146 that would, if passed, provide more protection by extending coverage to co-op students, trainees and unpaid learners.

Over the long term, demographic changes such as population increases, as well as the performance of the Ontario economy, are expected to continue being key drivers of demand for government programs.

Public Infrastructure

Modern and reliable public infrastructure offers long-term benefits to Ontario’s economy and helps increase private-sector productivity and competitiveness. Infrastructure also enhances Ontarians’ quality of life by providing more transportation choices and creating more livable communities.

While public infrastructure offers long-term benefits, it is important to consider its impact on government finances. Investments in capital assets contribute to the government’s borrowing needs, potentially leading to higher provincial debt over time. Once completed, these capital investments affect the Province’s surplus/deficit position for decades through related interest on debt, amortization and ongoing maintenance costs.

That said, steady investment in infrastructure renewal is needed to ensure effective functioning of the economy. These types of investments help achieve better value, reduce costs, maintain service and mitigate risks. For example, well-maintained roads, bridges and other structures last longer, saving taxpayer dollars in the long run. They also can help make travel safer, shorten commute times, and help drivers reduce vehicle-repair costs.

The Province has significantly increased investments in public infrastructure over the past decade. Because of this renewed investment, almost 40 per cent of the value of the Province’s diverse infrastructure portfolio (with a replacement value estimated at over $200 billion) comes from assets built during this time. Ongoing investment in renewal and rehabilitation helps keep these assets in good condition. The remainder of the Province’s portfolio comes from assets built during past decades, and as these assets reach the end of their lifecycles, ongoing investments are also needed to renew them.

Beyond renewing the Province’s existing infrastructure, further investments will be required to meet future demographic and economic needs. Expansion of public transit, highway improvements, and better access to health care and postsecondary education are expected to be important components of government expenditures over the long term.

Infrastructure decisions also need to take into account a number of far-reaching trends. For example, infrastructure investments across Ontario’s public sector are increasingly directed at technology (e.g., more diagnostic equipment in hospitals). While this shift is helping to improve service and reduce operating costs, it puts pressure on government spending because technological infrastructure generally needs replacing or upgrading more often than traditional “brick and mortar” infrastructure.

Other factors such as climate change could also put more pressure on future infrastructure investment (e.g., damage resulting from extreme weather). A recent report by the Canadian Chamber of Commerce suggests that climate change may negatively impact the lifecycle of public infrastructure, making timely maintenance and rehabilitation an even more pressing need.11 New infrastructure will also need to be engineered to withstand future environmental factors.

In a time of fiscal restraint, the Province continues to explore innovative approaches to address long-term infrastructure needs and make best use of public dollars. The government is making strategic infrastructure investments consistent with Building Together, the Province’s long-term infrastructure plan, that:

  • Focus on increasing productivity and competitiveness;
  • Align public services with demographic change; and
  • Ensure good stewardship, by improving asset management practices and collaborating with the private sector and other governments.

Ontario has also taken additional steps to improve long-term infrastructure planning by introducing Bill 141, the proposed Infrastructure for Jobs and Prosperity Act, the Province’s first long-term infrastructure planning legislation. If passed, the proposed legislation would help further align infrastructure planning with long-term trends to maximize the value of provincial infrastructure investments and support a stronger economy.

3. Federal–Provincial Fiscal Sustainability

Changes to economic and demographic factors will have significant impacts on the demand for and fiscal sustainability of the public services the Province provides over the long term. Compounding these demand-driven challenges, Ontario also faces fiscal challenges as a result of often-unforeseen changes to federal activity in areas of joint responsibility, funding levels or other requirements that may be unilaterally imposed on provinces and territories by the federal government. Federal changes can negatively impact Ontario by creating pressures on expenditures, as well as the revenues Ontario relies on to fund its provision of public services.

Recently, the federal government has repeatedly taken actions, such as reducing funding support, that provide for its own fiscal sustainability at the expense of provinces and territories. For example, one of the largest areas of provincial expenditure is health care. In this sector alone, the federal–provincial cost-sharing arrangements have evolved over time from one in which eligible expenditures were roughly cost-shared 50–50 between the federal and provincial/territorial governments, to one in which the federal government has unilaterally reduced the funding it provides to provinces and territories to support health care.

A 2012 study commissioned by the Council of the Federation estimates that, as a result of recent unilateral federal changes to its support for health care expenditures, the federal share of health care expenditures of provinces and territories will decline from 20.5 per cent in 2010–11 to as low as 17.1 per cent in 2030–31.12 This decline will occur when adequate and sustained federal support for health care is needed most. In Ontario alone, the number of seniors is projected to double by 2035, which will create additional pressures on the Province’s health care spending.

Given the federal government’s tendency to act unilaterally, it is very difficult for Ontario to change this fiscal imbalance without federal cooperation. In place of a one-sided relationship, the Province continues to seek to build a meaningful partnership with the federal government to overcome the challenges that Ontario and other provinces and territories face.

In contrast to the fiscal sustainability challenges facing provinces and territories, organizations such as the federal Office of the Parliamentary Budget Officer (PBO)13 project that the federal government will be fiscally sustainable over the long term. The PBO’s “Fiscal Sustainability Report 2013” illustrates that the federal government will achieve its own fiscal sustainability primarily by restraining future growth in the Canada Health Transfer (CHT) — therefore, in the absence of government action, funding health care as the population ages will be a greater fiscal burden borne by provinces and territories.

In 2012, a report by the Auditor General of Canada reinforces this analysis.14 According to this report, approximately 60 per cent of the improvement in the federal fiscal position by 2050–51 will be attributable to federal changes to the Canada Health Transfer.

Health care is not the only area where the federal government has taken actions that negatively impact provinces and territories.

  • In its 2012 budget, the federal government unilaterally announced it would change the eligibility age for the Old Age Security and Guaranteed Income Supplement programs, moving it from 65 to 67. The Council of the Federation is in the process of quantifying the impacts of this federal change, as it will inevitably create pressures on provincially funded programs such as social assistance.
  • As immigration becomes the main source of labour force growth, cooperation between the federal government and Ontario to help newcomers integrate smoothly into the labour market will become increasingly important. Over the past year, Ontario has worked closely with other provinces and territories to ensure that renewed labour market agreements increase employer engagement in skills training, while protecting successful programs for vulnerable Ontarians, including new immigrants.
  • Even in areas where the federal government is increasing investment compared to historically low levels, it is often not enough. For example, with infrastructure, an area where public investment has demonstrated positive impacts on economic performance, the federal government is still falling short on the investment levels that are needed. Federal funding for infrastructure should be closer to the level being invested by Ontario and its municipalities, given the fundamental role infrastructure plays in Canada’s economic growth.
Overall, the direction the federal government is taking to manage its fiscal balance places a disproportionate burden on Ontario. The evidence increasingly suggests that the current system of federal–provincial fiscal arrangements is working against, not for, Ontarians. The Mowat Centre’s 2013 report, “Filling the Gap,” estimates, based on 2009–10 data, that the gap between what the people of Ontario pay to the federal government and what they receive in the form of programs and transfers is $11.1 billion.15 This gap is simply neither sustainable for Ontario, nor fair to Ontarians.

The discrepancy between what Ontarians contribute to the federation versus what they receive is clearly demonstrated through the Equalization program. In 2014–15, the difference between what the people of Ontario pay into the Equalization program through federal taxes and what the Province receives in Equalization payments will grow to $4.5 billion from $3.1 billion in 2013–14. Ontarians’ net contribution to the Equalization program continues to be the largest of all provinces.

Ontario cannot face on its own the challenges of economic and demographic changes as well as the burden of stepping in to fill gaps created by federal reductions to spending or taking on greater fiscal pressures as a result of federal offloading. Ontario has long called for predictable and sustainable support from the federal government to overcome the challenges that Ontario — and Canada — collectively face. There is a need for a broader, meaningful discussion on how to modernize the system of fiscal arrangements to better address the demographic and economic challenges facing the country.

1 A. Schick, “Sustainable Budget Policy: Concepts and Approaches,” OECD Journal on Budgeting 5, no. 1 (2005): 107–126.

2 W. Wodchis, “High Cost Users — Driving Value with a Patient-Centered Health System,” Health System Performance Research Network, (2013).

3 Canadian Institute for Health Information, “Health Care Cost Drivers,” (2011).

4 Ministry of Health and Long-Term Care, “Ontario’s Action Plan for Health Care: Better Patient Care through Better Value from Our Health Care Dollars,” (2012).

5 D. Drummond, “Therapy or Surgery? A Prescription for Canada’s Health System,” C.D. Howe Institute, (2011).

6 Ontario Association of Community Care Access Centres, Ontario Federation of Community Mental Health and Addiction Programs, and Ontario Hospital Association, “Ideas and Opportunities for Bending the Health Care Cost Curve: Advice for the Government of Ontario,” (April 2010).

7 Commission on the Reform of Ontario’s Public Services, “Public Services for Ontarians: A Path to Sustainability and Excellence,” (2012).

8 Drummond (2011).

9 W. Falk et al., “Fiscal Sustainability and the Transformation of Canada’s Healthcare System — A Shifting Gears Report,” Mowat Centre and the School of Public Policy and Governance at the University of Toronto (2011).

10 Ibid.

11 Canadian Chamber of Commerce, “The Foundations of a Competitive Canada: The Need for Strategic Infrastructure Investment,” (December 2013).

12 Council of the Federation, “Report of the Council of the Federation Working Group on Fiscal Arrangements,” 2012.

13 Parliamentary Budget Officer, “Fiscal Sustainability Report 2013,” 2013.

14 Office of the Auditor General of Canada, “2012 Fall Report of the Auditor General of Canada,” (2012).

15 N. Zon, “Filling the Gap: Measuring Ontario’s Balance with the Federation,” Mowat Centre, (2013).

Description of graphics

Chart 4.1: Own-Source Revenue to Nominal GDP, 1990–91 to 2034–35

This chart shows the ratio of Ontario own-source revenue to GDP from 1990–91 to 2034–35. Own-source revenue is defined as total revenues less federal transfers. Ontario own-source revenue as a share of GDP has trended lower from a high of 15.6 per cent in 1999–2000 to 13.6 per cent in 2012–13. A modest downward trend is expected to continue over the next 20 years, with the ratio of own-source revenues to GDP edging lower to 12.4 per cent in 2034–35.

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Chart 4.2: Ontario Government Program Spending, 2009–10 to 2012–13

This chart shows the share of total program expense by sector for the period 2009–10 to 2012–13. For 2012–13, the largest expense is the Health Sector at $47.6 billion, accounting for 42.4 per cent of total program expense. The remaining sectors of total program expense for 2012–13 include the Education and Training Sector at $30.0 billion or 26.7 per cent; the Children’s and Social Services Sector at $13.7 billion or 12.2 per cent; and Other Government Expenditures at $20.9 billion or 18.7 per cent.

Note: The Education and Training Sector excludes Teachers’ Pension Plan. Teachers’ Pension Plan expense is included in Other Government Expenditures.

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Chart 4.3: Population Aged 65–74, 75–84 and 85+ in Ontario, 1971–2035

This chart shows the number of seniors (i.e., individuals aged 65+) in Ontario by age group for the period 1971 to 2035, where numbers for 2014 to 2035 represent Ontario Ministry of Finance projections. In 1971, the total number of Ontario seniors was 0.7 million and accounted for 8.3 per cent of the province’s overall population. By 2035, the total number of seniors is projected to grow to
4.1 million and account for 23.8 per cent of the population. Those aged 65 to 74 currently represent the largest share of all seniors in Ontario, making up 55.1 per cent of all seniors in 2013. That share, however, has been declining, and is projected to continue to decline as baby boomers transition into the 75 to 84 and 85+ age groups in the longer term.

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Chart 4.4: Price Increases in Health Care — Ontario

This chart shows the annual change in prices for both health care and the economy as a whole from 1982 to 2012. Since 2010, the annual change in prices for health care has been lower than for the economy as a whole. Since 1982, the annual change in prices for health care has generally been higher than the economy as a whole. Inflation tends to be a key driver of health care expenditure growth, with price changes historically higher in health care than in the rest of the economy due to the labour intensiveness of the sector.

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Chart 4.5: Elementary, Secondary and Postsecondary Source Population, 1992 to 2035 — Ontario

This chart shows the number of people in Ontario by age groupings normally associated with enrolment in specific levels of education, for the period 1992 to 2035. The chart includes three age groupings: elementary (ages 4–13), secondary (ages 14–17) and postsecondary (ages 18–24). Data for the period 1992 to 2013 represent actual estimates from Statistics Canada, while data for 2014 to 2035 represent Ontario Ministry of Finance projections. The number of Ontario children aged 4 to 17 has been declining since 2004, but is expected to grow from 2.1 million to 2.6 million from 2014 to 2035, with elementary school-aged children growing at a faster rate than secondary. The total number of Ontarians aged 18 to 24 has been on the rise since 1997, having increased from 1.0 million to 1.3 million in 2013. While in the near term population growth of this age group is expected to decline, the age group is expected to increase after 2020 by 137,700 by 2035.

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Chart 4.6: Federal and Other Governments’ Financial Positions

This chart shows that based on the ratio of net debt to gross domestic product (GDP), the financial position of the federal government is projected to improve over time, whereas the financial position of provincial, local and aboriginal governments are projected to deteriorate over the same period of time. From 1991 to 2014, the federal government is expected to have a net-debt-to-GDP ratio higher than provinces. This relationship is projected to reverse starting in 2015 and widen over time. From 2015 to 2087, the difference between net-debt-to-GDP ratios between the federal and provincial governments increases, reflecting a progressively stronger fiscal position for the federal government and a deteriorating fiscal position for provinces.

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Chart 4.7: Net Contribution to/(Benefit from) Equalization by Province in 2014–15

This chart shows that in 2014–15, Ontario is the largest net contributor to the Equalization program. Ontario is followed by Alberta, British Columbia, Saskatchewan, and Newfoundland and Labrador. All other provinces receive more in Equalization payments than their taxpayers contribute through federal taxes.

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